<PAGE>

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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                            Washington, D. C. 20549

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

                                   FORM 10-K

  [X]            ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                  for the fiscal year ended December 31, 2000

                                       OR

  [_]          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                        Commission file number 000-22221

                            FIELDWORKS, INCORPORATED

               Minnesota                               41-1731723
    (State or other jurisdiction of      (I.R.S. Employer Identification No.)
     incorporation or organization)


                                                          55344
   7631 Anagram Drive, Eden Prairie,                   (Zip Code)
               Minnesota

    (Address of principal executive
                offices)
                                 (952) 974-7000
              (Registrant's telephone number, including area code)

          Securities registered pursuant to Section 12(b) of the Act:

           Title of each class               Name of each exchange on which
      ---------------------                            registered
                  None                           ---------------------
                                                          None

          Securities registered pursuant to Section 12(g) of the Act:

                         Common Stock, $.001 par value
                                (Title of Class)

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

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

   The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sale price of the Common Stock on March 5,
2001 as reported on the Over The Counter Bulletin Board, was approximately
$4,884,023. Shares of Common Stock held by each officer and director and by
each person who owns 5% or more of the outstanding Common Stock have been
excluded in that such persons may be deemed to be affiliates. The determination
of affiliate status for purposes of this paragraph is not necessarily a
conclusive determination for other purposes.

   The number of shares of the registrant's Common Stock, $.001 par value,
outstanding as of March 5, 2001 was 14,894,426.

                      DOCUMENTS INCORPORATED BY REFERENCE

   Portions of the Proxy Statement for the Registrant's 2001 Annual Meeting of
Shareholders to be held May 17, 2001 are incorporated by reference in Part III.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>

                                     PART I

ITEM 1. Business

   The Company. FieldWorks, Incorporated ("FieldWorks" or "the Company"), was
incorporated in Minnesota in 1992 and is dedicated to the development and sale
of rugged portable computing solutions. Over the past several years, the
Company has evolved its strategy to focus on designing and providing industry-
specific field technology solutions. The Company believes that its strongest
opportunity for growth and differentiation is its strength in developing and
integrating hardware and software to meet industry and customer-specific
requirements for rugged, portable computing.

   The Company's strategy addresses business needs in a wide variety of
applications in the areas of field data acquisition, test & measurement, real-
time communication, situational awareness, flight-line communication, C4I
(command control communication computer intelligence), and others. Solutions
can include hardware, software, peripherals, service and support--thus,
FieldWorks continues to be a top-level designer, developer, manufacturer and
service provider of rugged, portable computers as well as a peripheral and
software integration company. The Company also offers customers a high level of
industry expertise, application and design engineering knowledge, and project
management skills. These capabilities include consultation and/or management of
solution conceptualization, design, development, and implementation and
support.

   FieldWorks computer platforms are designed for demanding field environments,
meeting military standards for shock, vibration, moisture and temperature
extremes. Features include daylight-readable high-resolution color displays and
a pointing device that is impervious to dirt and can be used with arctic gloves
or mittens. The Company also offers a high level of expandability and
upgradability within each product platform. Expansion paths include desktop-
like ISA and PCI expansion slots, PC card slots, serial ports, universal serial
bus and custom modules. As a result, all platforms are flexible "electronic
toolboxes" that integrate the user's application-specific tools and
technologies into one custom, rugged mobile solution. Upgrade paths include
central processing units (CPU), random access memory (RAM), hard drive
capacities, display technologies and peripheral technologies, such as wireless
communication. Such upgradability contributes to a long solution life span and
reduces the total cost of ownership for the customer. It sets FieldWorks
products and solutions higher on the value scale with our customers as their
initial investment is in many ways "protected" by technology enhancements or
improvements over a period of time.

   The Rugged Computing Market. Technological advances have increased our
dependence on mobile computing and communications devices, such as portable
computers, pagers and cellular telephones, to enhance workforce productivity.
The rugged computing market has increasing needs for reliability, operability
in extreme conditions, portability, security and compatibility with a variety
of communication interfaces and standard desktop computer technology.
Organizations are increasingly seeking to computerize field personnel. Such
computerization can provide sophisticated field diagnostic and analytic
capabilities, enhance field access to data and on-line information, eliminate
paperwork and improve communication.

   The markets for the Company's products consist of those businesses and other
entities that are seeking effective mobile computing for field personnel and
functions. The Company's rugged mobile computing platforms are used in a
variety of industries and their demands vary widely, and include: (i) public
service for improved productivity and efficiency and real time, remote data
access (ii) the military and government contractors for digitization of the
battlefield, flight-line communications and real time, highly reliable data
acquisition in extreme conditions and (iii) vehicle maintenance for real time
information available through GPS and wireless data transfer, maintenance and
diagnostic testing and to support increasing regulatory requirements.

   Strategy. The Company's vision continues to be to become "the worldwide
rugged, mobile computing solutions provider." The Company's strategy consists
of the following key components:

                                       2
<PAGE>

   Further Penetration of Key Vertical Markets. The Company continues to target
key vertical markets including government and military, public services, heavy
equipment and utilities/telecommunications. The Company develops specialized
product features and functions to address the special needs of a particular
vertical market and provides application engineering services to support the
specific requirements of those customers. The Company's strategy is to be a key
provider of tools and services to facilitate field data acquisition, test &
measurement, and mobile communication applications. Applications addressed by
the Company are typically characterized by the opportunity to sell a
significant quantity of units over a period of time based on a single
application solution.

   Further Enhance Solutions and Professional Services Offerings. The Company
believes it has successfully positioned itself as a professional service and
system integration company with uniqueness in our market application expertise
and customer support with respect to the technology it offers.

   Continued Reduction in Product Costs. The Company has completed outsourcing
of all manufacturing of its products. This change has been very well received
by the Company's customers and value-added resellers. Manufacturing partners
are responsible for procuring components and parts, as well as manufacturing,
testing and final quality verification of the product prior to shipment to the
customer. This has significantly reduced the Company's inventory exposure and
enhanced our available financial resources. Additionally, the Company continues
to be focused on further cost reductions through on-going product re-design
initiatives incorporating embedded systems in the core design.

   Products. The Company's products are rugged mobile computers designed and
manufactured for field applications including data acquisition, mobile data
communications and test and measurement.

   8000 Series Field WorkStation Platform. The 8000 Series is targeted at the
high end of the rugged field computing platform market and offers significant
expansion capacity. Targeted at test and measurement and data acquisition
applications, the 8000 Series is sold primarily within field technology /
military markets.

   The structure of the rugged, portable, 8000 Series Workstation Platform is
based on a high-strength cast magnesium alloy external housing. Internal
components that are sensitive to shock and vibration are contained within this
housing and isolated with special tuned shock absorbing polymers, while a shock
absorbing bushing system suspends all drives and the CPU. The 8000 Series
incorporates the Company's backplane/card cage design, which provides up to six
ISA/PCI expansion card slots within the housing, permitting the integration of
instrumentation, data acquisition, test and measurement and communications
capabilities. Also contained within the housing are PCMCIA expansion
capability, integrated AC/DC power, battery capability, desktop ISA/PCI slots,
integrated CD-ROM, and an optional dual removable hard drive system.

   5000 Series Field WorkStation Platform. In fiscal year 2000, the Company
discontinued further production of the 5000 Series Field WorkStation and is in
the process of selling its existing inventory. The 5000 Series is a smaller,
more lightweight toolbox with less expandability. The structure of this
notebook computing platform is based on an internal frame cast from a high-
strength magnesium alloy. The internal sub-systems are protected from shock and
vibration. Virtually all of the electronics of the 5000 Series are contained in
a "technology module" that was designed for easy removal to simplify service
and upgrades. In addition, all 5000 Series platforms have four universal bays
in two sizes. The two larger bays can house batteries, CD-ROM and DVD drives,
hard drives or floppy drives. The two smaller bays can house removable drives
and/or PCMCIA slots.

   2000 Series Mobile Data Server (MDS). The 2000 Series is a three-piece
onboard vehicle computer that includes a server component, a high-bright
display and a back-lit keyboard. The 2000 Series can be customized by adding
wireless technology, Global Positioning System (GPS) technology, data radios
and other devices through two embedded PC card slots and three open serial
ports. The floppy and CD-ROM devices can be connected to the server by cables
that can then be mounted in a remote location. The 2000 Series is ideally
suited for fixed in-vehicle computing and communication applications including
logistics management. Application examples include computer-aided dispatch and
Geographic Information Systems/Global Positioning System mapping and are
targeted for sale within the public services and military markets.

                                       3
<PAGE>

   Professional Services. The Company provides services along with its products
to gain a competitive advantage in the rugged mobile computing market. Programs
offered by the Company include consulting services relating to product
application, technical support, project management, product implementation and
troubleshooting on post-installation questions. The Company provides a standard
one-year warranty program under which the Company agrees to diagnose, repair
and test any product, and also offers limited warranty programs for extended
periods. The Company also provides replacement unit pools for large volume
customers to maximize performance. Software integration, including loading and
testing of multiple software applications, can be provided to manage potential
communications conflicts. On-site product training and consultation services
tailored to customer requirements can also be provided. In late fiscal year
2000, the Company, under agreement with Kontron Embedded Computers AG
(Kontron), began providing technical support for Kontron products sold in the
United States. Kontron will provide technical support for FieldWorks product
sales in Europe.

   Implementation services include customer training, project management and
dedicated telephone support. These support services are aimed at enhancing
customer productivity.

   Manufacturing. The Company completed the outsourcing of its manufacturing
activities to two contract manufacturers during the first half of fiscal year
2000. The transition to outsource the final assembly process for the Company's
hardware platforms was completed with the intent of improving inventory
management and design for manufacturability. Repair and final integration work
will remain at the Company, as deemed appropriate, which enables the Company to
provide computing platforms and services that satisfy each customer's specific
field requirements. The Company intends to continue to outsource its
manufacturing and pursue alternatives for further cost reductions.

   The Company employs comprehensive quality control systems. The Company
received ISO 9001 quality assurance certification in March 1996 and was re-
certified in January 1999.

   Sales and Marketing / Customers. The Company's direct sales force focuses
its efforts on establishing and maintaining relationships with key accounts.
Specific territories have been assigned for the sales force located throughout
the United States. Other segments of the market are addressed by sales through
value-added resellers and systems integrators that typically sell systems that
have been configured for specific end-user applications through the addition of
hardware, software or services. Resellers and integrators generally target
large- to mid-size accounts, with the exception of military integrators, or
prime contractors, which target large military accounts. Additionally, the
Company sells platforms to the U.S. government via the General Services
Administration (GSA) schedule.

   With respect to international sales, during late fiscal year 2000, Kontron
began distributing the Company's products in Europe. Previously, the Company
maintained a network of international distributors. Additionally, FieldWorks
has begun distribution of Kontron products within the United States. This will
expand the Company's product offering to include hand held devices as well as
other computer platforms.

   For the year ended December 31, 2000, sales to John Deere Information
Systems represented 11% of net sales. In 1999, sales to Ryder Transportation
Services represented 26% of net sales. In 1998, sales to Navistar International
represented 10% of net sales. To date, the Company's international sales have
been principally in Europe.

   Backlog. The Company believes that backlog is not a meaningful indicator of
its future business prospects due to the potentially long customer sales cycle
and significant variations in the size and delivery schedules of orders
received by the Company. As a result, the Company does not believe that backlog
at any particular date is necessarily indicative of future results.

   Competition. The Company's products face direct competition from companies
producing portable computers intended for field use such as Dolch Computer
Systems; Getac Corp.; Itronix Corp.; Paravant

                                       4
<PAGE>

Computer Systems, Inc.; Motorola, Inc.; Data 911, Litton Industries, Inc., and
Panasonic Personal Computer Company. The Company believes its primary
competitive factors relate to product design and feature differentiation,
product pricing, functionality, product dimensions and technology enhancements.
The mobile computer market continues to mature. To the extent the Company and
its direct competitors expand and develop this market niche, other
manufacturers may turn their attention to this niche and begin to develop
products and services directly competitive with those offered by the Company.
The Company's computing platforms also face indirect competition from a variety
of different companies and products, including consumer portable personal
computers, customized portable personal computers and single-purpose diagnostic
and data collection instruments.

   Research and Development. The Company designs, in conjunction with outside
engineering sources, many of the aspects and components of its mobile rugged
computing platforms. The Company believes that its efforts in this area have
provided it with advantages and the Company intends to continue to expand its
products and services by providing a greater range of expandability, features
and price. The Company intends to partner with Kontron to jointly develop
products and services maximizing the technological expertise within both
companies. Additionally, product re-design initiatives are underway on existing
platforms to enhance product features, incorporate embedded systems and reduce
product costs. Research and development expenses were $4.2 million in fiscal
year 2000, $3.4 million in 1999 and $3.2 million in 1998.

   Intellectual Property. The Company uses the following marks in connection
with its products: FieldWorks, FieldWorks Inc. & Design, Field MousePad, Field
WorkStation, and Technology Module. Registrations have been issued in the U.S.
Patent and Trademark Office with respect to FieldWorks Inc. & Design, Field
MousePad, Field WorkStation and Technology Module. FieldWorks Inc. & Design is
registered on the Principal Register. The remaining registrations are
registered on the Supplemental Register. Supplemental Registrations do not
confer the same rights as Principal Registrations. Specifically, Supplemental
Registrations do not serve as prima facie evidence of the validity the
registration, the registrant's ownership of the mark, or the registrant's
exclusive right to use the mark. In addition, the filing date of the
application does not confer any right of priority. The Company is aware that
there are third parties that have claimed and may claim superior rights, in
certain territories in the United States, to the use of certain of the marks in
which the Company claims rights.

   Employees. As of December 31, 2000, the Company employed 58 full-time
employees and 1 part-time employee, of whom 23 were engaged primarily in
operations, 17 were engaged primarily in sales and marketing, 11 were engaged
primarily in engineering and research and development, and 8 were engaged
primarily in administration. The Company also employs temporary employees and
contract employees, as necessary. No employees are represented by any labor
union or other collective bargaining unit. The Company believes that its
relations with its employees are good.

ITEM 2. Description of Property

   The Company's main operations are conducted in Eden Prairie, Minnesota, at a
leased site of approximately 53,000 square feet. The lease term is November
1998 through November 2004. The Company has subleased two portions of the site:
12,422 square feet of office space has been subleased for the period of
September 1, 2000 to November 30, 2004 and 4,728 square feet of warehouse space
has been subleased for the period of January 1, 2001 to June 30, 2001. After
June 30, 2001, the sublease on the warehouse space becomes month-to-month and
is cancelable by either party with a 60-day notice. The Company intends to
continue to pursue potential subleasing of its facility, as appropriate, to
minimize operating expenses.

ITEM 3. Legal Proceedings

   The Company is involved in legal actions in the ordinary course of its
business. Although the Company cannot predict the outcome of any such legal
actions, management believes that there is no pending legal

                                       5
<PAGE>

proceeding against or involving the Company for which the outcome is likely to
have a material adverse effect upon the Company's financial position, results
of operations or cash flows.

ITEM 4. Submission of Matters to a Vote of Security Holders

   A special meeting of shareholders was held on October 18, 2000 to approve
the sale and transfer of FieldWorks stock to Kontron Embedded Computers AG and
its wholly owned subsidiary, FWRKS Acquisition Corp. On October 18, 2000,
FieldWorks shareholders approved the sale of 6,000,000 shares of common stock
by FieldWorks to FWRKS Acquisition Corp; however, the meeting was then
adjourned to October 27, 2000, at which time the Company's shareholders
approved the transfer of shares from Industrial-Works Holding Co., LLC,
(IWHC), a wholly owned subsidiary of Glenmount International, to Kontron. The
approval of this transfer required a vote of a majority of the issued and
outstanding shares of FieldWorks, excluding any shares owned by Kontron, IWHC
and their affiliates.

   The shareholders approved both matters by the following votes:

<TABLE>
<CAPTION>
                                                             Votes     Votes
                                                              For     Withheld
                                                           ---------- --------
   <S>                                                     <C>        <C>
   Issuance of 6,000,000 shares of Common Stock to FWRKS   10,622,113  65,495
   Acquisition Corp., a wholly owned subsidiary of
   Kontron Embedded Computers AG ("Kontron")
   Transfer of shares of Series B Preferred Stock and       4,335,740  89,328
   Series C Preferred Stock of the Company owned by
   Industrial-Works Holding Co., LLC that are convertible
   into 3,400,000 shares of Common Stock of the Company
   to Kontron in exchange for 62,000 Kontron Bearer
   Shares
</TABLE>

   Upon approval of this sale and transfer of stock, Kontron Embedded
Computers AG beneficially owned approximately 52% of the outstanding shares of
the Company.

ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters

   Market Information.

<TABLE>
<CAPTION>
                             First      Second       Third       Fourth
                            Quarter     Quarter     Quarter     Quarter
                           ---------- ----------- ------------ ----------
                           2000  1999 2000  1999  2000   1999  2000  1999
                           ----- ---- ----- ----- ----- ------ ----- ----
<S>                        <C>   <C>  <C>   <C>   <C>   <C>    <C>   <C>
Price range of common
 stock (1):
  High.................... 3.094 3.50 2.375 2.625 1.688 1.6875 1.125 1.50
  Low..................... 1.219 2.00  .625 1.375   .75  .9375  .281 .875
</TABLE>
--------
(1)  FieldWorks, Incorporated common stock is traded on the Over the Counter
     Bulletin Board under the symbol "FWRX".

   Shareholders. As of March 5, 2001, there were 137 holders of record of the
Company's Common Stock.

   Dividends. The Company has not paid any cash dividends since inception and
does not anticipate paying cash dividends in the foreseeable future.

                                       6
<PAGE>

ITEM 6. Selected Financial Data

   Selected Statements of Operations Data:

<TABLE>
<CAPTION>
                                                 Year Ended
                          --------------------------------------------------------
                          December 31, January 2, January 3, January 4, January 5,
                              2000        2000       1999       1998       1997
                          ------------ ---------- ---------- ---------- ----------
                                  (in thousands, except per share amounts)
<S>                       <C>          <C>        <C>        <C>        <C>
Net sales...............    $ 15,696    $25,329    $ 20,002   $23,815    $13,111
Cost of sales...........      17,390     17,950      14,200    14,620      7,930
                            --------    -------    --------   -------    -------
  Gross profit (loss)...      (1,694)     7,379       5,802     9,195      5,181
Operating expenses:
  Sales and marketing...       4,413      5,633       5,482     5,043      3,616
  General and
   administrative.......       4,628      2,998       2,915     3,034      2,232
  Research and
   development..........       4,213      3,414       3,214     1,884      1,896
  Product upgrade and
   restructuring costs..         502        400       1,473       --         --
                            --------    -------    --------   -------    -------
    Total operating
     expenses...........      13,756     12,445      13,084     9,961      7,744
                            --------    -------    --------   -------    -------
Operating loss..........     (15,450)    (5,066)     (7,282)     (766)    (2,563)
Interest expense and
 other, net.............      (1,727)      (314)        158      (258)      (356)
                            --------    -------    --------   -------    -------
Net loss from continuing
 operations.............     (17,177)    (5,380)     (7,124)   (1,024)    (2,919)
Loss from discontinued
 operation (1)..........         --         --          --        --        (377)
                            --------    -------    --------   -------    -------
Net loss................     (17,177)    (5,380)     (7,124)   (1,024)    (3,296)
Beneficial conversion
 feature applicable to
 preferred
 shareholders...........        (521)       --          --        --         --
                            --------    -------    --------   -------    -------
Net loss applicable to
 common shareholders....    $(17,698)   $(5,380)   $ (7,124)  $(1,024)   $(3,296)
                            ========    =======    ========   =======    =======
Basic and diluted loss
 per common share:
  Net loss per common
   share from continuing
   operations...........    $  (1.92)   $  (.61)   $   (.81)  $  (.12)   $  (.45)
  Loss per common share
   from discontinued
   operation (1)........         --         --          --        --        (.06)
                            --------    -------    --------   -------    -------
  Net loss per common
   share................    $  (1.92)   $  (.61)   $   (.81)  $  (.12)   $  (.51)
                            ========    =======    ========   =======    =======
Weighted average common
 shares outstanding.....       9,241      8,874       8,799     8,242      6,442
                            ========    =======    ========   =======    =======

   Selected Balance Sheet Data:

<CAPTION>
                                                 Year Ended
                          --------------------------------------------------------
                          December 31, January 2, January 3, January 4, January 5,
                              2000        2000       1999       1998       1997
                          ------------ ---------- ---------- ---------- ----------
                                  (in thousands, except per share amounts)
<S>                       <C>          <C>        <C>        <C>        <C>
Cash and cash
 equivalents............    $    553    $    87    $  1,690   $ 3,219    $ 2,132
Working capital
 (deficit)..............      (5,851)     1,829       4,077    11,517      1,042
Total assets............       7,475     12,014      10,956    16,120      9,906
Notes payable, net......       5,881      2,228         --        --         --
Capital lease
 obligations............          39         80         110        70        124
Total debt..............       5,920      2,308         110        70      6,150
Accumulated deficit.....     (37,530)   (19,832)    (14,452)   (7,327)    (6,303)
Total shareholders'
 equity (deficit).......      (4,985)     1,403       5,793    12,799      1,813
</TABLE>
--------
(1)  In November 1996, the Company's Board of Directors approved the
     distribution of all of the issued and outstanding shares of the common
     stock of the Company's wholly-owned subsidiary, Paragon, as a dividend to
     shareholders of record of the Company as of November 15, 1996. Paragon's
     results of operations for the year January 5, 1997, as well as the
     estimated loss from disposition, have been presented as a discontinued
     operation in the above Statements of Operations Data.

                                       7
<PAGE>

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

   Cautionary Statement Regarding Forward-Looking Statements. This report
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. When used in this report, in the Company's press
releases and in oral statements made with the approval of an authorized
executive officer, the words or phrases "believes," "anticipates," "expects,"
"intends," "estimates," "should", "may" or similar expressions are intended to
identify forward-looking statements, but are not the exclusive means of
identifying such statements. These forward-looking statements involve risks and
uncertainties that may cause the Company's actual results to differ materially
from the results discussed in the forward-looking statements. Factors that
might cause such differences include, but are not limited to, the following:
risks associated with the development of new products, market acceptance of new
products and services, technological obsolescence, dependence on third-party
manufacturers and suppliers, risks associated with the Company's dependence on
proprietary technology and the long customer sales cycle. The Company wishes to
caution readers not to place undue reliance on any such forward-looking
statements, which speak only as of the date made. The Company undertakes no
obligation to revise any forward-looking statements in order to reflect events
or circumstances after the date of such statements. Readers are urged to
carefully review the various disclosures made by the Company in this report,
including in particular Exhibit 99.1 to this report, and in other reports filed
with the Securities and Exchange Commission that attempt to advise interested
parties of the risks and factors that may affect the Company's business.

   Operating Results. The following table sets forth certain financial data
expressed as a percentage of net sales for the periods indicated:

<TABLE>
<CAPTION>
                                                    For the Years Ended
                                             ----------------------------------
                                             December 31, January 2, January 3,
                                                 2000        2000       1999
                                             ------------ ---------- ----------
<S>                                          <C>          <C>        <C>
Net sales..................................       100 %      100 %      100 %
Cost of sales..............................      (111)        71         71
                                                 ----        ---        ---
  Gross profit/(loss)......................       (11)        29         29
Operating expenses:
  Sales and marketing......................        28         22         27
  General and administrative...............        29         12         15
  Research and development.................        27         13         16
  Product upgrade and restructuring costs..         3          2          8
                                                 ----        ---        ---
    Total operating expenses...............        87         49         66
                                                 ----        ---        ---
Operating loss.............................       (98)       (20)       (37)
Interest income (expense) and other, net...       (11)        (1)         1
                                                 ----        ---        ---
Net loss...................................      (109)%      (21)%      (36)%
                                                 ----        ---        ---
Beneficial conversion feature applicable to
 preferred shareholders....................        (3)       --         --
                                                 ----        ---        ---
Net loss applicable to common
 shareholders..............................      (112)%      (21)%      (36)%
                                                 ====        ===        ===
</TABLE>

   Market Trends. The demand for rugged mobile computers continues to expand on
a worldwide basis. The availability of high-powered portable computer
technology coupled with application specific technologies and the proliferation
of wireless communications contributes to the increased demand. The Company
expects increased requirements to improve the efficiency in field based work
forces and link field workers into corporate information systems.

   The Company targets markets requiring portable computing platforms that can
perform multiple functions including diagnostics, data acquisition and
electronic testing, communication and monitoring.

                                       8
<PAGE>

COMPARISON OF YEARS ENDED DECEMBER 31, 2000 AND JANUARY 2, 2000

   Net Sales. Net sales for fiscal year 2000 were $15.7 million, a decrease of
$9.6 million or 38% from 1999 net sales of $25.3 million. The decrease in sales
was primarily attributable to the delay of the introduction of the 8000 Series
Workstation as a result of development and testing delays. Unit volumes of the
5000 Series decreased to 24% of total unit sales in fiscal year 2000 from 42%
in 1999. The decrease in sales was attributable to no large customer orders in
fiscal year 2000, compared to the large order from Ryder Transportation
Services in 1999. Sales of the 2000 Series Mobile Data Server represented 30%
of total units in fiscal year 2000. Production of the 2000 Series began in mid-
1999 so data is not comparable. Unit volumes of the 8000 Series represented 34%
of total units in fiscal year 2000. Production of the 8000 Series began in mid-
fiscal year 2000 and, therefore, there were no comparable sales in 1999. Unit
volumes of the 7000 Series decreased to 12% in fiscal year 2000 from 39% in
1999 due to the replacement of the 7000 Series product with the 8000 Series
product.

   Sales by product line were as follows:

<TABLE>
<CAPTION>
                                       2000           1999           1998
                                    -----------    -----------    -----------
   <S>                              <C>            <C>            <C>
   7000 Series..................... $ 1,826,000(1) $ 9,037,000    $12,445,000
   5000 Series.....................   3,761,000(2)  12,592,000      7,547,000
   2000 Series.....................   4,796,000      3,700,000         10,000(3)
   8000 Series.....................   5,313,000(4)         -- (4)         -- (4)
                                    -----------    -----------    -----------
                                    $15,696,000    $25,329,000    $20,002,000
                                    ===========    ===========    ===========
</TABLE>
--------
(1)  The 7000 Series product was discontinued and replaced with the 8000 Series
     product in fiscal year 2000.

(2)  The 5000 Series product was discontinued in fiscal year 2000.

(3)  The 2000 Series product was introduced in 1998.

(4)  The 8000 Series product was introduced in fiscal year 2000.

   International sales decreased to $2.3 million, or 15% of sales in fiscal
year 2000 from $3.7 million, or 14% of net sales in 1999. The reduction is due
to the delayed introduction of the 8000 Series Workstation. The majority of
international sales are in Europe, including $1.5 million in fiscal year 2000
and $2.8 million in 1999. The Company believes that international sales as a
percentage of net sales for the year 2001 will be in the mid-teen to 20% range
with little impact on the Company's results of operations and liquidity.

   The Company expects sales growth in the year 2001 due to additional product
offerings as a result of the distribution agreement with Kontron. International
distribution of FieldWorks products is also expected to increase sales with
Kontron distributing FieldWorks products in Europe. Additionally, the Company
anticipates expanded sales of the 2000 Series Mobile Data Server introduced in
1999 and the 8000 Series Workstation introduced in fiscal year 2000. The
Company is targeting sales in public services, the government and field
technologies and has aligned its sales and marketing efforts to focus on these
markets.

   Delays in product enhancements, market acceptance of the Company's product
offerings and/or increased costs could reduce the Company's projected 2001
sales or increase product costs. In addition, the Company expects revenue
growth to fluctuate due to potentially long customer sales cycles.

   Gross Margin. Gross margin (deficit) decreased to $(1.7) million in fiscal
year 2000 from $7.4 million in 1999. Gross margins, as a percentage of net
sales, decreased to (11)% in fiscal year 2000 as compared to 29% in 1999. Gross
margin was significantly impacted by $3.1 million of write-downs which resulted
from product line close-outs, changes in outsourcing arrangements and other
technological and market developments. Without the $3.1 million of write-downs,
gross margin in fiscal year 2000 would have been $1.4 million and 9.0% of net
sales. The Company's gross margin will fluctuate as a result of a number of
factors, including mix of products sold, inventory obsolescence, the proportion
of international sales, large customer contracts (with the associated volume
discounts) and outsourcing expenses.

                                       9
<PAGE>

   The Company outsourced certain manufacturing activities during the first
quarter of fiscal year 2000. Repair and final integration work are expected to
remain at the Company for the near future.

   Sales and Marketing. Sales and marketing expenses include salaries,
incentive compensation, commissions, travel, trade shows, technical support and
professional services personnel and general advertising and promotion. These
expenses also include the labor and material costs related to maintaining the
Company's standard one-year warranty program. Sales and marketing expenses were
$4.4 million in fiscal year 2000, a decrease of $1.2 million as compared to
$5.6 million in 1999. As a percentage of net sales, sales and marketing
expenses increased to 28% in fiscal year 2000 as compared to 22% in 1999. The
decrease in expenses was primarily due to reductions in advertising, promotions
and trade show expenditures as well as a reduction in commissions and incentive
compensation due to the reduction in sales. The Company anticipates growth of
sales and marketing expenses to be less than the growth of sales in the future.

   General and Administrative. General and administrative expenses include the
Company's executive, finance, information services and human resources
departments. These expenses increased to $4.6 million in fiscal year 2000
compared to $3.0 million in 1999. As a percentage of net sales, general and
administrative expenses increased to 29% in fiscal year 2000 compared to 12% in
1999. The increase is primarily due to fees associated with the management
services agreement related to the investment by IWHC, and recruitment expenses
due to changes in the management team during the first half of the year. The
Company anticipates reducing the growth in general and administrative expenses
to a level less than the growth of sales in the near future.

   Research and Development. Research and development expenses are incurred in
the design, development and testing of new or enhanced products, services and
customized computing platforms. All research and development costs are expensed
as incurred. These expenses increased to $4.2 million in fiscal year 2000 from
$3.4 million in 1999. As a percentage of net sales, research and development
expenses increased to 27% in fiscal year 2000 from 13% in 1999. The increase
was primarily due to the development of the 8000 Series Workstation, and re-
design effort on the Series 2000 and Series 5000 workstations. The Company
expects research and development expenses to decrease in the future due to
completion of the 8000 Series Workstation. Additionally, the Company
anticipates that research and development costs will be shared with Kontron in
the future and synergy will be gained by the combined efforts.

   Restructuring Costs. Restructuring costs were $0.5 million in fiscal year
2000, or 3% of net sales, as compared to $0.4 million, or 2% of net sales in
1999. In fiscal year 2000, these costs were primarily severance charges due to
changes in the Company's management team at the time of the Kontron investment.
In 1999, these costs were due to severance charges from reorganization efforts
related to outsourcing the manufacturing and design of products.

   Interest Expense and Other, Net. Net interest expense of $1.7 million was
recorded in fiscal year 2000 as compared to $314,000 in 1999. The increase in
interest expense is due to borrowings on the Company's line of credit, interest
payments on its subordinated notes and interest payments to Kontron for the
operational cash credit line. In addition, financing costs of $882,000 related
to warrants issued in September 1999 are being amortized over the two-year term
of the subordinated notes. Financing costs of $437,500 related to warrants
issued to Kontron in June 2000 were amortized from July 2000 through December
2000, the time of the closing of the Kontron equity investment.

COMPARISON OF YEARS ENDED JANUARY 2, 2000 AND JANUARY 3, 1999

   Net Sales. Net sales for 1999 were $25.3 million, an increase of $5.3
million or 27% from 1998 net sales of $20.0 million. The increase in sales was
attributable to professional services and solutions revenue and the
introduction of the 2000 Series Mobile Data Server product. The increase was
also due to significant customer contracts for the 5000 Series Service Bay
Tool, offset by a decrease in sales of the 7000 Series Workstation. The
decrease is due to customers delaying purchases in anticipation of the 8000
Series product, a

                                       10
<PAGE>

technologically enhanced and updated product replacing the 7000 Series
Workstation. Unit volumes of the 5000 Series increased from 38% in 1998 to 42%
in 1999 due to significant sales of the Service Bay Tool in both the trucking
and heavy equipment markets. Unit volumes of the 7000 Series decreased from 62%
in 1998 to 39% in 1999. Sales of the 2000 Series Mobile Data Server represented
19% of total units in 1999. Production of the 2000 Series began in mid-1999
and, therefore, there were no comparable sales in 1998. Professional services
revenue accounted for $3.3 million, or 13% of net sales, in 1999. Professional
services revenue was not significant in 1998. International sales decreased
from $5.6 million, or 28% of net sales for 1998, to $3.7 million, or 14% of net
sales in 1999. The majority of international sales are in Europe, including
$2.8 million in 1999 and $4.0 million in 1998.

   Gross Profit. Gross profit increased $1.6 million from $5.8 million in 1998
to $7.4 million in 1999. Gross profit margins, as a percentage of net sales,
remained consistent at 29%. Gross profit was negatively impacted by a $1.0
million write down of inventory in the second quarter of 1998. This write down
related to excess and obsolete inventory due to product changes in response to
technological developments and market needs. In 1999, gross margin was
negatively impacted by high volume customer contracts, which include volume
discounts, and start-up costs associated with the introduction of the 2000
Series Mobile Data Server. Additionally, gross margin was negatively impacted
by disposition of previously identified obsolete inventory during 1999, for
which recovery on disposition was less than anticipated.

   Sales and Marketing. Sales and marketing expenses were $5.6 million in 1999,
an increase of $0.1 million as compared to $5.5 million in 1998. As a
percentage of net sales, sales and marketing expenses decreased from 27% in
1998 to 22% in 1999. The increase in expenses was primarily due to expansion of
the sales force including establishing the professional services group.

   General and Administrative. General and administrative expenses increased
slightly from $2.9 million in 1998 to $3.0 million in 1999. As a percentage of
net sales, general and administrative expenses decreased from 15% in 1998 to
12% in 1999.

   Research and Development. Research and development costs increased from $3.2
million in 1998 to $3.4 million in 1999. As a percentage of net sales, research
and development expenses decreased from 16% in 1998 to 13% in 1999. The
increase was primarily due to the development of new products, including the
2000 Series Mobile Data Server and 8000 Series Workstation, and engineering
support of customer-specific applications including the Company's Service Bay
Tool.

   Product Upgrade and Restructuring Costs. Product upgrade and restructuring
costs were $1.5 million, or 8% of net sales, in 1998 as compared to $0.4
million, or 2% of net sales in 1999. In 1999, these costs were due to severance
charges from reorganization efforts related to outsourcing the manufacturing
and design of products. In 1998, these costs related to the discontinuation of
the 5000 Series I, as well as other expenses relating to restructuring and
severance costs.

   Interest Expense and Other, Net. Net interest income of $158,000 was
recorded in 1998 as compared to net interest expense of $314,000 in 1999. The
increase in interest expense is due to borrowings on the Company's line of
credit and interest payments to subordinate noteholders.

LIQUIDITY AND CAPITAL RESOURCES

   During the three-year period ended December 31, 2000, the Company incurred
cumulative net losses applicable to common shareholders totaling approximately
$30.2 million. During this three-year period, the Company used cash of
approximately $2.0 million to support capital expenditures and approximately
$17.4 million for net operating activities. The Company has financed these
expenditures and losses principally through equity and debt financing. The
Company also deferred vendor payments and took other actions in an effort to
conserve cash. This has resulted in several key vendors placing the Company on
a "hold" status with respect to future purchases.

                                       11
<PAGE>

   In fiscal 2001, management will focus on measures designed to assist the
Company in achieving profitability such as i) implementing and further refining
new sales and marketing strategies, ii) achieving cost and productivity
improvements with its third-party manufacturers and iii) adequately managing
its inventory to avoid significant inventory write-offs in the future. However,
there can be no assurance that the Company will be successful in achieving
these measures and increasing its profitability.

   The Company expects that potential fiscal 2001 operating losses and the
uncertainty of the timing of sales growth will place significant pressure on
the Company. Management believes that the proceeds of $5.4 million from the
December 2000 Kontron equity investment will only be partially sufficient to
fund operating cash requirements and debt payments in 2001. Accordingly, the
Company expects that additional funding sources will be required, to
potentially include additional borrowings, extension of existing subordinated
notes, entering into a bank line of credit or further investments by Kontron or
other sources to alleviate the Company's cashflow and liquidity constraints and
provide the needed cashflow to continue to fund normal operations. The Company
is currently evaluating various possible cash flow arrangements. However, there
can be no assurance as to the outcome of these efforts, including whether
financing will be available to the Company, or if available, whether it would
be on terms favorable to the Company and its shareholders. Failure by the
Company to secure additional financing could result in significant cash
constraints and financial issues for the Company.

   As a result of the foregoing, on January 29, 2001, Kontron agreed to provide
the Company financial support to enable the Company to meet its cash flow needs
and obligations as and when they become due through the period ending December
31, 2001. On September 28, 2000 (revised November 9, 2000), the Company entered
into credit line agreements with Kontron to provide up to $5 million (US$) of
cash for operations. Borrowings under these agreements bear interest at 11% per
annum (payable monthly), and were due on December 15, 2000. The agreement was
further revised on December 16, 2000 for Kontron to provide up to DM 10 million
for operations ($4.8 million based on December 31, 2000 exchange rate).
Borrowings under this agreement bear interest at 11% per annum (payable
monthly), with no stated maturity date. Outstanding borrowings under this line
of credit were $3.2 million at December 31, 2000.

   On June 29, 2000, the Company entered into a Purchase and Option Agreement
with FWRKS Acquisition Corp., a wholly-owned subsidiary of Kontron Embedded
Computers AG (Kontron). The agreement was amended on August 16, 2000. Under the
amended agreement, Kontron acquired 6 million shares of common stock of
FieldWorks for a purchase price of $5.4 million. In addition, the option
Kontron previously granted to IWHC was amended. As amended, IWHC was granted an
option to acquire 62,000 shares of Kontron in exchange for preferred shares of
FieldWorks that were convertible into 3.4 million shares of FieldWorks common
stock. Both of these matters were approved at a special shareholders meeting
held on October 18, 2000 and adjourned to October 27, 2000 and the transactions
were closed in December 2000.

   In addition, the Company received $2.5 million from Kontron on June 30, 2000
in the form of a subordinated note bearing interest at 11% per annum and
matures in September 2001. Kontron also received warrants to purchase 1.25
million shares of common stock exercisable at $1.00 per share. The warrants
were exercisable until November 15, 2000, and were recorded at their estimated
fair value of $437,500 at the date of issuance. These warrants were cancelled
under the terms of the amended agreement described above.

   On March 31, 2000, the Company issued 500,000 shares of the Company's Series
C Convertible Preferred Stock to IWHC. The Company recorded a $250,000 charge
relating to the beneficial conversion feature associated with this preferred
stock. The Company issued a warrant to IWHC to purchase 100,000 shares of
common stock with an exercise price of $2.00 per share in connection with this
transaction. Subsequent to March 31, 2000, the conversion rate was adjusted to
such that the holders have the right to receive a total of 1,041,666 shares of
common stock upon conversion of the Series C Convertible Participating
Preferred Stock. In connection with this conversion rate adjustment, an
additional beneficial conversion feature of $270,833 was recorded.

                                       12
<PAGE>

   On February 22, 2000, the Company completed a $4.25 million equity
investment by IWHC. In exchange for the $4.25 million investment, the Company
issued 4,250,000 shares of Series B Convertible Preferred Stock (each share of
which was initially convertible into one share of Common Stock). Subsequent to
February 22, 2000, the conversion rate was adjusted to such that the holders
have the right to receive a total of 4,427,083 shares of common stock upon
conversion of the Series B Convertible Participating Preferred Stock. IWHC
received 500,000 warrants exercisable at $1.00 per share. The transaction was
approved at a special shareholders' meeting on February 7, 2000. The Company
used the net proceeds for market expansion and new product development as well
as for working capital and general corporate purposes.

   In December 2000, IWHC exchanged all of Its shares of Series B and Series C
Convertible Preferred Stock with Kontron for shares of Kontron Common Stock.

   In September 1999, the Company completed a private placement of $3.0 million
in subordinated notes. The notes bear interest at 11% per annum and mature in
September 2001. Noteholders also received warrants to purchase 1.5 million
shares of common stock exercisable at $1.00 per share. The warrants are
exercisable for five years, and were recorded at their estimated fair value of
$882,000 at the date of issuance.

   In November 1998, the Company entered into a two-year $3.0 million line of
credit agreement. Borrowings bear interest at the greater of 4% over prime or
9%. The interest rate changed from 3% over prime to 4% over prime in the third
quarter of 1999 due to default on the Company's profitability covenant. On
November 2, 2000, the Company received an extension on the line-of-credit
agreement with a replacement maturity date of December 31, 2000. The line-of-
credit was paid in full by this maturity date and not extended. The line of
credit balance was $1.8 million as of January 2, 2000.

   The Company's cash balance as of December 31, 2000 was $0.6 million as
compared to the January 2, 2000 balance of $0.1 million and the January 3, 1999
balance of $1.7 million. Cash used for operating activities totaled $11.0
million in fiscal year 2000, $5.2 million in 1999 and $1.2 million in 1998. The
Company's accounts receivable was $3.1 million at December 31, 2000, $5.1
million at January 2, 2000 and $3.9 million at January 3, 1999. The decrease in
accounts receivable from 1999 to fiscal year 2000 was due to the timing of
shipments at year-end, as well as the overall decrease in revenues. Net
inventories decreased to $2.5 million at December 31, 2000 from $4.5 million at
January 2, 2000 and $3.4 million at January 3, 1999. This change from 1999 to
fiscal year 2000 was due to increased purchases for anticipated sales on the
2000 Series Workstation, offset by a $3.1 million inventory write-down which
resulted from product line close-outs, changes in outsourcing arrangements and
other technological and market developments. Deferred revenue was $0.7 million
at December 31, 2000, $1.0 million at January 2, 2000 and $0.8 million at
January 3, 1999. The change from 1999 to fiscal year 2000 was attributable to
decreased sales of extended warranties. Prepaid expenses remained consistent at
$0.5 million at December 31, 2000 and January 2, 2000, an increase from $0.1
million at January 3, 1999 due to prepaid deposits related to long lead time
purchases with an outsourcing contract manufacturer. Accounts payable was $3.2
million at December 31, 2000, $3.8 million at January 2, 2000 and $1.8 million
at January 3, 1999. The increases in fiscal year 2000 and 1999 were due to
purchasing inventory for customer orders in the fourth quarter for anticipated
sales in the first quarter. Other accrued liabilities increased to $1.8 million
at December 31, 2000 from $0.5 million at January 2, 2000 and $0.3 million at
January 3, 1999. The change from 1999 to fiscal year 2000 was due to a $1.2
million liability with one of our outsource partners to buy back Series 5000
parts as part of the product discontinuance, in addition to timing of payments
at year end.

   The Company purchased $0.3 million of property, plant and equipment in
fiscal year 2000 as compared to $0.6 million in 1999 and $1.1 million in 1998.
The fiscal year 2000 expenditures related primarily to tooling expenditures for
the 2000 Series Mobile Data Server and 8000 Series Workstation. The Company
anticipates purchases of property, plant and equipment in 2001 will remain
consistent with fiscal year 2000.

                                       13
<PAGE>

ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk

   As of December 31, 2000 the Company had $3.2 million outstanding on its
operating line from Kontron. This line bears interest at 11% per annum, payable
monthly. Both the principal amount borrowed under the line of credit and
interest payable thereunder are payable in German Deutschmarks and are subject
to currency rate fluctuations. All remaining transactions of the Company are
conducted and accounts are denominated in United States dollars. Based on our
overall foreign currency rate exposure at December 31, 2000, the Company does
not believe that a hypothetical 10% change in foreign currency rates would
materially adversely affect our financial position.

   The Company has no derivative financial instruments or derivative commodity
instruments in its cash and cash equivalents. The Company had $0.6 million in
cash and cash equivalents at December 31, 2000. Based on analysis, shifts in
money market rates would have an immaterial impact on the Company.

ITEM 8. Financial Statements and Supplementary Data

<TABLE>
<CAPTION>
                                                                            Page
                                                                            ----
<S>                                                                         <C>
Balance Sheets as of December 31, 2000 and January 2, 2000................   21
Statements of Operations for the years ended December 31, 2000, January 2,
 2000,
 and January 3, 1999......................................................   22
Statements of Shareholders' Equity for the years ended December 31, 2000,
 January 2, 2000, and January 3, 1999.....................................   23
Statements of Cash Flows for the years ended December 31, 2000, January 2,
 2000,
 and January 3, 1999......................................................   24
Notes to Financial Statements.............................................   25
Report of Independent Public Accountants..................................   34
</TABLE>

ITEM 9. Changes In and Disagreements With Accountants On Accounting and
Financial Disclosure

   None.

                                       14
<PAGE>

                                    PART III

ITEM 10. Directors and Executive Officers of the Registrant

   Information required by this item is set forth in the Proxy Statement under
the heading Election of Directors and is incorporated herein by reference.

ITEM 11. Executive Compensation

   Information required by this item is set forth in the Proxy Statement under
the heading Executive Compensation and is incorporated herein by reference.

ITEM 12. Security Ownership of Certain Beneficial Owners and Management

   Information required by this item is set forth in the Proxy Statement under
the heading Security Ownership of Certain Beneficial Owners and Management and
is incorporated herein by reference.

ITEM 13. Certain Relationships and Related Transactions

   Information required by this item is set forth in the Proxy Statement under
the heading Certain Transactions and is incorporated herein by reference.

                                       15
<PAGE>

                                    PART IV

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

   (a) The following documents are filed as part of this Annual Report:

  1.  Financial Statement Schedule: The following financial statement
      schedule of FieldWorks, Incorporated for the fiscal years ended
      December 31, 2000, January 2, 2000, and January 3, 1999, is filed as
      part of this Report and should be read in conjunction with the
      Financial Statements of FieldWorks, Incorporated.

    .  Schedule II--Valuation and Qualifying Accounts

    .  Schedules not listed above have been omitted because they are not
       applicable or are not required or the information required to be set
       forth therein is included in the Financial Statements or Notes
       thereto.

  2.  Exhibits: The Exhibits listed on the accompanying Index to Exhibits are
      filed as part of, or incorporated by reference into, this Report.

   (b) Reports on Form 8-K: Two reports on Form 8-K were filed by the Company
during the fiscal quarter ended December 31, 2000. A report, dated October 19,
2000, stated that the Company announced the adjournment of a special meeting of
Its shareholders to October 27, 2000. A report, dated December 12, 2000, stated
that the Company closed the strategic equity partnership with Kontron.

                                       16
<PAGE>

                                   SIGNATURES

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

                                          FIELDWORKS, INCORPORATED

                                                    /s/ Thomas Sparrvik
                                          By __________________________________
                                                      Thomas Sparrvik
                                              President and Chief Executive
                                                         Officer

                                          Dated: April 4, 2001

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

<TABLE>
<CAPTION>
             Signature                            Title                      Date
             ---------                            -----                      ----
 <C>                                <S>                                <C>
        /s/ Thomas Sparrvik         President and Chief Executive
                                    Officer                              April 4, 2001
 _________________________________
          Thomas Sparrvik

       /s/ David C. Malmberg        Chairman of the Board                April 4, 2001
 _________________________________
         David C. Malmberg

        /s/ Pierre McMaster         Director                             April 4, 2001
 _________________________________
          Pierre McMaster

        /s/ Rudolf Wieczorek        Director                             April 4, 2001
 _________________________________
          Rudolf Wieczorek

</TABLE>

                                       17
<PAGE>

                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
 Exhibit
   No    Description
 ------- -----------
 <C>     <S>
  3.1    Second Amended and Restated Articles of Incorporation of the Company
         (incorporated by reference to the exhibit 3.1 filed with the Company's
         Registration Statement filed on Form S-1, File No. 333-18335)
  3.2    Second Amended and Restated Bylaws of the Company (incorporated by
         reference to the exhibit 3.4 filed with the Company's Registration
         Statement filed on Form S-1, File No. 333-18335)
  4.1    Form of Certificate for Common Stock (incorporated by reference to the
         exhibit 4.1 filed with the Company's Registration Statement filed on
         Form S-1, File No. 333-18335)
 10.1    Form of Warrant to purchase Shares of Common Stock, including
         registration rights provisions (incorporated by reference to the
         exhibit 10.1 filed with the Company's Registration Statement filed on
         Form S-1, File No. 333-18335)
 10.2    Warrant, dated as of June 19, 1996, between the Company and
         Brightstone Capital, Ltd. (incorporated by reference to the exhibit
         10.3 filed with the Company's Registration Statement filed on Form S-
         1, File No. 333-18335)
 10.3    Form of Warrant (July 1996) (incorporated by reference to the exhibit
         10.6 filed with the Company's Registration Statement filed on Form S-
         1, File No. 333-18335)
 10.4    Warrant, dated as of July 29, 1996, issued to Network General
         Corporation (incorporated by reference to the exhibit 10.8 filed with
         the Company's Registration Statement filed on Form S-1, File
         No. 333-18335)
 10.5    Form of Warrant (September 1996) (incorporated by reference to the
         exhibit 10.12 filed with the Company's Registration Statement filed on
         Form S-1, File No. 333-18335)
 10.6    Amendment to Warrant, dated October 15, 1996, between the Company and
         Brightstone Capital, Ltd. (incorporated by reference to the exhibit
         10.13 filed with the Company's Registration Statement filed on Form S-
         1, File No. 333-18335)
 10.7    Agreement to Extend Promissory Notes and Amendment to Warrants, dated
         as of October 15, 1996, between the Company and Brightstone Fund VI,
         Brightstone Fund VII and Brightstone Capital, Ltd. (incorporated by
         reference to the exhibit 10.14 filed with the Company's Registration
         Statement filed on Form S-1, File No. 333-18335)
 10.8    Agreement to Extend Promissory Note and Amendment to Warrant, dated as
         of October 15, 1996, between the Company and Stephen L. Becher
         (incorporated by reference to the exhibit 10.15 filed with the
         Company's Registration Statement filed on Form S-1, File No. 333-
         18335)
 10.9    Amendment to Warrant, dated as of October 15, 1996, between the
         Company and Brightbridge Fund I L.P. (incorporated by reference to the
         exhibit 10.16 filed with the Company's Registration Statement filed on
         Form S-1, File No. 333-18335)
 10.10   Form of Warrant (December 1996) (incorporated by reference to the
         exhibit 10.19 filed with the Company's Registration Statement filed on
         Form S-1, File No. 333-18335)
 10.11   Office/Warehouse Lease, dated May 10, 1994, by and between The
         Northwestern Mutual Life Insurance Company and the Company
         (incorporated by reference to the exhibit 10.20 filed with the
         Company's Registration Statement filed on Form S-1, File No. 333-
         18335)
 10.12   Amendment to Lease, dated May 22, 1996, between the Company and The
         Northwestern Mutual Life Insurance Company (incorporated by reference
         to the exhibit 10.21 filed with the Company's Registration Statement
         filed on Form S-1, File No. 333-18335)
</TABLE>

                                       18
<PAGE>

<TABLE>
<CAPTION>
 Exhibit
   No    Description
 ------- -----------
 <C>     <S>
 10.13   Lease Agreement dated April 7, 1995, by and between Ronald C. Devine
         and the Company (incorporated by reference to the exhibit 10.22 filed
         with the Company's Registration Statement filed on Form S-1, File No.
         333-18335)
 10.14   1994 Long Term Incentive and Stock Option Plan, as amended, including
         forms of option agreements (incorporated by reference to the exhibit
         10.24 filed with the Company's Registration Statement filed on Form S-
         1, File No. 333-18335)
 10.15   Directors' Stock Option Plan (incorporated by reference to the exhibit
         10.25 filed with the Company's Registration Statement filed on Form S-
         1, File No. 333-18335)
 10.16   Form of Mutual Confidentiality Agreement for use with third parties
         (incorporated by reference to the exhibit 10.26 filed with the
         Company's Registration Statement filed on Form S-1, File No. 333-
         18335)
 10.17   Form of Employee Disclosure and Assignment Agreement (incorporated by
         reference to the exhibit 10.27 filed with the Company's Registration
         Statement filed on Form S-1, File No. 333-18335)
 10.18   Form of Extended Limited Warranty Agreement (incorporated by reference
         to the exhibit 10.31 filed with the Company's Registration Statement
         filed on Form S-1, File No. 333-18335)
 10.19   Lease Agreement, dated November 11, 1996, by and between OMNI
         Offices/Woodlawn Hills and the Company (incorporated by reference to
         the exhibit 10.32 filed with the Company's Registration Statement
         filed on Form S-1, File No. 333-18335)
 10.20   Option Agreement, dated as of January 21, 1997, by and between the
         Company and David C. Malmberg (incorporated by reference to the
         exhibit 10.33 filed with the Company's Registration Statement filed on
         Form S-1, File No. 333-18335)
 10.21   Warrant dated March 25, 1997, issued to R.J. Steichen & Company
         (incorporated by reference to the exhibit 10.1 filed with the
         Company's Report on Form 10-Q for the fiscal quarter ended April 6,
         1997)
 10.22   Lease Agreement, dated May 16, 1997, by and between CSM Properties,
         Inc. and the Company (incorporated by reference to the exhibit 10.35
         filed with the Company's Report on Form 10-K for the fiscal year ended
         January 4, 1998)
 10.23   Addendum to Lease, dated as of December 30, 1997, between the Company
         and CSM Properties, Inc. (incorporated by reference to the exhibit
         10.36 filed with the Company's Report on Form 10-K for the fiscal year
         ended January 4, 1998)
 10.24   General Credit and Security Agreement, dated November 19, 1998, by and
         between Spectrum Commercial Services and the Company (incorporated by
         reference to the exhibit 10.31 filed with the Company's Report on Form
         10-K for the fiscal year ended January 3, 1999)
 10.25   Promissory Note, dated November 19, 1998, by and between Spectrum
         Commercial Services and the Company (incorporated by reference to the
         exhibit 10.31 filed with the Company's Report on Form 10-K for the
         fiscal year ended January 3, 1999)
 10.26   Warrant to purchase shares of Common Stock Including Exhibit A to
         Warrant Issued to Industrial-Works Holding Co., LLC by the Registrant
         on February 18, 2000 (Incorporated by reference to the exhibit 10.41
         to the Company's Registration Statement filed on Form S-2, File No.
         333-34376)
 10.27   Warrant to purchase shares of Common Stock Including Exhibit A to
         Warrant Issued to Industrial-Works Holding Co., LLC by the Registrant
         on February 23, 2000 (incorporated by reference to the exhibit 4.2 to
         the Registrant's Current Report on Form 8-K dated February 23, 2000)
 10.28   Form of Founders Non-Competition and Non-Solicitation Agreement
         (incorporated by reference to the exhibit 10.31 filed with the
         Company's Report on Form 10-K for the fiscal year ended January 2,
         2000)
 10.29   Form of Mutual Non-disclosure Agreement (incorporated by reference to
         the exhibit 10.32 filed with the Company's Report on Form 10-K for the
         fiscal year ended January 2, 2000)
</TABLE>

                                       19
<PAGE>

<TABLE>
<CAPTION>
 Exhibit
   No    Description
 ------- -----------
 <C>     <S>
 10.30   Form of Non-disclosure Agreement (incorporated by reference to the
         exhibit 10.33 filed with the Company's Report on Form 10-K for the
         fiscal year ended January 2, 2000)
 10.31   Form of International Distributor Agreement (incorporated by reference
         to the exhibit 10.34 filed with the Company's Report on Form 10-K for
         the fiscal year ended January 2, 2000)
 10.32   Form of Product Evaluation Agreement (incorporated by reference to the
         exhibit 10.35 filed with the Company's Report on Form 10-K for the
         fiscal year ended January 2, 2000)
 10.33   Form of OEM Agreement (incorporated by reference to the exhibit 10.36
         filed with the Company's Report on Form 10-K for the fiscal year ended
         January 2, 2000)
 10.34   Form of Sales Representative Agreement (incorporated by reference to
         the exhibit 10.37 filed with the Company's Report on Form 10-K for the
         fiscal year ended January 2, 2000)
 10.35   Sublease agreement between FieldWorks, Inc. and Four 51, Inc. dated
         July 19, 2000 (incorporated by reference to the exhibit 10.1 filed
         with the Company's Report on Form 10-Q for the fiscal quarter ended
         October 1, 2000)
 10.36   Agreement and Consent Regarding Sublease between CSM Properties, Inc.,
         FieldWorks, Inc. and Four 51, Inc. dated August 8, 2000 (incorporated
         by reference to the exhibit 10.2 filed with the Company's Report on
         Form 10-Q for the fiscal quarter ended October 1, 2000)
 10.37   Operating Protocol Memorandum with Kontron Embedded Computers AG dated
         July 11, 2000 (incorporated by reference to the exhibit 10.7 filed
         with the Company's Report on form 10-Q for the fiscal quarter ended
         July 2, 2000)
 10.38   Sublease agreement between FieldWorks, Inc. and Alternative Business
         Furniture, Inc. dated December 11, 2000 (filed herewith)
 10.39   Agreement and Consent Regarding Sublease between CSM Properties, Inc.,
         FieldWorks, Inc. and Alternative Business Furniture, Inc. dated
         December 20, 2000 (filed herewith)
 10.40   Employment Agreement with Thomas Sparrvik dated November 8, 2000
         (filed herewith)
 10.41   Letter from Kontron Embedded Computers AG to Arthur Andersen LLP,
         dated January 29, 2001 (filed herewith)
 21.1    Subsidiaries of the Company (filed herewith)
 23.1    Consent of Arthur Andersen LLP (filed herewith)
 99.1    Cautionary Statement (filed herewith)
</TABLE>

                                       20
<PAGE>

                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                     December 31,   January 2,
                                                         2000          2000
                                                     ------------  ------------
<S>                                                  <C>           <C>
                      ASSETS
Current Assets:
Cash and cash equivalents..........................  $    552,887  $     86,786
Accounts receivable, net of allowance for doubtful
 accounts of $334,100 and $259,600.................     3,096,451     5,060,928
Inventories........................................     2,487,643     4,513,664
Prepaid expenses and other.........................       472,287       509,574
                                                     ------------  ------------
   Total current assets............................     6,609,268    10,170,952
                                                     ------------  ------------
Property and Equipment:
Computers and equipment............................     1,699,278     2,213,933
Furniture and fixtures.............................       943,795     1,093,232
Leasehold improvements.............................       331,736       435,813
Less: Accumulated depreciation and amortization....    (2,116,720)   (2,076,345)
                                                     ------------  ------------
  Property and equipment, net......................       858,089     1,666,633
Deposits and Other Assets, net.....................         7,774       175,958
                                                     ------------  ------------
Total Assets.......................................  $  7,475,131  $ 12,013,543
                                                     ============  ============
       LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Line of credit.....................................  $        --   $  1,761,731
Accounts payable...................................     3,192,823     3,763,468
Accrued warranty and product upgrade...............       507,099       649,894
Accrued compensation and benefits..................       285,893       668,309
Other accrued liabilities..........................     1,816,182       497,117
Deferred revenue...................................       738,994       961,593
Current maturities of capitalized lease
 obligations.......................................        38,598        40,229
Notes payable:
  Subordinated note, due September 2001............     3,000,000           --
  Less: Discount on notes payable..................      (330,750)          --
  Note to Kontron for operating line...............     3,211,583           --
                                                     ------------  ------------
Notes payable, net.................................     5,880,833           --
                                                     ------------  ------------
   Total current liabilities.......................    12,460,422     8,342,341
                                                     ------------  ------------
Notes payable:
  Subordinated note, due September 2001............           --      3,000,000
  Less: Discount on notes payable..................           --       (771,750)
                                                     ------------  ------------
Notes payable, net.................................           --      2,228,250
                                                     ------------  ------------
Capitalized lease obligations, less current
 maturities........................................           --         39,571
                                                     ------------  ------------
   Total liabilities...............................    12,460,422    10,610,162
                                                     ------------  ------------
Commitments and Contingencies (Note 8)
Shareholders' Equity (Deficit):
Series B Convertible Preferred Stock, $.001 par
 value, 4,250,000 shares authorized;
 4,250,000 issued and outstanding at December 31,
 2000..............................................         4,250           --
Series C Convertible Preferred Stock, $.001 par
 value, 500,000 shares authorized;
 500,000 issued and outstanding at December 31,
 2000..............................................           500           --
Common stock, $.001 par value, 30,000,000 shares
 authorized; 14,894,426 and
 8,894,426 issued and outstanding..................        14,894         8,894
Additional paid-in capital.........................    32,524,911    21,226,081
Accumulated deficit................................   (37,529,846)  (19,831,594)
                                                     ------------  ------------
   Total shareholders' equity (deficit)............    (4,985,291)    1,403,381
                                                     ------------  ------------
Total liabilities and shareholders' equity
 (deficit).........................................  $  7,475,131  $ 12,013,543
                                                     ============  ============
</TABLE>

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

                                       21
<PAGE>

                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                               For the Years Ended
                                       --------------------------------------
                                       December 31,  January 2,   January 3,
                                           2000         2000         1999
                                       ------------  -----------  -----------
<S>                                    <C>           <C>          <C>
Net Sales............................. $ 15,695,581  $25,329,192  $20,001,787
Cost of Sales.........................   17,389,626   17,950,297   14,199,526
                                       ------------  -----------  -----------
  Gross profit (loss).................   (1,694,045)   7,378,895    5,802,261
                                       ------------  -----------  -----------
Operating Expenses:
  Sales and marketing.................    4,413,415    5,632,785    5,482,216
  General and administrative..........    4,628,572    2,998,141    2,914,871
  Research and development............    4,212,734    3,413,955    3,214,164
  Product upgrade and restructuring
   costs..............................      501,805      399,978    1,472,530
                                       ------------  -----------  -----------
    Total operating expenses..........   13,756,526   12,444,859   13,083,781
                                       ------------  -----------  -----------
    Operating loss....................  (15,450,571)  (5,065,964)  (7,281,520)
Interest Expense and Other, net.......   (1,726,848)    (314,094)     157,333
                                       ------------  -----------  -----------
Net loss..............................  (17,177,419)  (5,380,058)  (7,124,187)
Beneficial conversion feature
 applicable to preferred
 shareholders.........................     (520,833)         --           --
                                       ------------  -----------  -----------
Net loss applicable to common
 shareholders......................... $(17,698,252) $(5,380,058) $(7,124,187)
                                       ============  ===========  ===========
Basic and Diluted Loss Per Common
 Share:
Net loss per common share............. $      (1.92) $      (.61) $      (.81)
                                       ------------  -----------  -----------
Weighted average common shares
 outstanding..........................    9,240,580    8,874,473    8,799,031
                                       ============  ===========  ===========
</TABLE>


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

                                       22
<PAGE>

                  STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
                                                                                           Total
                         Preferred Stock     Common Stock    Additional                Shareholders'
                         ---------------- ------------------   Paid-in   Accumulated      Equity
                          Shares   Amount   Shares   Amount    Capital     Deficit       (Deficit)
                         --------- ------ ---------- ------- ----------- ------------  -------------
<S>                      <C>       <C>    <C>        <C>     <C>         <C>           <C>
Balance, January 4,
 1998...................       --  $  --   8,725,426 $ 8,725 $20,117,242 $ (7,327,349) $ 12,798,618
Exercise of stock
 options................       --     --      98,500      99     118,409          --        118,508
Net loss................       --     --         --      --          --    (7,124,187)   (7,124,187)
                         --------- ------ ---------- ------- ----------- ------------  ------------
Balance, January 3,
 1999...................       --     --   8,823,926   8,824  20,235,651  (14,451,536)    5,792,939
Exercise of stock
 options................       --     --      70,500      70      70,430          --         70,500
Issuance of warrants....       --     --         --      --      920,000          --        920,000
Net loss................       --     --         --      --          --    (5,380,058)   (5,380,058)
                         --------- ------ ---------- ------- ----------- ------------  ------------
Balance January 2,
 2000...................       --     --   8,894,426   8,894  21,226,081  (19,831,594)    1,403,381
Issuance of Series B
 Convertible Preferred
 Stock, net of offering
 costs.................. 4,250,000  4,250        --      --    4,109,674          --      4,113,924
Issuance of Series C
 Convertible Preferred
 Stock, net of offering
 costs..................   500,000    500        --      --      959,500          --        960,000
Beneficial conversion
 feature applicable to
 preferred
 shareholders...........       --     --         --      --      520,833     (520,833)          --
Issuance of common
 stock, net of offering
 costs..................       --     --   6,000,000   6,000   5,271,323          --      5,277,323
Issuance of warrants....       --     --         --      --      437,500          --        437,500
Net loss................       --     --         --      --          --   (17,177,419)  (17,177,419)
                         --------- ------ ---------- ------- ----------- ------------  ------------
Balance, December 31,
 2000................... 4,750,000 $4,750 14,894,426 $14,894 $32,524,911 $(37,529,846) $ (4,985,291)
                         ========= ====== ========== ======= =========== ============  ============
</TABLE>


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

                                       23
<PAGE>

                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                               For the Years Ended
                                       --------------------------------------
                                       December 31,  January 2,   January 3,
                                           2000         2000         1999
                                       ------------  -----------  -----------
<S>                                    <C>           <C>          <C>
Operating Activities:
Net loss.............................. $(17,177,419) $(5,380,058) $(7,124,187)
Adjustments to reconcile net loss to
 net cash used for operating
 activities--
  Depreciation and amortization.......      822,478      683,086      692,332
  Product upgrade and restructuring
   costs..............................     (244,085)    (326,876)     846,876
  Non-cash financing..................      878,500      148,250          --
  Loss on disposal of property and
   equipment..........................      254,116          --           --
  Changes in operating items:
    Accounts receivable...............    1,964,477   (1,130,562)   2,471,657
    Inventories.......................    2,026,021   (1,112,920)   1,608,393
    Prepaid expenses and other........      205,471     (546,450)      70,104
    Accounts payable..................     (570,645)   1,959,282      314,204
    Accrued expenses..................    1,037,939      340,934      160,291
    Deferred revenue..................     (222,599)     196,409     (202,089)
                                       ------------  -----------  -----------
  Net cash used for operating
   activities.........................  (11,025,746)  (5,168,905)  (1,162,419)
                                       ------------  -----------  -----------
Investing Activities:
  Purchase of property and equipment..     (302,250)    (554,412)  (1,118,974)
  Proceeds from sales of property and
   equipment..........................       34,200          --           --
                                       ------------  -----------  -----------
  Net cash used for investing
   activities.........................     (268,050)    (554,412)  (1,118,974)
                                       ------------  -----------  -----------
Financing Activities:
  Proceeds from notes to Kontron......    3,211,583          --           --
  Proceeds from issuance of preferred
   stock..............................    5,073,924          --           --
  Proceeds from issuance of notes.....          --     3,000,000          --
  Proceeds from issuance of common
   stock..............................    5,277,323       70,500      118,508
  Net line of credit borrowings
   (repayments).......................   (1,761,731)   1,079,750      681,981
  Payment of capitalized lease
   obligations........................      (41,202)     (30,616)     (47,386)
                                       ------------  -----------  -----------
  Net cash provided by financing
   activities.........................   11,759,897    4,119,634      753,103
                                       ------------  -----------  -----------
Change in Cash and Cash Equivalents...      466,101   (1,603,683)  (1,528,290)
Cash and Cash Equivalents, beginning
 of year..............................       86,786    1,690,469    3,218,759
                                       ------------  -----------  -----------
Cash and Cash Equivalents, end of
 year................................. $    552,887  $    86,786  $ 1,690,469
                                       ============  ===========  ===========
Supplemental Cash Flow Disclosure:
Cash paid for interest................ $    579,130  $   236,212  $    12,191
                                       ------------  -----------  -----------
Noncash Investing and Financing
 Activities:
Property and equipment acquired under
 capital leases....................... $        --   $       --   $    87,700
Issuance of warrants.................. $    437,500  $   920,000  $       --
                                       ============  ===========  ===========
</TABLE>

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

                                       24
<PAGE>

                         NOTES TO FINANCIAL STATEMENTS

1. Nature of Business

   Operating Activities. FieldWorks, Incorporated ("FieldWorks" or "the
Company") was incorporated in Minnesota in 1992 and provides rugged, portable
computer platforms for use in demanding field environments. The Company's
portable workstations have been designed to meet military standards for
ruggedness and to function despite exposure to extreme temperature, mechanical
shock, vibration and moisture. The Company's products have been designed with a
modular system configuration that allows a user to upgrade the central
processing unit, processor or any of the other technological components without
purchasing a new computer. The Company's computing platforms are expandable
through multiple expansion slots to provide a flexible electronic "toolbox"
that can integrate a user's application-specific, multi-media and
communications needs into one portable, rugged device.

   FieldWorks' focus is providing workstations for data acquisition, test and
measurement, and logistics management applications in its targeted vertical
markets. FieldWorks provides professional services including solution
conceptualization, design, development, implementation and support. FieldWorks
provides training, specialized support and product upgrades to enhance customer
productivity.

   The Company's future operations are dependent upon the attainment of certain
objectives, including further penetration of vertical markets, reducing
operating and product costs and expanding its product offering. Additionally,
the attainment of these objectives is subject to the availability of sufficient
cash and/or financing. Financing needs will be contingent upon demand for the
Company's products, profitability, cash management operations and other
factors.

   Kontron Equity Investment. On June 29, 2000, the Company entered into a
Purchase and Option Agreement with FWRKS Acquisition Corp., a wholly-owned
subsidiary of Kontron Embedded Computers AG (Kontron). The agreement was
amended on August 16, 2000. Under the amended agreement, Kontron acquired 6
million shares of common stock of FieldWorks for a purchase price of $5.4
million. In addition, the option Kontron previously granted to Industrial-Works
Holding Co., LLC, (IWHC), a wholly owned subsidiary of Glenmount International
("IWHC") was amended. As amended, IWHC has an option to acquire 62,000 shares
of Kontron common stock in exchange for preferred shares of FieldWorks that
were convertible into 3.4 million shares of FieldWorks common stock. Both of
these matters were approved at a special shareholders meeting held on October
18, 2000 and adjourned to October 27, 2000 and the transactions closed in
December 2000. As a result, Kontron and its affiliates control over 50% of
FieldWorks through 7,694,492 shares of common stock and 4,750,000 shares of
Series B and C Preferred Convertible Stock convertible into 5,468,750 shares of
common stock of FieldWorks.

   During fiscal year 2000, the Company had a management services agreement
with IWHC. This agreement was terminated at the time of the closing of the
Kontron equity investment. Fees paid under this agreement in fiscal year 2000
were $246,000.

   Significant Risks and Uncertainties. During the three-year period ended
December 31, 2000, the Company incurred cumulative net losses applicable to
common shareholders totaling approximately $30.2 million. During this three-
year period, the Company used cash of approximately $2.0 million to support
capital expenditures and approximately $17.4 million for net operating
activities. The Company has financed these expenditures and losses principally
through equity and debt financing. The Company also deferred vendor payments
and took other actions in an effort to conserve cash. This has resulted in
several key vendors placing the Company on a "hold" status with respect to
future purchases.

   In fiscal 2001, management will focus on measures designed to assist the
Company in achieving profitability such as i) implementing and further refining
new sales and marketing strategies, ii) achieving cost and productivity
improvements with its third-party manufacturers and iii) adequately managing
its inventory to

                                       25
<PAGE>

avoid significant inventory write-offs in the future. However, there can be no
assurance that the Company will be successful in achieving these measures and
increasing its profitability.

   The Company expects that potential fiscal 2001 operating losses and the
uncertainty of the timing of sales growth will place significant pressure on
the Company. Management believes that the proceeds of $5.4 million from the
December 2000 Kontron equity investment will only be partially sufficient to
fund operating cash requirements and debt payments in 2001. Accordingly, the
Company expects that additional funding sources will be required, to
potentially include additional borrowings, extension of existing subordinated
notes, entering into a bank line of credit or further investments by Kontron or
other sources to alleviate the Company's cashflow and liquidity constraints and
provide the needed cashflow to continue to fund normal operations. The Company
is currently evaluating various possible cash flow arrangements. However, there
can be no assurance as to the outcome of these efforts, including whether
financing will be available to the Company, or if available, whether it would
be on terms favorable to the Company and its shareholders. Failure by the
Company to secure additional financing could result in significant cash
constraints and financial issues for the Company.

   As a result of the foregoing, on January 29, 2001, Kontron agreed to provide
the Company financial support to enable the Company to meet its cash flow needs
and obligations as and when they become due through the period ending December
31, 2001. On September 28, 2000 (revised November 9, 2000), the Company entered
into credit line agreements with Kontron to provide up to $5 million (US$) of
cash for operations. Borrowings under these agreements bear interest at 11% per
annum (payable monthly), and were due on December 15, 2000. The agreement was
further revised on December 16, 2000 for Kontron to provide up to DM 10 million
for operations ($4.8 million based on December 31, 2000 exchange rate).
Borrowings under this agreement bear interest at 11% per annum (payable
monthly), with no stated maturity date. Outstanding borrowings under this line
of credit were $3.2 million at December 31, 2000.

   Change in Nasdaq listing. Effective with the open of business on August 25,
2000, the Company's Common Stock was delisted from the Nasdaq SmallCap Market
for failure to demonstrate sustained compliance with the net tangible assets
listing requirement, and began trading on the Over The Counter Bulletin Board
under the symbol "FWRX."

2. Summary of Significant Accounting Policies

   Fiscal Year. Fiscal years end on the Sunday closest to December 31st. All
references herein to "2000", "1999" and "1998" represent the fiscal years ended
December 31, 2000, January 2, 2000 and January 3, 1999 respectively, each of
which were 52 week years.

   Loss Per Common Share. Basic earnings (loss) per share is computed by
dividing net income (loss) by the weighted average number of shares of common
stock outstanding during the fiscal year. Diluted earnings (loss) per share is
computed under the treasury stock method and is calculated to compute the
dilutive effect of potential common shares.

   A reconciliation of these amounts is as follows:

<TABLE>
<CAPTION>
                                           2000         1999         1998
                                       ------------  -----------  -----------
<S>                                    <C>           <C>          <C>
Net loss applicable to common
 shareholders......................... $(17,698,252) $(5,380,058) $(7,124,187)
                                       ============  ===========  ===========
Weighted average common shares
 outstanding..........................    9,240,580    8,874,473    8,799,031
Dilutive potential common shares......          --           --           --
                                       ------------  -----------  -----------
Weighted average common and dilutive
 shares outstanding...................    9,240,580    8,874,473    8,799,031
                                       ============  ===========  ===========
Basic and diluted loss per share...... $      (1.92) $      (.61) $      (.81)
                                       ============  ===========  ===========
</TABLE>

                                       26
<PAGE>

   Potential common shares of 10,473,854, 9,557,603, and 7,850,003 related to
options, warrants and convertible preferred stock were excluded from the
computation of diluted loss per share for fiscal year 2000, 1999 and 1998 as
inclusion of these shares would have been antidilutive.

   Cash and Cash Equivalents. Cash and cash equivalents consist of amounts held
in the Company's checking accounts and money market funds with original
maturities of 90 days or less. The carrying value of these instruments
approximates fair value.

   Inventories. Inventories are stated at the lower of cost or market value, as
determined by the first-in, first-out cost method, and consisted of the
following:

<TABLE>
<CAPTION>
                                               December 31, 2000 January 2, 2000
                                               ----------------- ---------------
      <S>                                      <C>               <C>
      Raw materials...........................    $1,026,833       $3,159,548
      Work in process.........................       259,485          575,694
      Finished Goods..........................     1,201,325          778,422
                                                  ----------       ----------
        Total.................................    $2,487,643       $4,513,664
                                                  ==========       ==========
</TABLE>

   Property and Equipment. Property and equipment are recorded at cost. Repair
and maintenance costs which do not significantly extend the lives of the
respective assets are expensed as incurred. Depreciation is computed using the
straight-line method over the related assets' useful lives, ranging from two to
seven years.

   Warranties. The Company provides a one-year warranty on its products from
the date of sale. Warranty costs, including parts and labor, are estimated
based on historical experience. These estimated costs are accrued in the period
in which the related revenue is recognized. Actual warranty costs may differ
from such estimates.

   Revenue Recognition. The Company recognizes product revenue, net of
estimated returns, at the time of product shipment. Services revenue is
recognized as earned. Revenues related to separately priced extended warranties
sold to customers are recorded as deferred revenue and recognized over the
periods covered by the extended warranties.

   Significant Customers. For the year ended December 31, 2000, sales to John
Deere Information Systems represented 11% of net sales. For the year ended
January 2, 2000, sales to Ryder Transportation Services represented 26% of net
sales. For the year ended January 3, 1999, sales to Navistar International
represented 10% of net sales.

   Research and Development. Research and development costs are charged to
expense as incurred.

   Concentrations of Credit Risk. At December 31, 2000, there was not a
significant portion of outstanding receivables attributable to any one
customer. The Company's exposure to concentrations of credit risk relates
primarily to trade receivables. This exposure is limited due to the large
number of customers and their vast dispersion across several vertical markets
and geographies. The Company controls potential credit risk by performing
credit evaluations for all customers and requires letters of credit, bank
guarantees and advance payments, if deemed necessary.

   Use of Estimates. The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosures of contingent assets and liabilities
as of the date of the financial statements. Estimates also affect the reported
amounts of revenues and expenses during the periods presented. Estimates are
used for such items as allowances for doubtful accounts, inventory reserves,
useful lives of property and equipment and warranty costs. Ultimate results
could differ from those estimates.

   Accounting Pronouncements. SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", becomes effective for fiscal years
beginning after June 15, 2000. The Company adopted SFAS

                                       27
<PAGE>

No. 133 effective January 1, 2001. SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument, including
certain derivative instruments embedded in other contracts, be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
No. 133 requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met and
requires that a company must formally document, designate and assess the
effectiveness of transactions that receive hedge accounting. The Company
performed an analysis of this pronouncement and the adoption of SFAS No. 133
did not have a material impact on its financial position or results of
operations.

   Staff Accounting Bulletin (SAB) No. 101 "Revenue Recognition in Financial
Statements" was issued in December 1999 and provides further guidance on the
recognition, presentation and disclosure of revenue in financial statements
filed with the Securities and Exchange Commission. The Company adopted SAB No.
101 in the fourth quarter of fiscal year 2000, as required. The adoption did
not have a material impact on the Company's financial position or results of
operations.

3. Product Upgrade and Restructuring Costs

   In fiscal year 2000, the Company announced certain organizational
restructuring changes related to the Kontron transaction. The management
reorganization was designed to reduce ongoing administrative and operating
expenses, and further streamline the organization in preparation for Kontron's
increased involvement with FieldWorks. During 1999, the Company incurred
restructuring costs due to severance charges from reorganization efforts
related to outsourcing certain aspects of the manufacturing and design of
products. In 1998, these costs related to the discontinuation of the 5000
Series I Workstation, as well as other internal reorganization efforts. The
restructuring costs were as follows:

<TABLE>
<CAPTION>
                                                     2000     1999      1998
                                                   -------- -------- ----------
      <S>                                          <C>      <C>      <C>
      Product upgrade costs....................... $    --  $    --  $1,025,000
      Employee severance and associated costs.....  501,805  399,978    447,530
                                                   -------- -------- ----------
        Total..................................... $501,805 $399,978 $1,472,530
                                                   ======== ======== ==========
</TABLE>

   The reserves remaining at December 31, 2000, January 2, 2000 and January 3,
1999 were $275,900, $520,000 and $850,000, respectively. The Company plans to
complete the restructuring items by the end of first quarter 2001. See footnote
1 for further discussion of the Kontron equity investment.

4. Income Taxes

   The Company accounts for income taxes under the liability method, which
requires recognition of deferred income tax assets and liabilities for the
expected future income tax consequences under enacted tax laws of temporary
differences between the financial reporting and tax bases of assets and
liabilities.

   A reconciliation of the Company's statutory tax rate to the effective rate
is as follows:

<TABLE>
<CAPTION>
                                                            2000   1999   1998
                                                            ----   ----   ----
      <S>                                                   <C>    <C>    <C>
      Federal statutory rate...............................  34 %   34 %   34 %
      State taxes, net of federal tax benefit..............   4 %    4 %    4 %
      Valuation allowance.................................. (38)%  (38)%  (38)%
                                                            ---    ---    ---
        Total.............................................. --  %  --  %  --  %
                                                            ===    ===    ===
</TABLE>

   As of December 31, 2000, the Company had approximately $30,244,000 of net
operating loss carryforwards for federal income tax purposes that are available
to offset future taxable income through the year 2020. Certain restrictions
caused by changes in ownership resulting from sales of stock may limit annual
utilization of the net operating loss carryforwards.


                                       28
<PAGE>

   The components of the Company's deferred tax asset are as follows:

<TABLE>
<CAPTION>
                                          2000         1999         1998
                                      ------------  -----------  -----------
      <S>                             <C>           <C>          <C>
      Net operating loss
       carryforwards................. $ 11,493,000  $ 6,070,000  $ 4,112,000
      Timing differences.............    1,981,000    1,556,000    1,439,000
      Valuation allowance............  (13,474,000)  (7,626,000)  (5,551,000)
                                      ------------  -----------  -----------
        Total........................ $        --   $       --   $       --
                                      ============  ===========  ===========
</TABLE>

5. Lines of Credit and Subordinated Notes Payable

   Kontron Line of Credit. On January 29, 2001, Kontron agreed to provide the
Company financial support to enable the Company to meet its cash flow needs and
obligations as and when they fall due through the period ended December 31,
2001. On September 28, 2000 (revised November 9, 2000), the Company entered
into unsecured credit line agreements with Kontron, to provide up to $5 million
(US$) of cash for operations. Borrowings under these agreements bear interest
at 11% per annum (payable monthly), and were due on December 15, 2000. The
agreement was further revised on December 16, 2000 for Kontron to provide up to
DM 10 million for operations ($4.8 million based on December 31, 2000 exchange
rate). Borrowings under this agreement bear interest at 11% per annum (payable
monthly), and do not have a maturity date. Outstanding borrowings under this
line of credit were $3.2 million at December 31, 2000. Currency losses
recognized in fiscal year 2000 were $103,000.

   Subordinated Notes Payable. In September 1999, the Company completed a
private placement of $3.0 million in subordinated notes. The notes bear
interest at 11% per annum and mature in September 2001. Noteholders also
received warrants to purchase 1.5 million shares of common stock exercisable at
$1.00 per share. The warrants are exercisable for five years, and were recorded
at their estimated fair value of $882,000 at the date of issuance.

   Line of Credit. In November 1998, the Company entered into a two-year
$3,000,000 line-of-credit agreement. Outstanding borrowings under this line of
credit were $1.8 million at January 2, 2000. On November 2, 2000, the Company
received an extension on the line-of-credit agreement with a replacement
maturity date of December 31, 2000. The line-of-credit was paid in full by this
maturity date and not extended.

   The following information relates to this credit facility for fiscal years
2000, 1999 and for the period since inception of the agreement in 1998:

<TABLE>
<CAPTION>
                                                 2000        1999       1998
                                              ----------  ----------  --------
      <S>                                     <C>         <C>         <C>
      Maximum amount outstanding during
       period...............................  $2,620,000  $1,800,000  $682,000
      Average borrowings during the period..     741,000     817,000   341,000
      Weighted average interest rate during
       the period...........................       13.24%      11.77%    10.75%
      Interest rate at end of the period....       13.50%      12.50%    10.75%
</TABLE>

6. Shareholders' Equity

   On June 30, 2000, the Company issued 1.25 million shares of common stock
warrants to Kontron, exercisable at $1.00 per share. The warrants were
exercisable until November 15, 2000, and were recorded at their estimated fair
value of $437,500 at the date of issuance. These warrants were cancelled in
December 2000 upon closing of the Kontron investment. See footnote 1 for
additional discussion.

   Warrants to purchase 2,852,405 and 2,233,054 shares of the Company's common
stock were outstanding at December 31, 2000 and January 2, 2000, respectively.
The warrants are exercisable at various times through February 2007 at prices
ranging from $1.00 to $7.80.


                                       29
<PAGE>

   On June 29, 2000, the Company entered into a Purchase and Option Agreement
with FWRKS Acquisition Corp., a wholly-owned subsidiary of Kontron. See Note 1
for additional discussion.

   On March 31, 2000, the Company issued 500,000 shares of the Company's Series
C Convertible Preferred Stock to IWHC. The Company recorded a $250,000 charge
relating to the beneficial conversion feature associated with this preferred
stock. The Company issued a warrant to IWHC to purchase 100,000 shares of
common stock with an exercise price of $2.00 per share in connection with this
transaction. Subsequent to March 31, 2000, the conversion rate was adjusted to
such that the holders have the right to receive a total of 1,041,666 shares of
common stock upon conversion of the Series C Convertible Participating
Preferred Stock. In connection with this conversion rate adjustment, an
additional beneficial conversion feature charge of $270,833 was recorded.

   On February 22, 2000, the Company completed a $4.25 million equity
investment by IWHC. In exchange for the $4.25 million investment, the Company
issued 4,250,000 shares of Series B Convertible Preferred Stock (each share of
which was initially convertible into one share of Common Stock). Subsequent to
February 22, 2000, the conversion rate was adjusted to such that the holders
have the right to receive a total of 4,427,083 shares of common stock upon
conversion of the Series B Convertible Participating Preferred Stock. IWHC
received 500,000 warrants exercisable at $1.00 per share. The transaction was
approved at a special shareholders' meeting on February 7, 2000. The Company
used the net proceeds for market expansion and new product development as well
as for working capital and general corporate purposes.

   In the event of liquidation of the Company, the liquidation preference would
first be to shareholders of Series B Convertible Participating Preferred Stock,
followed by shareholders of Series C Convertible Participating Preferred Stock,
followed by shareholders of Common Stock. Voting rights of both the Series B
and Series C Convertible Participating Stock are equal to that of the Common
Stock shareholders, on an as if converted basis.

7. Stock Option and 401(k) Plans

   Stock Option Plan. The Company has a Long-Term Incentive and Stock Option
Plan (the Plan). Under the Plan, options are granted at an exercise price equal
to the fair market value of the common stock at the date of grant. Incentive
stock options are granted to employees, and vest over varying periods not to
exceed ten years.

   The Plan is authorized to issue up to 2,500,000 shares of common stock for
such options. At December 31, 2000 and January 2, 2000, 313,877 and 514,777
shares were available for future grants.

   The Company also has a Non-Employee Directors' Stock Option Plan (the
Directors' Plan), which was approved at a shareholder meeting held on January
20, 1997. Under the Directors' Plan, each non-employee director will receive
25,000 nonqualified options upon election and 10,000 options at each reelection
date. The Directors' Plan originally authorized the issuance of up to 300,000
shares of common stock for these options. At the 1999 Annual Meeting of
Shareholders, the shareholders approved an amendment to increase the number of
shares issuable thereunder from 300,000 to 500,000. At December 31, 2000 and
January 2, 2000, 231,000 and 125,000 shares were available for future grants.

   On August 4, 1999, the Board of Directors approved the repricing of all
outstanding incentive stock options for non-director employees with an exercise
price greater than $1.25. The new exercise price of such options is $1.25, an
amount greater than the fair market value of the Company's common stock on that
date. A total of 819,050 options with exercise prices of $1.53 to $6.40 were
cancelled and reissued under the terms described above. The Company is required
to account for these repriced options under variable plan accounting. No
compensation charge was recognized in fiscal year 2000 with regards to the 1999
repriced options as the fair market value of these options at December 31, 2000
was less than the exercise price.

                                       30
<PAGE>

   Shares subject to option are summarized as follows:

<TABLE>
<CAPTION>
                           Incentive   Weighted Average Non-qualified Weighted Average
                         Stock Options  Exercise Price  Stock Options  Exercise Price
                         ------------- ---------------- ------------- ----------------
<S>                      <C>           <C>              <C>           <C>
Balance, January 4,
 1998...................   1,023,600        $4.19           273,500        $5.27
  Options granted.......   1,170,900         2.54           106,750         3.63
  Options canceled......    (762,050)        5.05           (25,000)        5.13
  Options exercised.....     (63,500)        1.05           (35,000)        1.57
                          ----------        -----         ---------        -----
Balance, January 3,
 1999...................   1,368,950         2.75           320,250         5.14
  Options granted.......   1,533,300         1.48           240,000         1.62
  Options canceled......  (1,536,200)        2.29               --           --
  Options exercised.....     (70,500)        1.00               --           --
                          ----------        -----         ---------        -----
Balance January 2,
 2000...................   1,295,550         1.69           560,250         3.63
  Options granted.......   1,195,550         1.07           523,500         1.40
  Options canceled......  (1,356,150)        1.69           (82,500)        2.27
  Options exercised.....         --           --                --           --
                          ----------        -----         ---------        -----
Balance, December 31,
 2000...................   1,134,950        $1.05         1,001,250        $2.58
                          ==========        =====         =========        =====
Options exercisable at:
  January 3, 1999.......     534,000        $2.54           241,500        $5.01
  January 2, 2000.......     336,000         2.54           425,150         3.52
  December 31, 2000.....      87,575         1.12           681,615         2.72
</TABLE>

   Additional information regarding options outstanding at December 31, 2000 is
as follows:

<TABLE>
<CAPTION>
                                                               Weighted Average
                         Number    Exercise   Weighted Average    Remaining
      Type of Option   of Options Price Range  Exercise Price  Contractual Life
      --------------   ---------- ----------- ---------------- ----------------
      <S>              <C>        <C>         <C>              <C>
      Incentive.......   302,750  $0.42-$1.00      $0.50             6.87
      Incentive.......   697.950  $1.01-$1.50      $1.14             6.43
      Incentive.......   134,250  $1.51-$6.40      $1.83             5.58
                       ---------
                       1,134,950
                       =========
      Nonqualified....   734,750  $1.00-$3.00      $1.48             6.48
      Nonqualified....    95,500  $3.01-$5.00      $4.54             6.05
      Nonqualified....   171,000  $5.01-$6.50      $6.24             5.77
                       ---------
                       1,001,250
                       =========
</TABLE>

   The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related Interpretations in accounting for
its stock option plans. Accordingly, no compensation cost has been recognized
in the accompanying statements of operations, except as discussed above with
respect to the options repriced during 1999. Had compensation cost been
recognized based on the fair values of options at the grant dates consistent
with the provisions of SFAS No. 123, "'Accounting for Stock-Based
Compensation," the Company's net loss and net loss per common share would have
been increased to the following pro forma amounts:

<TABLE>
<CAPTION>
                                             2000         1999         1998
                                         ------------  -----------  -----------
      <S>                                <C>           <C>          <C>
      Net loss
        As reported..................... $(17,698,252) $(5,380,058) $(7,124,187)
        Pro forma....................... $(18,096,693)  (5,819,960)  (7,606,187)
      Net loss per common share
        As reported..................... $      (1.92) $      (.61) $      (.81)
        Pro forma.......................        (1.96)        (.66)        (.86)
</TABLE>

                                       31
<PAGE>

   The weighted average fair values of options granted were as follows:

<TABLE>
<CAPTION>
                                                       Incentive   Nonqualified
                                                     Stock Options Stock Options
                                                     ------------- -------------
      <S>                                            <C>           <C>
      2000 grants...................................     $1.14         $1.54
      1999 grants...................................      1.28          1.50
      1998 grants...................................      2.33          3.24
</TABLE>

   The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 2000, 1999 and 1998:

<TABLE>
<CAPTION>
                                                          2000    1999    1998
                                                         ------- ------- -------
      <S>                                                <C>     <C>     <C>
      Risk-free interest rate...........................   6.10%   6.10%   4.80%
      Expected life of incentive options                 7 years 7 years 5 years
      Expected life of nonqualified options              8 years 7 years 7 years
      Expected volatility...............................    186%    117%    114%
      Expected dividend yield...........................     --      --      --
</TABLE>

   401(k) Profit-Sharing Plan. Effective January 1, 1996, the Company adopted a
401(k) profit-sharing plan (the 401(k) Plan) covering substantially all
employees. Eligible employees may elect to defer up to 15% of their eligible
compensation. Beginning in 1998, the Company accrued matching contributions of
50% on the first 4% of each plan participant's eligible contributions. The
Company's matching contributions were $51,600, $83,100 and $69,600 for fiscal
year 2000, 1999 and 1998, respectively.

8. Commitments and Contingencies

   Leases. The Company leases its current headquarters office facilities under
an operating lease which expires November 30, 2004. The Company has subleased
two portions of the site: 12,422 square feet of office space has been subleased
for the period of September 1, 2000 to November 30, 2004 and 4,728 square feet
of warehouse space has been subleased for the period of January 1, 2001 to June
30, 2001. After June 30, 2001, the sublease on the warehouse space becomes
month-to-month and is cancelable by either party with a 60-day notice. Total
rental payments to be received over the term of the two sublease agreements
will be $759,000. The Company subleased its previous office facilities under an
operating lease that expired in June of 1999. Rent expense associated with
operating leases was $485,369, $469,680 and $459,090 for fiscal year 2000, 1999
and 1998, respectively. The Company also leases equipment under capital leases
which expire at December 2001. Property and equipment under capital leases at
December 31, 2000 totaled $124,200.

   The following is a schedule of future minimum lease payments as of December
31, 2000:

<TABLE>
<CAPTION>
                                                             Capital  Operating
                                                             leases    leases
                                                             -------  ---------
     <S>                                                     <C>      <C>
     2001................................................... $41,981  $496,599
     2002...................................................     --    511,998
     2003...................................................     --    501,446
     2004...................................................     --    448,588
     2005...................................................     --        --
     Thereafter.............................................     --        --
                                                             -------  --------
     Total minimum capital lease payments................... $41,981
     Less-
       Amount representing interest.........................  (3,383)
       Current maturities...................................  38,598
                                                             -------
     Noncurrent portion of minimum capital lease payments... $   --
                                                             =======
</TABLE>

   Legal Proceedings. The Company is involved in legal actions in the ordinary
course of its business. Although the outcome of any such legal actions cannot
be predicted, management believes that there is no

                                       32
<PAGE>

pending legal proceeding against or involving the Company for which the outcome
is likely to have a material adverse effect upon the Company's financial
position, results of operations or cash flows.

9. Quarterly Financial Data (Unaudited)

<TABLE>
<CAPTION>
                         First Quarter    Second Quarter     Third Quarter    Fourth Quarter
                         ---------------  ----------------  ----------------  ----------------
                          2000     1999    2000     1999     2000     1999     2000     1999
                         -------  ------  -------  -------  -------  -------  -------  -------
                                                 (in thousands)
<S>                      <C>      <C>     <C>      <C>      <C>      <C>      <C>      <C>
Net sales............... $ 4,347  $6,409  $ 4,050  $ 7,119  $ 3,436  $ 4,785  $ 3,863  $ 7,016
Gross profit (loss).....     965   2,063      681    1,909   (2,714)   1,246     (626)   2,161
Net loss applicable to
 common shareholders.... $(2,280) $ (474) $(3,775) $(1,266) $(7,256) $(2,274) $(4,387) $(1,366)
Basic and diluted loss
 per common share....... $  (.26) $ (.05) $  (.42) $  (.14) $  (.82) $  (.26) $  (.43) $  (.15)
                         -------  ------  -------  -------  -------  -------  -------  -------
Price range of common
 stock (1):
  High..................   3.094    3.50    2.375    2.625    1.688   1.6875    1.125     1.50
  Low...................   1.219    2.00     .625    1.375      .75    .9375     .281     .875
</TABLE>
--------
(1) FieldWorks, Incorporated common stock is traded on the Over the Counter
    Bulletin Board under the symbol "FWRX".

10. Segment Reporting

   Based on the requirements of Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information", the
Company has determined that development and sale of rugged portable computing
solutions is its only reportable segment. The accounting policies of the
segment are the same as those described in the summary of significant
accounting policies.

   Export sales by major location were as follows:

<TABLE>
<CAPTION>
                                                   2000       1999       1998
                                                ---------- ---------- ----------
      <S>                                       <C>        <C>        <C>
      Europe................................... $1,469,000 $2,815,000 $3,988,000
      Middle East/Africa.......................    236,000    450,000    565,000
      Russia...................................    337,000    108,000    123,000
      Americas.................................     95,000    104,000    709,000
      Australia................................      4,000     95,000    120,000
      Asia.....................................    159,000     90,000    119,000
                                                ---------- ---------- ----------
                                                $2,300,000 $3,662,000 $5,624,000
                                                ========== ========== ==========
</TABLE>

   Sales by product line were as follows:

<TABLE>
<CAPTION>
                                       2000           1999           1998
                                   ------------    -----------    -----------
      <S>                          <C>             <C>            <C>
      7000 Series................. $  1,826,000(1) $ 9,037,000    $12,445,000
      5000 Series.................    3,761,000(2)  12,592,000      7,547,000
      2000 Series.................    4,796,000      3,700,000         10,000(3)
      8000 Series.................    5,313,000(4)         -- (4)         -- (4)
                                   ------------    -----------    -----------
                                   $ 15,696,000    $25,329,000    $20,002,000
                                   ============    ===========    ===========
</TABLE>
--------
(1)  The 7000 Series product was discontinued and replaced with the 8000 Series
     product in fiscal year 2000.
(2)  The 5000 Series product was discontinued in fiscal year 2000.
(3)  The 2000 Series product was introduced in 1998.
(4)  The 8000 Series product was introduced in fiscal year 2000.

                                       33
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

   To FieldWorks, Incorporated:

   We have audited the accompanying balance sheets of FieldWorks, Incorporated
(a Minnesota corporation) as of December 31, 2000 and January 2, 2000, and the
related statements of operations, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

   In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of FieldWorks, Incorporated as
of December 31, 2000 and January 2, 2000, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2000 in conformity with accounting principles generally accepted in the
United States.

   Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule II is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not a
required part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in our audit of the basic
financial statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in relation to the
basic financial statements taken as a whole.

                                          Arthur Andersen LLP

Minneapolis, Minnesota,
January 29, 2001

                                       34
<PAGE>

                 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                                 Balance at Additions  Deductions--
 Fiscal                          Beginning   Charged   Write- Offs  Balance at
 Year                             of Year   to Expense of Accounts  End of Year
 ------                          ---------- ---------- ------------ -----------
 <C>    <S>                      <C>        <C>        <C>          <C>
        Allowance for Doubtful
 2000   Accounts                  259,600    132,500      58,000      334,100
        Accrued Severance and
        Restructuring Cost        230,000    442,900     597,500       75,400
        Allowance for Doubtful
 1999   Accounts                  269,800     10,200      20,400      259,600
        Accrued Severance and
        Restructuring Cost         16,100    400,000     186,100      230,000
        Allowance for Doubtful
 1998   Accounts                  384,600      1,600     116,400      269,800
        Accrued Severance and
        Restructuring Cost              0    447,500     431,400       16,100
</TABLE>