HANDSPRING INC, 424B4, 2000-06-21

HANDSPRING INC
424B4, 2000-06-21
ELECTRONIC COMPUTERS

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<PAGE> 1
Filed pursuant to Rule 424(b)(4)
Registration No. 333-33666

10,000,000 Shares

[HANDSPRING LOGO]

Common Stock

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

Prior to this offering, there has been no public market for our common
stock. The initial public offering price of the common stock is $20.00 per
share. Our common stock has been approved for listing on The Nasdaq Stock
Market's National Market under the symbol "HAND".

The underwriters have an option to purchase a maximum of 1,500,000
additional shares to cover over-allotments of shares.

INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 7.

<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS HANDSPRING, INC.
------------ ------------- ----------------
<S> <C> <C> <C>
Per Share............................................ $20.00 $1.35 $18.65
Total................................................ $200,000,000 $13,500,000 $186,500,000
</TABLE>

Delivery of the shares of common stock will be made on or about June 26,
2000.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

CREDIT SUISSE FIRST BOSTON
MERRILL LYNCH & CO.
DONALDSON, LUFKIN & JENRETTE
U.S. BANCORP PIPER JAFFRAY

The date of this prospectus is June 20, 2000.
<PAGE> 2

DESCRIPTION OF GRAPHICS

INSIDE FRONT COVER

The right two-thirds of the page is a snapshot of the front of a Visor
handheld computer. It is set at an angle on the page. The display shows a page
from the calendar with entries. The left one-third of the page shows five
snapshots of the Visor handheld computer set at a 45 degree angle on the page
and in a column, with the display of each showing a different function of the
unit. The five displays from the top of the page to the bottom of the page are:
calendar, city time, memo list, to do list and the calculator. There are no
captions.

INSIDE BACK COVER

The left two-thirds of the page is a snapshot of the back of a Visor
handheld computer that is actual size. A module is half-inserted into the
Springboard expansion slot. The right one-third of the page shows five snapshots
of other modules for the Springboard expansion slot in a column inserted inside
a device. Each screenshot shows the springboard module applications. There are
no captions.

<PAGE> 3

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TABLE OF CONTENTS

<TABLE>
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PAGE
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<S> <C>
PROSPECTUS SUMMARY.................. 4
RISK FACTORS........................ 7
SPECIAL NOTE REGARDING FORWARD-
LOOKING STATEMENTS................ 19
USE OF PROCEEDS..................... 20
DIVIDEND POLICY..................... 20
CAPITALIZATION...................... 21
DILUTION............................ 22
SELECTED CONSOLIDATED FINANCIAL
DATA.............................. 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS..................... 24
</TABLE>

<TABLE>
<CAPTION>
PAGE
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<S> <C>
BUSINESS............................ 29
MANAGEMENT.......................... 41
RELATED PARTY TRANSACTIONS.......... 51
PRINCIPAL STOCKHOLDERS.............. 53
DESCRIPTION OF CAPITAL STOCK........ 55
SHARES ELIGIBLE FOR FUTURE SALE..... 57
UNDERWRITING........................ 59
NOTICE TO CANADIAN RESIDENTS........ 62
LEGAL MATTERS....................... 63
EXPERTS............................. 63
WHERE YOU MAY FIND MORE
INFORMATION....................... 63
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS........................ F-1
</TABLE>

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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.

Except as otherwise indicated, information in this prospectus reflects the
following:

- the conversion of all our outstanding shares of preferred stock into
shares of common stock immediately prior to the closing of this offering;

- no exercise of the underwriters' over-allotment option; and

- a 3-for-2 stock split of our common stock in May 2000.

Handspring, the Handspring logo, Springboard and Visor are our trademarks.
Palm, Palm OS operating system and HotSync are trademarks of Palm, Inc. All
other trademarks or trade names appearing elsewhere in this prospectus are the
property of their respective owners.

DEALER PROSPECTUS DELIVERY OBLIGATION

UNTIL JULY 15, 2000, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER
A PROSPECTUS WHEN ACTING AS AN UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS
OR SUBSCRIPTIONS.
3
<PAGE> 4

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and does not contain all of the information you
should consider before buying shares in this offering. You should read the
entire prospectus carefully.

HANDSPRING, INC.

We are a leading provider of handheld computers. Our first product, the
Visor handheld computer, is a personal organizer that is enhanced by an open
expansion slot, which we refer to as our Springboard platform. Since its
introduction in October 1999, our Visor has won numerous awards, including PC
Magazine's annual "Technical Excellence" award for handheld devices, first place
in CNET.com's Consumer Electronics "Top Ten Must-Haves" and inclusion in
Business Week's "Best Products of the Year." More than 2,500 developers have
registered with Handspring to receive support in developing modules that can be
easily snapped into the Springboard expansion slot. Examples of modules
commercially available or in development include content such as books and
games; consumer applications such as an MP3 player, a digital camera and a
global positioning system receiver; and communications applications such as
wireless modems and two-way pagers offering Internet and intranet connectivity.
We will continue to be an innovator in designing expandable handheld devices
that enable new mobile computing and communications applications.

The handheld computing and communications industry is growing rapidly as
users, particularly mobile professionals, increasingly rely on electronic
management of critical personal and professional information, interaction with
Internet-based information resources and mobile voice and data communications.
This increased need for productivity and connectivity "anywhere, anytime" has
led to a wide array of handheld devices. Some handheld devices focus on handheld
computing functions, including calendar and contact management, while others
focus on communications functions, including voice communications, email and
Internet access.

While demand for these devices has grown rapidly, we believe that product
evolution in this sector is still in its early stage. International Data
Corporation estimates that worldwide shipments of smart handheld devices will
grow from approximately 8.2 million units in 1999 to approximately 35.5 million
units in 2003. We believe that the emergence of more powerful, flexible devices
with increased functionality and broad consumer applications will further expand
the potential market for handheld computing and communications devices. The key
challenge in addressing this market is designing a device that is small, elegant
and easy to use, yet flexible enough to support a wide variety of personal
preferences and professional requirements.

Our team has extensive experience in handheld computing design. Our Visor
handheld computer combines the functionality of a handheld organizer with the
flexibility of our Springboard expansion slot, enabling users to customize their
device to deliver a broad range of applications. Key elements of our solution
include:

- EASY TO USE PRODUCTS. Our Visor handheld computers are designed to
delight our customers with a simple, intuitive solution for their
computing, information and entertainment needs. In addition, users can
simply insert modules into our Springboard expansion slot without the
need to separately install or delete software.

- FLEXIBLE PLATFORM. The Springboard expansion slot enables users to
customize the functionality of their Visor handheld computers. To
encourage widespread module development, our Springboard expansion slot
was designed with an open face allowing great flexibility in the size,
form and functionality of the modules that developers create.
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- OPEN DEVELOPMENT ENVIRONMENT. Our Springboard technology provides an open
platform to developers, with all documentation available on our Web site,
allowing them to create modules without paying royalties or license fees.
We offer a wide variety of marketing and support programs to help our
developers build successful businesses based on Springboard modules.

- VALUE LEADERSHIP. Our products are designed to combine superior
functionality with competitive pricing in order to drive widespread
adoption within the broad consumer market.

- COMPATIBILITY. The compatibility of our products with the Palm OS
operating system, which we have licensed from Palm, allows our Visor
handheld computers to run thousands of applications developed for that
operating system.

Our objective is to become a global market leader in the handheld computing
and communications marketplace. Key elements of our strategy include:

- DEVELOP PRODUCTS BASED ON CUSTOMER FOCUSED DESIGN AND INNOVATION. We
intend to continue building on the history of innovation of key members
of our management and product development teams, who founded and led the
Palm Computing business from its inception until the founding of
Handspring in mid-1998.

- PENETRATE LARGE AND GROWING HANDHELD COMPUTING AND COMMUNICATIONS
MARKET. Our Visor handheld computer's Springboard expandability,
organizer functionality and competitive pricing provide us with immediate
access to the large and growing handheld computing and communications
market.

- ESTABLISH MULTIPLE REVENUE SOURCES. We intend to derive additional
sources of revenue from internally developed Springboard modules,
distribution of Springboard modules developed by third parties, product
accessories and services.

- ESTABLISH A STRONG BRAND IDENTITY. Our goal is to establish Handspring as
the premier brand in the consumer handheld computing market by creating
an image that is innovative, fun, smart, approachable, compelling and
personal.

- ADDRESS ADDITIONAL MARKETS BY ATTRACTING AND SUPPORTING THE DEVELOPMENT
COMMUNITY. Our goal is to develop a competitive advantage from a large
and innovative developer community focused on our Springboard platform.
These developers will enable Handspring to sell into new and broader
areas, such as the education and medical device markets.

- LEVERAGE OUTSOURCE MODEL. Our strategy is to focus on what we do best,
creating innovative products. We believe that by outsourcing many other
functions, including manufacturing, order fulfillment and repair, we will
keep the number of our employees small relative to our scale. This
strategy will allow us to be more creative, flexible, aggressive and
competitive.

We initiated our product launch exclusively through our handspring.com Web
site. Beginning in March 2000, we extended our distribution to include initially
three national retailers, Best Buy, CompUSA and Staples. In May 2000, we
expanded our international presence by beginning to sell our products in Europe
through both our Web site and retail distribution. In all markets, we plan to
work closely with our retail partners to provide an outstanding retail presence,
and to enable an efficient channel for broad consumer availability of our
products. We recently announced the establishment of our office in Japan in
order to start building our business in that market.

We were incorporated in California as JD Technology, Inc. in July 1998 and
changed our name to Handspring, Inc. in November 1998. We reincorporated in
Delaware in May 2000. Our principal executive offices are located at 189
Bernardo Avenue, Mountain View, California, and our telephone number is (650)
230-5000. Our Web site address is handspring.com. The information on the Web
site is not part of this prospectus.
5
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THE OFFERING

Common stock offered.................... 10,000,000 shares

Common stock to be outstanding after the
offering................................ 125,253,728 shares

Use of proceeds......................... For general corporate purposes,
including working capital.

Nasdaq National Market Symbol........... HAND

The number of shares of our common stock to be outstanding after this
offering is based on the number outstanding on April 1, 2000 plus 895,342 shares
issued in May 2000 upon the exercise of a right to purchase shares, and
excludes:

- 20,684,999 shares subject to options outstanding as of April 1, 2000 at a
weighted average exercise price of $0.99 per share, and

- 7,651,243 shares that are available for issuance under our stock option
plans.

After April 1, 2000, we adopted stock option and purchase plans, which will
become effective on the effective date of this offering, with a total of
15,750,000 shares available for issuance.

SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
APRIL 1, 2000
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
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<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 17,407 $18,907 $203,907
Working capital............................................. 6,297 7,797 192,797
Total assets................................................ 38,651 40,151 225,151
Long-term liabilities....................................... 64 64 64
Redeemable convertible preferred stock...................... 27,962 -- --
Total stockholders' equity (deficit)........................ (15,909) 13,553 198,553
</TABLE>

See Note 2 to the notes to our consolidated financial statements for an
explanation of the determination of the number of shares used in computing per
share data.

The pro forma column in the consolidated balance sheet data reflects the
automatic conversion of all shares of preferred stock into common stock and the
exercise of a right to purchase 895,342 shares of common stock at an exercise
price of $1.6753 per share in May 2000. The pro forma as adjusted column in the
consolidated balance sheet data reflects the receipt of the net proceeds from
the sale of shares of common stock offered by us at the initial public offering
price of $20.00 per share, after deducting the underwriting discounts and
commissions and estimated offering expenses payable by us.
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<PAGE> 7

RISK FACTORS

You should carefully consider the risks described below before making a
decision to buy our common stock. The risks and uncertainties described below
are not the only ones we face. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial may also materialize and impair
our business operations. If any of the following risks actually materializes,
our business could be harmed. In that case, the trading price of our common
stock could decline, and you might lose all or part of your investment. You
should also refer to the other information set forth in this prospectus,
including our financial statements and the related notes.

RISKS RELATED TO OUR BUSINESS AND INDUSTRY

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

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

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

Given our lack of operating history, you should not rely on
quarter-to-quarter comparisons of our results of operations as an indication of
our future performance. In some future periods, our results of operations could
be below the expectations of investors and public market analysts, if any choose
to follow our stock. In this event, the price of our common stock would likely
decline. Factors that are likely to cause our results to fluctuate include the
following:

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

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

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

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

- the seasonality of our product sales;

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

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

- the mix of products that we offer.

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

Our accumulated deficit as of April 1, 2000 was approximately $49.2
million. We had net losses of approximately $8.4 million for the period from
July 29, 1998 (date of inception) to June 30, 1999

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and $40.8 million in the first nine months of fiscal 2000. To date we have
funded our operations primarily through the sale of equity securities. Moreover,
we expect to incur significant operating expenses. We also expect to incur
substantial non-cash costs relating to the amortization of deferred
compensation, which will contribute to our net losses. As of April 1, 2000, we
had a total of $63.5 million of deferred compensation to be amortized. As a
result, we expect to continue to incur losses into calendar year 2001. Even if
we ultimately do achieve profitability, we may not be able to sustain or
increase profitability on a quarterly or annual basis. If our revenue grows more
slowly than we anticipate, or if our operating expenses exceed our expectations
and cannot be adjusted accordingly, our business will be harmed. See "Selected
Consolidated Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for a more complete description
of our historical losses.

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

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

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

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

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

To date, we have generated a significant portion of our revenue through our
Web site. As a result, our business depends on our ability to maintain and
expand our computer systems. We must also protect our computer systems against
damage from fire, water, power loss, telecommunications

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

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

We sell our products both through our handspring.com Web site as well as
through retail partners. In March 2000, we entered into agreements with Best
Buy, CompUSA (and Wynit, Inc., a supplier to CompUSA) and Staples to resell our
products in their stores in the United States. In May 2000 we began selling our
products through European retailers, namely Dixons in the United Kingdom and
MediaMarkt in Germany (and ALSO ABC Trading GmbH, a supplier to MediaMarkt). We
expect to add additional retail partners through the remainder of 2000 including
U.S. and Canadian retail chains, retailers in other international markets and
Internet retailers. Because we expect to increase the portion of our products we
sell to retailers, we are subject to many risks, including the following:

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

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

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

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

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

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

In addition, as revenues through our retail distribution channel increase
as a percentage of total revenues, we expect our gross margins will decrease as
sales through retailers are made at lower margins than sales through our Web
site. We also expect a higher percentage of retail distribution sales to
negatively impact our cash cycle.

OUR PRODUCTION WOULD BE SERIOUSLY HARMED IF OUR SUPPLIERS ARE NOT ABLE TO MEET
OUR DEMAND AND ALTERNATIVE SOURCES ARE NOT AVAILABLE.

Our products contain components, including liquid crystal displays, touch
panels, memory chips and microprocessors, that are procured from a variety of
suppliers. We do not carry any inventory of our products or product components.
We rely on our suppliers to deliver necessary components to our contract
manufacturers in a timely manner based on forecasts that we provide. At various
times, some of the key components for handheld computers, including display
components and flash memory, have been in short supply, taking up to 180 days
between ordering and delivery. The recurrence of this delay would harm our
ability to deliver our products on a timely basis. The cost,
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quality and availability of components are essential to the successful
production and timely sale of our products.

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

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

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

- use leading technologies effectively;

- continue to develop our technical expertise;

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

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

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

- successfully advertise and market our products; and

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

We must respond to changing technology and industry standards in a timely
and cost-effective manner. We may not be successful in effectively using new
technologies, developing new products or enhancing our existing products on a
timely basis. These new technologies or enhancements may not achieve market
acceptance. Our pursuit of necessary technology may require substantial time and
expense. We may need to license new technologies to respond to technological
change. These licenses may not be available to us on terms that we can accept.
Finally, we may not succeed in adapting our products to new technologies as they
emerge.

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

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

As the uses for our Visor handheld computer and potential uses for our
Springboard slot continue to evolve, we plan to develop additional complementary
products and services as additional sources of revenue. Accordingly, we may
change our business model to take advantage of new business opportunities,
including business areas in which we do not have extensive experience. For

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example, we may create products that rely on a wireless infrastructure. If we
fail to develop these or other products successfully, our business would be
harmed.

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

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

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

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

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

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

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

Because we have a limited operating history and did not begin selling our
products until October 1999, we have very little information about demand for
our products. The demand for our products depends on many factors and is
difficult to forecast. We experienced product shortages when we introduced our
Visor handheld computer because we underestimated initial demand. We expect that
it will become even more difficult to forecast demand as we introduce and
support multiple products and as competition in the market for our products
intensifies. Significant unanticipated fluctuations in demand could cause
problems in our operations.

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

If demand exceeds our expectations, we will need to rapidly increase
production at our third-party manufacturers. Our suppliers will also need to
provide additional volumes of components, which

11
<PAGE> 12

may not be possible within our timeframe. For example, some components,
including plastics, require a lead time of approximately three months to
increase quantity. Even if our third-party manufacturers are able to obtain
enough components, they might not be able to produce enough of our products as
fast as we need them. The inability of either our manufacturers or our suppliers
to increase production rapidly enough could cause us to fail to meet customer
demand. In addition, rapid increases in production levels to meet unanticipated
demand could result in higher costs for manufacturing and supply of components
and other expenses. These higher costs would lower our profit margins.

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

We depend on third-party manufacturers to produce sufficient volume of our
handheld devices, modules and accessories in a timely fashion and at
satisfactory quality levels. The cost, quality and availability of third-party
manufacturing operations are essential to the successful production and sale of
our products. We have a manufacturing agreement with Flextronics under which we
order products on a purchase order basis in accordance with a forecast. In
addition, in April 2000, we qualified a second manufacturer of our products,
Solectron. We expect Solectron's Guadalajara, Mexico facility to be operational
by the end of summer 2000. The absence of dedicated capacity under our
manufacturing agreements means that, with little or no notice, our manufacturers
could refuse to continue to manufacture all or some of the units of our devices
that we require or change the terms under which they manufacture our devices. If
they were to stop manufacturing our devices, it could take up to six months to
qualify an alternative manufacturer to replace the lost manufacturing capacity
and our results of operations could be harmed. In addition, if our manufacturers
were to change the terms under which they manufacture for us, our manufacturing
costs could increase and our results of operations could suffer.

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

- unexpected increases in manufacturing and repair costs;

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

- inability to control quality of finished products;

- inability to control delivery schedules;

- unpredictability of manufacturing yields; and

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

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

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

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

We expect to experience seasonality in the sales of our products. We
anticipate sales to be higher in our second fiscal quarter due to increased
consumer spending patterns on electronic devices

12
<PAGE> 13

during the holiday season. We also expect that sales may decline during the
summer months because of typical slower consumer spending in this period. These
seasonal variations in our sales may lead to fluctuations in our quarterly
operating results.

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

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

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

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

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

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

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

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

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

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

13
<PAGE> 14

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

We have experienced rapid growth and expansion since our inception. From
July 29, 1998 to April 1, 2000, we increased the number of our employees from
two to 132. This growth has placed, and will continue to place, a significant
strain on our management and information systems and operational and financial
resources. To manage future growth, our management must continue to improve our
operational and financial systems and expand, train, retain and manage our
employee base. Our management may not be able to manage our growth effectively.
If our systems, procedures and controls are inadequate to support our
operations, our expansion would be halted and we could lose our opportunity to
gain significant market share. Any inability to manage growth effectively may
harm our business.

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

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

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

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

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

Our future success depends on our ability to attract, retain and motivate
highly skilled employees. Competition for employees in our industry is intense.
Although we provide compensation packages that include stock options, cash
incentives and other employee benefits, we may be unable to retain our key
employees or to attract, assimilate and retain other highly qualified employees
in the future. For example, after this offering, fluctuations in the market
price of our common stock could lead potential and existing employees to believe
that our equity incentives are less attractive, which

14
<PAGE> 15

could adversely affect our ability to attract and retain qualified employees. We
expect to experience difficulty in hiring and retaining highly skilled employees
with appropriate qualifications.

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

Our success and ability to compete substantially depends on our internally
developed proprietary technologies, which we protect through a combination of
trade secret, trademark, copyright and patent laws. No U.S. or foreign patents
have been granted to us and only three U.S. patent applications have been filed.
Patent applications or trademark registrations may not be approved. Even if they
are approved, our patents or trademarks may be successfully challenged by others
or invalidated. In addition, any patents that may be granted to us may not
provide us a significant competitive advantage. If our trademark registrations
are not approved because third parties own these trademarks, our use of these
trademarks would be restricted unless we enter into arrangements with the
third-party owners, which might not be possible on commercially reasonable terms
or at all. If we fail to protect or enforce our intellectual property rights
successfully, our competitive position could suffer.

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

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

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

- pay substantial damages;

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

- discontinue the use of certain technology; or

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

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

To date, we have generated substantially all of our revenue from sales in
the United States. In May 2000, we entered the European market, and in June
2000, we introduced our products in Japan. We expect to enter additional
international markets over time. To the extent that our revenue from

15
<PAGE> 16

international operations represents an increasing portion of our total revenue,
we will be subject to increased exposure to international risks. In addition,
the facilities where our Visor handheld computers are, and will be, manufactured
are located outside the United States. A substantial number of our material
suppliers are based outside of the United States, and are subject to a wide
variety of international risks. Accordingly, our future results could be harmed
by a variety of factors, including:

- changes in foreign currency exchange rates;

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

- trade protection measures and import or export licensing requirements;

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

- potentially negative consequences from changes in tax laws;

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

- difficulty in managing widespread sales and manufacturing operations; and

- less effective protection of intellectual property.

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

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

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

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

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

- develop new products or services; or

- respond to competitive pressures.

Any additional financing we need may not be available on terms acceptable
to us, or at all. If adequate funds are not available or are not available on
acceptable terms, we might not be able to take advantage of unanticipated
opportunities, develop new products or services or otherwise respond to
unanticipated competitive pressures, and our business could be harmed. Our
forecast of the period of time through which our financial resources will be
adequate to support our operations is a forward-

16
<PAGE> 17

looking statement that involves risks and uncertainties, and actual results
could vary materially as a result of a number of factors, including those set
forth in this "Risk Factors" section.

RISKS RELATED TO THIS OFFERING

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

The market price of the securities of technology-related companies has been
especially volatile. Thus, the market price of our common stock is likely to be
subject to wide fluctuations. If our revenues do not grow or grow more slowly
than we anticipate, or, if operating or capital expenditures exceed our
expectations and cannot be adjusted accordingly, or if some other event
adversely affects us, the market price of our common stock could decline. In
addition, if the market for technology-related stocks or the stock market in
general experiences a loss in investor confidence or otherwise fails, the market
price of our common stock could fall for reasons unrelated to our business,
results of operations and financial condition. The market price of our stock
also might decline in reaction to events that effect other companies in our
industry even if these events do not directly affect us. The initial public
offering price of the common stock was determined through negotiations between
the representatives of the underwriters and us and may not be representative of
the price that will prevail in the open market. You might be unable to resell
your shares of our common stock at or above the offering price. In the past,
companies that have experienced volatility in the market price of their stock
have been the subject of securities class action litigation. If we were to
become the subject of securities class action litigation, it could result in
substantial costs and a diversion of management's attention and resources.

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

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

OUR OFFICERS AND DIRECTORS EXERT SUBSTANTIAL INFLUENCE OVER US.

We anticipate that our executive officers, our directors and entities
affiliated with them together will beneficially own approximately 83.2% of our
outstanding common stock following the completion of this offering. As a result,
these stockholders will be able to exercise substantial influence over all
matters requiring approval by our stockholders, including the election of
directors and approval of significant corporate transactions. This concentration
of ownership may also have the effect of delaying or preventing a change in our
control that may be viewed as beneficial by other stockholders.

MANAGEMENT COULD INVEST OR SPEND THE PROCEEDS OF THIS OFFERING IN WAYS WITH
WHICH OUR STOCKHOLDERS MIGHT NOT AGREE.

We have no specific allocations for the net proceeds of this offering.
Consequently, management will retain a significant amount of discretion over the
application of these proceeds. Because of the number and variability of factors
that will determine our use of these proceeds, our applications may vary
substantially from our current intentions to invest the net proceeds of the
offering in short-term, interest-bearing, investment-grade securities.

17
<PAGE> 18

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

If our existing stockholders sell substantial amounts of our common stock
in the public market following this offering, the market price of our common
stock could decline. Based on shares outstanding as of April 1, 2000, upon
completion of this offering we will have outstanding approximately 125,253,728
shares of common stock including the exercise of a right to purchase 895,342
shares of common stock in May 2000 and assuming no exercise of the underwriters'
over-allotment option. Of these shares, only the 10,000,000 shares of common
stock sold in this offering will be freely tradeable, without restriction, in
the public market. After the lockup agreements pertaining to this offering
expire 180 days from the date of this prospectus, an additional 115,253,728
shares will be eligible for sale in the public market at various times,
102,980,142 of which are held by directors, executive officers and other
affiliates, and are subject to volume limitations under Rule 144 of the
Securities Act of 1933 and various vesting agreements. In addition, the
20,684,999 shares subject to outstanding options and 23,401,243 shares reserved
for future issuance under our stock option and purchase plans will become
eligible for sale in the public market to the extent permitted by the provisions
of various vesting agreements, the lock-up agreements and Rules 144 and 701
under the Securities Act. See "Shares Eligible for Future Sale" for more
information regarding shares of our common stock that may be sold by existing
stockholders after the closing of this offering.

YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION.

The initial public offering price is substantially higher than the pro
forma net book value per share of the outstanding common stock. As a result, if
you purchase common stock in this offering, you will incur immediate and
substantial dilution in the amount of $18.41 per share. In addition, we have
issued options to acquire common stock at prices significantly below the initial
public offering price. To the extent these outstanding options are exercised,
you will be further diluted. See "Dilution" for a more complete description of
the dilution that you will incur.

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<PAGE> 19

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

We have made statements under the captions "Prospectus Summary," "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business" and in other sections of this prospectus that
are forward-looking statements. In some cases, you can identify these statements
by forward-looking words such as "may," "might," "will," "should," "expects,"
"plans," "anticipates," "believes," "estimates," "predicts," "potential" or
"continue," the negative of these terms and other comparable terminology. These
forward-looking statements, which are subject to risks, uncertainties and
assumptions about us, may include projections of our future financial
performance, our anticipated growth strategies and anticipated trends in our
business. These statements are only predictions based on our current
expectations and projections about future events. There are important factors
that could cause our actual results, level of activity, performance or
achievements to differ materially from the results, level of activity,
performance or achievements expressed or implied by the forward-looking
statements, including those factors discussed under the caption entitled "Risk
Factors." You should specifically consider the numerous risks outlined under
"Risks Factors."

Although we believe the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of any of these
forward-looking statements. We are under no duty to update any of these
forward-looking statements after the date of this prospectus to conform our
prior statements to actual results or revised expectations.

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<PAGE> 20

USE OF PROCEEDS

We estimate that the net proceeds to us from the sale of 10,000,000 shares
of common stock in this offering will be approximately $185.0 million, or
approximately $213.0 million if the underwriters exercise their over-allotment
option in full, at the initial public offering price of $20.00 per share, after
deducting the underwriting discounts and commissions and estimated offering
expenses payable by us.

The principal purposes of this offering are to obtain additional working
capital, establish a public market for our common stock and facilitate our
future access to public capital markets. We currently expect to use the net
proceeds from this offering for general corporate purposes, including sales and
marketing expenses and working capital. Our management will retain broad
discretion in the allocation of the net proceeds of this offering. The amounts
we actually spend will depend on a number of factors, including the amount of
our future revenues and other factors described elsewhere in this prospectus. We
may use a portion of the net proceeds to acquire or invest in complementary
businesses, technologies, products or services. We have no present commitments
or agreements with respect to any acquisition or investment. Pending these uses,
we intend to invest the net proceeds in short-term, interest-bearing,
investment-grade securities.

DIVIDEND POLICY

We have never declared or paid cash dividends on our capital stock. We
currently expect to retain earnings, if any, to finance the growth and
development of our business. Therefore, we do not anticipate declaring or paying
cash dividends on our common stock in the foreseeable future. In addition, under
our loan agreement with Comdisco, Inc., we cannot declare or pay any cash
dividend without the prior written consent of Comdisco.

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<PAGE> 21

CAPITALIZATION

The following table sets forth our capitalization as of April 1, 2000. Our
capitalization is presented:

- on an actual basis;

- on a pro forma basis to reflect the conversion of our outstanding
preferred stock into common stock immediately prior to the closing of
this offering and the exercise of a right to purchase 895,342 shares of
common stock at an exercise price of $1.6753 per share in May 2000; and

- on a pro forma as adjusted basis to reflect the sale of the shares of
common stock offered by us at the initial public offering price of $20.00
per share, after deducting the underwriting discounts and commissions and
estimated offering expenses payable by us.

<TABLE>
<CAPTION>
APRIL 1, 2000
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE AND
PER SHARE AMOUNTS)
<S> <C> <C> <C>
Long-term liabilities................................ $ 64 $ 64 $ 64
Redeemable convertible preferred stock, $0.001 par
value per share, 9,300,000 shares authorized,
actual and pro forma, 9,005,430 shares issued
and outstanding, actual, no shares, issued or
outstanding, pro forma and no shares authorized,
issued or outstanding pro forma as adjusted..... 27,962 -- --
Stockholders' equity (deficit):
Preferred stock, $0.001 par value per share, no
shares authorized, actual or pro forma,
10,000,000 shares authorized, pro forma as
adjusted, no shares issued or outstanding,
actual, pro forma or pro forma as adjusted...... -- -- --
Common stock, $0.001 par value per share,
157,500,000 shares authorized, actual and pro
forma, 73,833,951 shares issued and outstanding,
actual, 115,253,728 shares issued and
outstanding, pro forma, 1,000,000,000 shares
authorized, pro forma as adjusted, 125,253,728
shares issued and outstanding pro forma as
adjusted........................................ 74 115 125
Additional paid-in capital......................... 96,580 126,001 310,991
Deferred stock compensation........................ (63,458) (63,458) (63,458)
Accumulated other comprehensive income............. 48 48 48
Accumulated deficit................................ (49,153) (49,153) (49,153)
-------- -------- --------
Total stockholders' equity (deficit)............ (15,909) 13,553 198,553
-------- -------- --------
Total capitalization............................ $ 12,117 $ 13,617 $198,617
======== ======== ========
</TABLE>

The common stock to be outstanding after the offering, as of April 1, 2000,
excludes:

- 20,684,999 shares of our common stock subject to options outstanding as
of April 1, 2000 at a weighted average exercise price of $0.99 per share;
and

- 7,651,243 additional shares of our common stock that are available for
issuance under our stock option plans.

After April 1, 2000, we adopted stock option and purchase plans, which will
become effective on the effective date of this offering, with a total of
15,750,000 shares available for issuance.

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<PAGE> 22

DILUTION

Our pro forma net tangible book value as of April 1, 2000 was approximately
$13.6 million, or $0.12 per share of common stock. Our pro forma net tangible
book value per share represents our total tangible assets less total liabilities
divided by the pro forma total number of shares of common stock outstanding at
such date and including the exercise of a right to purchase 895,342 shares of
common stock at an exercise price of $1.6753 per share in May 2000, assuming the
conversion of all outstanding shares of preferred stock into shares of common
stock immediately prior to the closing of this offering. The dilution in pro
forma net tangible book value per share represents the difference between the
amount per share paid by purchasers of shares of our common stock in this
offering and the net tangible book value per share of our common stock
immediately following this offering.

Without taking into account any changes in net tangible book value after
April 1, 2000, other than to give effect to the sale of the shares of common
stock offered by us at the initial public offering price of $20.00 per share,
after deducting the underwriting discounts and commissions and estimated
offering expenses payable by us, our pro forma net tangible book value as of
April 1, 2000 would have been approximately $198.6 million or $1.59 per share of
common stock. This amount represents an immediate increase in pro forma net
tangible book value of $1.47 per share to the existing stockholders and an
immediate dilution in pro forma net tangible book value of $18.41 per share to
new investors purchasing shares in this offering. The following table
illustrates the dilution in pro forma net tangible book value per share to new
investors.

<TABLE>
<S> <C> <C>
Initial public offering price per share..................... $20.00
Pro forma net tangible book value per share as of April 1,
2000................................................... $0.12
Increase per share attributable to new investors.......... 1.47
-----
Pro forma net tangible book value per share after the
offering.................................................. $ 1.59
------
Dilution per share to new investors......................... $18.41
======
</TABLE>

The following table summarizes on a pro forma basis as of April 1, 2000,
the number of shares of common stock purchased from us, the total consideration
paid to us and the average price per share paid by existing stockholders and to
be paid by new investors purchasing shares of common stock in this offering at
an initial public offering price of $20.00 per share, before deducting
underwriting discounts and commissions and estimated offering expenses payable
by us.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... 115,253,728 92.0% $ 31,993,833 13.8% $ 0.28
New investors.............. 10,000,000 8.0 200,000,000 86.2 20.00
----------- ----- ------------ -----
Total.................... 125,253,728 100.0% $231,993,833 100.0%
=========== ===== ============ =====
</TABLE>

The above information assumes no exercise of the underwriters'
over-allotment option and excludes exercises of stock options after April 1,
2000. As of April 1, 2000, there were outstanding options to purchase a total of
20,684,999 shares of our common stock at a weighted average exercise price of
$0.99 per share and an additional 7,651,243 shares were available under our
stock option plans. After April 1, 2000, we adopted stock option and purchase
plans, which will become effective on the effective date of this offering, with
a total of 15,750,000 shares available for issuance. To the extent any of these
options are exercised, there will be further dilution to new investors.

22
<PAGE> 23

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our consolidated financial statements and related
notes included elsewhere in this prospectus. The selected consolidated balance
sheet data as of June 30, 1999 and April 1, 2000 and the selected consolidated
statement of operations data for the period from July 29, 1998 (date of
inception) to June 30, 1999 and the nine-month period ended April 1, 2000 have
been derived from our audited consolidated financial statements, and are
included elsewhere in this prospectus. The consolidated statement of operations
data for the period from July 29, 1998 (date of inception) to March 31, 1999,
are derived from unaudited interim financial statements included elsewhere in
this prospectus. The unaudited financial statements have been prepared on
substantially the same basis as the audited financial statements and, in the
opinion of management, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results of
operations for such periods. Historical results are not necessarily indicative
of the results to be expected in the future, and results of interim periods are
not necessarily indicative of results for the entire year or any future period.

<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
JULY 29, 1998 JULY 29, 1998 NINE MONTHS
(DATE OF INCEPTION) (DATE OF INCEPTION) ENDED
TO JUNE 30, 1999 TO MARCH 31, 1999 APRIL 1, 2000
------------------- ------------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue.................................. $ -- $ -- $ 50,111
------- ------- --------
Costs and operating expenses:
Cost of revenue....................... -- -- 34,171
Research and development.............. 2,738 1,137 6,733
Selling, general and administrative... 2,451 898 23,888
Amortization of deferred stock
compensation........................ 3,646 2,425 26,420
------- ------- --------
Total costs and operating
expenses......................... 8,835 4,460 91,212
------- ------- --------
Loss from operations..................... (8,835) (4,460) (41,101)
Interest and other income, net........... 446 301 337
------- ------- --------
Net loss................................. $(8,389) $(4,159) $(40,764)
======= ======= ========
Basic and diluted net loss per share..... $ (0.71) $ (0.36) $ (1.34)
======= ======= ========
Shares used in calculating basic and
diluted net loss per share............ 11,772 11,451 30,403
======= ======= ========
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, APRIL 1,
1999 2000
-------- --------
(IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents and short-term investments...... $13,767 $ 17,407
Working capital........................................... 13,108 6,297
Total assets.............................................. 15,631 38,651
Long-term liabilities..................................... -- 64
Redeemable convertible preferred stock.................... 17,972 27,962
Total stockholders' deficit............................... (3,616) (15,909)
</TABLE>

23
<PAGE> 24

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The following discussion of our results of operations and financial
condition should be read in conjunction with the consolidated financial
statements and other financial information included in this prospectus. This
discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results may be materially different from those
anticipated in these forward-looking statements resulting from various factors,
including those discussed under "Risk Factors" and elsewhere in this prospectus.

OVERVIEW

We were incorporated in July 1998 to develop innovative handheld computers
that are fun, smart, approachable, compelling and personal. Our business is
focused on the sale of our Visor handheld computer, Springboard modules that we
have developed and related accessories. Shipments of these products began in
October 1999 for orders received through our Web site. In March 2000, we began
shipping our products to selected retailers.

During the period from inception to June 30, 1999, our operating activities
were focused on developing our products, obtaining license rights, establishing
third party manufacturing and distribution relationships, recruiting personnel
and raising capital. During that period, we incurred expenses and generated no
revenue. We first recognized revenue in the second quarter of fiscal 2000. The
following discussion compares the period from inception to March 31, 1999 with
the nine-month period ended April 1, 2000 and also addresses activity from the
date of inception to June 30, 1999. For the purpose of this discussion, when we
refer to the period ended March 31, 1999, we are referring to the period from
inception to March 31, 1999, and when we refer to fiscal 1999, we are referring
to the period from inception to June 30, 1999.

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

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

RESULTS OF OPERATIONS

Revenue. Revenue is comprised almost entirely of sales of our handheld
computer devices and related peripherals and accessories. We began shipping
products in October 1999 for orders received through our handspring.com Web
site. In March 2000, we extended our distribution strategy to include initially
three national retailers, Best Buy, CompUSA and Staples. Product orders placed
by end user customers are received via our handspring.com Web site or over the
telephone via our third party customer support partner. Retail sales orders are
placed in our internal order processing system. All orders are then transmitted
to our logistics partner. We take title at the point of transfer from this
logistics partner to the common carrier. Once the carrier has received the
products, title then transfers to the customer. We may in the future enter into
agreements under which title is transferred to the customer upon the customer's
receipt. We recognize revenue when a purchase order has been received, the
product has been shipped, the sales price is fixed and determinable and
collection of the resulting receivable is probable. No significant post-delivery
obligations exist with respect to revenue recognized during the nine months
ended April 1, 2000. Provisions are made at the time the related revenue is
recognized for estimated product returns and warranty. Also included in revenue
are
24
<PAGE> 25

shipping and handling charges billed to our customers. These charges amounted to
$1.5 million for the nine months ended April 1, 2000. Total revenue recognized
during the nine months ended April 1, 2000 was $50.1 million.

Cost of revenue. Cost of revenue consists primarily of materials, labor,
royalty expenses, warranty expenses and shipping and handling. Cost of revenue
was $34.2 million during the nine months ended April 1, 2000, $1.6 million of
which represented shipping and handling costs.

Research and development. Research and development expenses consist
principally of salaries and related personnel expenses, consultant fees and the
cost of materials and software used in product development. Research and
development expenses increased from $1.1 million during the period ended March
31, 1999 to $6.7 million during the nine months ended April 1, 2000. The
increase is associated with the hiring of personnel devoted to the development
of new products. Research and development expenses for fiscal year 1999 were
$2.7 million. We believe that continued investment in research and development
is critical to attaining our strategic objectives and we expect research and
development expenses to increase in the future.

Selling, general and administrative. Selling, general and administrative
expenses consist primarily of Web site design and maintenance expenses, salaries
and related expenses, promotional and advertising costs, accounting and
administrative expenses, costs for legal and professional services and general
corporate expenses. Selling, general and administrative expenses increased from
$898,000 during the period ended March 31, 1999 to $23.9 million during the nine
months ended April 1, 2000 due to a general increase in the level of operations,
including more personnel and larger facilities. Fiscal year 1999 selling,
general and administrative expenses totaled $2.5 million.

Amortization of deferred stock compensation. We granted stock options to
our officers and employees at prices subsequently deemed to be below the fair
value of the underlying stock. The cumulative difference between the fair value
of the underlying stock at the date the options were granted and the exercise
price of the granted options was $93.5 million at April 1, 2000. This amount is
being amortized, using the multiple option method, over the four-year vesting
period of the granted options. Accordingly, our results of operations will
include amortization of deferred stock compensation through fiscal 2004. We
recognized $2.4 million of this expense during the period ended March 31, 1999
and $26.4 million during the nine months ended April 1, 2000. A total of $3.6
million of deferred stock compensation amortization was recognized during fiscal
year 1999.

Future compensation expense from options granted through April 1, 2000 is
estimated to be $11.2 million, $28.4 million, $16.2 million, $6.7 million and
$996,000 for the fiscal years ended 2000, 2001, 2002, 2003 and 2004,
respectively, assuming no change in the number of outstanding options.

Interest and other income, net. Interest and other income, net increased
from $301,000 during the period ended March 31, 1999 to $337,000 during the nine
months ended April 1, 2000. The increase was primarily a result of increased
interest income from higher average cash and cash equivalents and short-term
investments balances during the nine months ended April 1, 2000 as compared with
the period ended March 31, 1999. This increase was partially offset by costs
associated with our financing agreement which were amortized to interest expense
during the nine months ended April 1, 2000. These costs relate to the inclusion
of a right granted to our lender to purchase 198,965 shares of Series A
preferred stock in our subordinated debt facility agreement obtained in June
1999. The total cost is being amortized over the 12 month term of the agreement.
Interest and other income, net was $446,000 during fiscal year 1999, which was
almost entirely associated with interest earned on cash and cash equivalents and
short-term investments. This income was slightly offset by amortization of costs
to interest expense during June 1999.

25
<PAGE> 26

QUARTERLY RESULTS OF OPERATIONS

The following table shows unaudited consolidated statements of operations
data for each of the seven fiscal quarters ended April 1, 2000. The information
for each of these quarters has been prepared on the same basis as the audited
consolidated financial statements included in this prospectus. In the opinion of
management, all necessary adjustments, which consist only of normal and
recurring accruals, have been included to fairly present the unaudited quarterly
results. This data should be read together with our consolidated financial
statements and the notes to those statements included in this prospectus. The
historical financial information for any quarter is not necessarily indicative
of results for any future period.

<TABLE>
<CAPTION>
PERIOD FROM THREE MONTHS ENDED
JULY 29, 1998 ------------------------------------------------------------------------
(DATE OF INCEPTION) TO DECEMBER 31, MARCH 31, JUNE 30, OCTOBER 2, JANUARY 1, APRIL 1,
SEPTEMBER 30, 1998 1998 1999 1999 1999 2000 2000
---------------------- ------------ --------- -------- ---------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenue...................... $-- $ -- $ -- $ -- $ -- $ 15,790 $ 34,321
--- ------- ------- ------- ------- -------- --------
Costs and operating expenses:
Cost of revenue............ -- -- -- -- -- 10,822 23,349
Research and development... -- 367 770 1,601 2,472 2,146 2,115
Selling, general and
administrative........... 9 443 446 1,553 3,656 6,720 13,512
Amortization of deferred
stock compensation....... -- 1,590 835 1,221 3,202 6,221 16,997
--- ------- ------- ------- ------- -------- --------
Total costs and operating
expenses............... 9 2,400 2,051 4,375 9,330 25,909 55,973
--- ------- ------- ------- ------- -------- --------
Loss from operations......... (9) (2,400) (2,051) (4,375) (9,330) (10,119) (21,652)
Interest and other income,
net........................ -- 142 159 145 129 59 149
--- ------- ------- ------- ------- -------- --------
Net loss..................... $(9) $(2,258) $(1,892) $(4,230) $(9,201) $(10,060) $(21,503)
=== ======= ======= ======= ======= ======== ========
</TABLE>

Before the second quarter of fiscal 2000, our operations were limited and
consisted primarily of start-up activities. During the second quarter of fiscal
2000 we began shipping products for orders received through our handspring.com
Web site, resulting in revenue of $15.8 million and associated cost of revenue
of $10.8 million during that quarter. In March 2000, we extended our
distribution strategy to include initially three national retailers, Best Buy,
CompUSA and Staples. Revenue generated from Web site sales as well as shipments
to our retailers totaled $34.3 million during the quarter ended April 1, 2000,
with associated cost of revenues of $23.3 million.

Our operating expenses were minimal during the first quarter of fiscal
1999, as we were incorporated in July 1998 and had no development,
manufacturing, selling or marketing personnel. From inception there was a
consistent increase in research and development expenses until the quarter ended
January 1, 2000 when all start-up production expenses were then included within
cost of revenue. The increase in research and development expenses is due to our
growth and continuous focus on the development of new products. Selling, general
and administrative expenses have also steadily increased with a general increase
in the level of operations and personnel.

Interest and other income, net consists of interest income which has
fluctuated over the quarters with the average cash and cash equivalents balance,
as well as short-term investments. Also included within interest and other
income, net is the amortization of costs associated with our financing agreement
which is being amortized over the one-year term of our subordinated debt
facility expiring in June 2000. Most of our cash has been provided by private
placement financing, and is used in operations. We sold Series A convertible
preferred stock in October 1998 for net proceeds of $18.0 million, and sold
Series B convertible preferred stock in July 1999 for net proceeds of $10.0
million.
26
<PAGE> 27

Our limited operating history makes the prediction of future operating
results difficult. We have a history of losses and we expect to continue to
incur losses into calendar year 2001. We believe that period-to-period
comparisons of our operating results should not be relied upon as predictive of
future performance. In some future periods, our results of operations could be
below the expectations of investors and public market analysts, if any choose to
follow our stock. In this event, the price of our common stock would likely
decline.

LIQUIDITY AND CAPITAL RESOURCES

Since inception, we have funded our operations primarily from the sale of
preferred stock, through which we raised net proceeds of $28.0 million through
April 1, 2000. As of April 1, 2000 cash and cash equivalents were $17.4 million.
We also borrowed $6.0 million under a subordinated debt facility in June 2000.
Borrowings under this facility bear interest at 10.0% per annum, and are
collateralized by substantially all of our assets. Without the lender's consent,
we may not incur any other indebtedness in excess of $1.0 million. In addition,
we have a secured equipment lease facility with this lender that allows a
maximum borrowing of $1.0 million, of which $904,000 was available as of April
1, 2000.

Net cash used in operating activities for the nine months ended April 1,
2000 was $3.1 million, primarily attributable to a net loss of $40.8 million and
an increase in accounts receivable of $13.7 million. These uses of cash were
largely offset by the amortization of deferred stock compensation of $26.4
million as well as an increase in accounts payable and accrued liabilities of
$25.2 million. During the period ended March 31, 1999 and fiscal 1999 net cash
used in operating activities was $1.7 million and $4.0 million, respectively,
which was primarily attributable to a net loss of $4.2 million during the period
ended March 31, 1999 and $8.4 million during fiscal 1999. These net losses were
partially offset by the amortization of deferred stock compensation of $2.4
million and $3.6 million during the period ended March 31, 1999 and fiscal 1999,
respectively.

Net cash provided by investing activities for the nine months ended April
1, 2000 was $981,000, and primarily consisted of $8.3 million received from
maturities of short-term investments. This source of cash was partially offset
by purchases of short-term investments of $2.0 million as well as purchases of
property and equipment of $5.4 million. During the period ended March 31, 1999,
net cash used in investing activities was $9.1 million, and was attributable to
purchases of short-term investments of $9.5 million as well as property and
equipment of $577,000, offset by maturities or sales of short-term investments
of $982,000. During fiscal year 1999 net cash used in investing activities was
$6.9 million, due to purchases of short-term investments and property and
equipment of $11.0 million and $780,000, respectively, partially offset by
maturities or sales of short-term investments of $4.8 million.

Net cash provided by financing activities totaled $12.0 million during the
nine months ended April 1, 2000, primarily due to net proceeds of $10.0 million
received from the issuance of Series B redeemable convertible preferred stock.
We received an additional $2.0 million from the issuance of common stock upon
exercise of stock options by employees. Net cash provided by financing
activities was $18.0 million during the period ended March 31, 1999 and $18.5
million in fiscal year 1999, primarily attributable to the issuance of Series A
redeemable convertible preferred stock, and to a lesser extent the issuance of
common stock.

Our future capital requirements will depend upon many factors, including
the timing of research and product development efforts and expansion of our
marketing efforts. We believe that the net proceeds of this offering, together
with our current cash and cash equivalents balance, will be sufficient to meet
our working capital needs for at least the next 12 months. To the extent that we
grow more rapidly than expected in the future, we may need additional cash to
finance our operating and investing needs. Our management intends to invest the
cash received from this offering in excess of current operating requirements in
short-term, interest-bearing, investment-grade securities.

27
<PAGE> 28

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Foreign Currency Exchange Risk. Expenses of our international operations
are denominated in each country's local currency, and therefore are subject to
foreign currency exchange risk. To date, the effect of changes in foreign
currency exchange rates on operating expenses have not been material. All of our
revenue is currently earned in U.S. dollars, and we did not have any significant
balances that were due or payable in foreign currencies at April 1, 2000. We
currently do not hedge our foreign currency exposure. We intend to assess the
need to utilize financial instruments to hedge currency exposures on an ongoing
basis.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

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

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial
Statements. SAB 101 provides guidance for revenue recognition under certain
circumstances. SAB 101 is effective for our fiscal year beginning July 2, 2000.
Implementation of SAB 101 is not expected to require us to change existing
revenue recognition policies and therefore is not expected to have a material
effect on our financial position or results of operations.

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

IMPACT OF THE YEAR 2000

We have not experienced any year 2000-related disruption in the operation
of our systems. Although most year 2000 problems should have become evident on
January 1, 2000 or on the so-called "century leap year" algorithm, additional
year 2000-related problems may become evident after these dates. We are not
aware of any material problems with our customers or vendors. Accordingly, we do
not anticipate incurring material expenses or experiencing any material
operational disruptions as a result of any year 2000 issues.

28
<PAGE> 29

BUSINESS

OVERVIEW

We are a leading provider of handheld computers. Our first product, the
Visor handheld computer, is a personal organizer that is enhanced by our
Springboard platform, an open expansion slot. Since the Visor's introduction in
October 1999, more than 2,500 developers have registered with Handspring's
developer program to receive support in developing modules. Examples of modules
commercially available or in development include a digital camera, an MP3
player, a two-way pager, a global positioning system and content such as books
and games. We will continue to design innovative expandable handheld devices
enabling new mobile computing and communications applications.

INDUSTRY OVERVIEW

Users' increasing reliance on the electronic management of personal and
business information, Internet-based information resources and mobile voice and
data communications has led to a proliferation of handheld devices. While some
handheld devices focus on handheld computing functions including calendar and
contact management, others focus on communications applications, such as voice,
data, paging, email and Internet access. Despite rapidly growing demand for such
devices, we believe that this industry sector is still in its early stages.
International Data Corporation estimates that worldwide shipments of smart
handheld devices will grow from approximately 8.2 million units in 1999 to
approximately 35.5 million units in 2003. We believe that the emergence of more
powerful, flexible devices enabling broad consumer applications will further
expand the potential handheld computing and communications device market. Key
factors driving widespread consumer adoption of handheld computing and
communications devices include:

DEMANDS OF A MOBILE SOCIETY. As our society becomes ever more mobile,
consumers are demanding the same productivity and communications capability on
the road as they get at their desks. This demand is at the heart of a powerful
cycle: new devices enable new applications, which in turn enable greater
mobility, which only increases the demand for more functional devices.
Reductions in device size and cost and improvements in functionality, storage
capacity and reliability are all fostering these trends. Each turn of the cycle
drives increased volume, with the result that a product category once targeted
at upscale "mobile professionals" is increasingly becoming a mass consumer
product sector.

NEED FOR MOBILE INTERNET AND INTRANET ACCESS. The growing prominence of the
Internet and corporate intranets in users' everyday lives is increasing demand
for access "anywhere, anytime." Demand for mobile data Internet applications
such as email, stock quotes and trading, news, content and location-based
services continues to increase. In addition, workers and their employers are
demanding mobile access to corporate intranets to obtain critical business
information such as inventory levels and customer profiles.

IMPROVEMENT IN WIRELESS COMMUNICATIONS ENABLE COMPELLING
APPLICATIONS. Digital wireless communications have become widely adopted due to
declining consumer costs, expanding network coverage and the availability of
extended service features such as voice and text messaging. Digital wireless
technologies, which are currently designed for voice transmission and allow only
limited data transmission capabilities, are evolving toward more advanced
technologies enabling higher data transmission rates at lower costs. Widespread
deployment of these technologies in wireless networks will increasingly enable
the delivery of higher bandwidth applications such as streaming video and audio
to handheld communications devices. Dataquest estimates that the number of
wireless data subscribers worldwide will grow from approximately 14 million at
the end of 1998 to approximately 102 million at the end of 2003.

29
<PAGE> 30

PROLIFERATION OF DIGITAL CONSUMER APPLICATIONS. The development of
applications for the digital delivery of consumer products and services, such as
photographs, music, video games, news, books, driving directions, weather and
stock quotes and trading, has accelerated as physical products and services are
increasingly being replaced with bytes of data. This trend has contributed to
the success of new consumer products such as MP3 players and digital cameras.

GROWING, INNOVATIVE DEVELOPER COMMUNITY. As the handheld computing and
communications device market has grown to millions of units, a large and growing
community of independent developers is driving new applications and
functionality. Developers are creating software applications and complementary
hardware peripherals and accessories that address new markets. This innovation
is in turn creating new market opportunities and is stimulating increased demand
for handheld devices.

These trends are accelerating toward the emergence of a device that
integrates handheld computing applications and a broad range of communications
functions. Current handheld products provide consumers with limited choices,
typically between a simple device without expandability or a complex,
multi-function device that is expensive, heavy and difficult to use. We believe
the key challenge is one of design. The handheld device must be small, elegant
and easy to use, yet flexible enough to support a wide variety of personal
preferences and professional requirements.

THE HANDSPRING SOLUTION

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

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

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

- content, such as books and games;

- consumer applications, such as MP3 players, digital cameras and global
positioning system receiver modules;

- Internet and intranet connectivity; and

- communications capabilities, such as pager and modem modules.

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

30
<PAGE> 31

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

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

BUSINESS STRATEGY

Our objective is to become a global market leader in the handheld computing
and communications marketplace. We will continue to be an innovator in designing
expandable handheld devices that enable new mobile computing and communications
applications. Key elements of our strategy include:

DEVELOP PRODUCTS BASED ON CUSTOMER FOCUSED DESIGN AND INNOVATION. Our
business is founded on the notion that we must constantly innovate in order to
design simple, yet powerful, products that delight our customers. Key members of
our management and product development teams have a history of innovation and
technology leadership in the handheld computing markets, having founded and led
the Palm Computing business from its inception until the founding of Handspring
in mid-1998. Handspring's first product, the Visor handheld computer, builds on
this experience. We intend to continue to develop innovative handheld computing
products.

PENETRATE LARGE AND GROWING HANDHELD COMPUTING AND COMMUNICATIONS
MARKET. Our Visor handheld computer's Springboard expandability, organizer
functionality and competitive pricing provide us with immediate access to the
large and growing handheld computing and communications market. Our initial
strategy was to enter the market quickly by selling exclusively through our Web
site. To further expand our distribution, we began shipping our products to
selected retailers in the United States in March 2000 and in Europe in May 2000.
In June 2000, we introduced our products in Japan. We also plan to expand our
available market by entering additional international markets as well as the
enterprise, education and government markets.

ESTABLISH MULTIPLE REVENUE SOURCES. Currently, almost all of our revenues
come from the sale of our Visor handheld computers. We intend to derive
additional sources of revenue from internally developed Springboard modules,
distribution of Springboard modules developed by third parties and product
accessories. We are developing new products to address the wireless and Internet
access markets. In addition, we have licensed our Springboard technology to one
company, and intend to license our Springboard technology to other companies.

ESTABLISH A STRONG BRAND IDENTITY. Our goal is to establish Handspring as
the premier brand in the consumer handheld computing market by creating an image
that is innovative, fun, smart, approachable, compelling and personal. We will
build on our brand awareness through innovative products, advertising, strategic
promotional relationships and creative marketing. In addition, we believe that
our promotion of the Springboard platform, along with our support of the module
developer community, will broaden consumer awareness of our products and enhance
our brand identity.

ADDRESS ADDITIONAL MARKETS BY ATTRACTING AND SUPPORTING THE DEVELOPMENT
COMMUNITY. Our goal is to develop a competitive advantage from a large and
innovative developer community focused

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<PAGE> 32

on our Springboard platform. These developers will enable Handspring to sell
into new and broader areas, such as the education and medical device markets.
For example, the development of the sensor modules for education and science by
Imagiworks facilitates our access to the education market. We encourage
developers through open, royalty-free developer tools, access to our technical
developer support and to manufacturing partners and module distribution through
the handspring.com Web site.

LEVERAGE OUTSOURCE MODEL. Our strategy is to focus on what we do best,
creating innovative products. We believe that by outsourcing many other
functions, including manufacturing, order fulfillment and repair, we will keep
the number of employees small relative to our scale. This strategy will allow us
to be more creative, flexible, aggressive and competitive. In addition, our
outsource model lets us scale quickly, reduce fixed costs and select best of
breed outsource partners.

PRODUCTS

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

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

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

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

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

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

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

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<PAGE> 33

SPRINGBOARD MODULES. To offer customers a broad range of functionality and
content, we and third-party developers have developed and continue to develop
modules that snap into our Springboard expansion slot. Beginning in October 1999
when we launched our Visor handheld computer, we made tools and documentation
widely available for module developers. Since that time more than 2,500
developers have registered with Handspring.

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

The following table shows Springboard modules that are currently available.

COMMERCIALLY AVAILABLE SPRINGBOARD MODULES

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
PRODUCT NAME DESCRIPTION DEVELOPER
<S> <C> <C>
-----------------------------------------------------------------------------------------------------------
Backup Module Backs up data on the Visor handheld computer Handspring
without connecting to a desktop computer
-----------------------------------------------------------------------------------------------------------
Modem Module Module that enables users to connect to Handspring
their desktops via standard phone lines and
synchronize their data from a remote
location. With third party software, users
can also check their email, surf the web and
send faxes
-----------------------------------------------------------------------------------------------------------
8MB Flash Module Storage module for user applications and Handspring
data
-----------------------------------------------------------------------------------------------------------
EASports Tiger Woods Golf game Electronic Arts;
PGA Tour Golf Distributed by Handspring
-----------------------------------------------------------------------------------------------------------
eyemodule Digital Camera Enables users to capture color or black and IDEO Product Development
white digital images and beam them from Inc.
Visor's infrared port to another Visor or
synchronize them with a personal computer
-----------------------------------------------------------------------------------------------------------
IntelliGolf Tracks and analyzes golf performance Karrier Communications
-----------------------------------------------------------------------------------------------------------
InnoPak/2V A 2MB memory expansion with a vibrating Innogear
alarm
-----------------------------------------------------------------------------------------------------------
OmniRemote Universal Remote Universal remote control for home Pacific Neo-Tek, Inc.
Control
-----------------------------------------------------------------------------------------------------------
Physician's Desk Reference Medical reference guide Franklin Electronic
Publishers
-----------------------------------------------------------------------------------------------------------
Star Trek BookPak Seven Star Trek books Peanut Press.com, Inc.
-----------------------------------------------------------------------------------------------------------
Thincom Portable Modem Modem with e-mail and web browsing Card Access, Inc.
applications
-----------------------------------------------------------------------------------------------------------
</TABLE>

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<PAGE> 34

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

ANNOUNCED SPRINGBOARD MODULES IN DEVELOPMENT

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
PRODUCT NAME DESCRIPTION DEVELOPER
<S> <C> <C>
-----------------------------------------------------------------------------------------------------------
@ctiveLink two-way wireless Wireless access to the Internet and email Glenayre Technologies Inc.
communications module
-----------------------------------------------------------------------------------------------------------
Blue-connect Bluetooth A wireless communications module designed to Widcomm, Inc.
communication module allow the Visor handheld computer to
communicate with other Bluetooth-enabled
devices, such as laptops or cell phones
-----------------------------------------------------------------------------------------------------------
FM Radio module Allows users to listen to music over the CUE Corporation
radio and receive traffic alerts and
personal messages
-----------------------------------------------------------------------------------------------------------
HandyGPS module Global positioning system receiver Navicom Co., Ltd. and
MarcoSoft, Inc.
-----------------------------------------------------------------------------------------------------------
InfoMitt one way pager Receives alphanumeric pages, email and Innogear
electronic magazines
-----------------------------------------------------------------------------------------------------------
Lonely Planet City Sync City guides Concept Kitchen
Travel Guides
-----------------------------------------------------------------------------------------------------------
Merriam-Webster Dictionary Dictionary LandWare, Inc.
-----------------------------------------------------------------------------------------------------------
MiniJam MP3 Player An MP3 player and a voice recorder, with Innogear
memory and a headphone jack
-----------------------------------------------------------------------------------------------------------
Sensor Modules for Education Sensors for data collection, including ImagiWorks
and Science temperature and light measurements, and
heart rate monitoring
-----------------------------------------------------------------------------------------------------------
SixPak Combo Card Combination of LED and vibrating alarm, Innogear
wireline modem, cellular capable modem,
expanded memory and voice recorder
-----------------------------------------------------------------------------------------------------------
SpringPort Modem 56 56Kbps modem Xircom, Inc.
GlobalACCESS
-----------------------------------------------------------------------------------------------------------
SpringPort Wired Ethernet Ethernet module for connecting to corporate Xircom, Inc.
networks
-----------------------------------------------------------------------------------------------------------
SpringPort Wireless Data Wireless data communications using GSM and Xircom, Inc.
PDC network standards
-----------------------------------------------------------------------------------------------------------
SpringPort Wireless Ethernet Wireless module for connecting to corporate Xircom, Inc.
networks using the 802.11b standard
-----------------------------------------------------------------------------------------------------------
Targus Recorder 1850 Voice recorder and playback module Digital 5
-----------------------------------------------------------------------------------------------------------
Wave Communicator Cordless telephone and remote control Zilog, Inc.
-----------------------------------------------------------------------------------------------------------
</TABLE>

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

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<PAGE> 35

DEVELOPERS

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

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

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

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

As of March 31, 2000, more than 2,500 developers have registered in our
developer program.

SALES AND MARKETING

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

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

We have introduced Visor handheld computers in English and German in the
European markets. We introduced the Japanese version of the Visor in June 2000.
We plan to engage local value-added distributors in all the major markets in
Europe and Asia where our localized language versions meet
35
<PAGE> 36

market needs. We also plan to develop partnerships to establish a local
e-commerce presence for international customers interested in purchasing
Handspring products online.

We believe there is an opportunity to expand our market presence through
strategic promotional efforts and through OEM or private label partnerships. We
have broad interest from major brand marketers, who supply our target customers
with various products or services, to co-promote the Visor handheld computers
along with their products or services. An example is a recent promotion in which
Virgin Atlantic Airlines provided first class and business class passengers with
a free Visor. In addition, there is strong interest from potential partners that
serve other computing markets to partner with us to provide a handheld computing
solution to their customers. For example, with the availability of a Global
Positioning System receiver Springboard module, a partner that serves the
traditional GPS market could bundle together a Visor handheld computer and the
GPS receiver module to deliver a complete solution to customers. We will
actively seek these opportunities to extend our market reach outside our
traditional target categories.

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

CUSTOMER SERVICE AND SUPPORT

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

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

PRODUCT DEVELOPMENT AND TECHNOLOGY

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

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

We have a formal product release process in which products must pass
established quality benchmarks and manufacturing guidelines before they are
released into production. We use a quality

36
<PAGE> 37

assurance process that provides feedback to our manufacturing and engineering
organizations, as well as our outsource manufacturing and materials partners,
allowing them to take corrective actions if defects are reported after a product
has been released into production.

We expect to continue to invest aggressively to develop new products. To
this end, we expect to make material expenditures on research and development
during at least the next 12 months. Our research and development expenditures
totaled approximately $2.7 million in fiscal 1999 and approximately $6.7 million
for the nine months ended April 1, 2000. As of April 1, 2000, we had 32 people
engaged in research and development activities.

MANUFACTURERS AND SUPPLIERS

All of our Visor handheld computers are currently manufactured by
Flextronics at its facilities in Malaysia on a purchase order basis. Flextronics
procures components and other supplies, manufactures, assembles and tests our
products. By outsourcing the entire manufacturing process, we are able to focus
on our strengths, including product development and design, minimize capital
expenditures, rely on a third party with more manufacturing expertise than
ourselves and avoid the need to find and maintain facilities for manufacturing
operations. However, if one of our manufacturers were to stop manufacturing our
devices, it could take up to six months to qualify an alternative manufacturer
and our results of operations could be harmed.

In April 2000, we selected Solectron as a second manufacturing partner for
Visor handheld computers. We expect to be operational at its Guadalajara, Mexico
site by the end of summer 2000. We currently outsource the manufacturing of our
Handspring labeled Springboard modules to Smart Modular of Fremont, California.
We outsource the design and production of our accessory products to several
outside partners.

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

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

Manufactured devices are sent to Logistix for order processing. End-user
customers place orders on our handspring.com Web site, or over the telephone to
our third party customer support partner. Retail sales orders are placed in our
internal order processing system. All orders are transmitted to Logistix, which
completes the pack-out process by assembling a finished goods box consisting of
the Visor handheld computer, a docking cradle, a CD of desktop software and
other assorted materials. They then match the product to the order and confirm
shipment, which initiates a credit card charge or invoice.

COMPETITION

The market for handheld computer products is highly competitive and we
expect competition to increase in the future. Some of our competitors or
potential competitors have significantly greater financial, technical and
marketing resources than we do. These competitors may be able to respond more

37
<PAGE> 38

rapidly than we can to new or emerging technologies or changes in customer
requirements. They may also devote greater resources to the development,
promotion and sale of their products than we do.

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

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

- Palm, from whom we license our operating system;

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

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

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

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

INTELLECTUAL PROPERTY

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

It is possible that patents we have applied for, if issued, or our
potential future patents may be successfully challenged or that no patents will
be issued from our patent applications. It is also possible that we may not
develop proprietary products or technologies that are patentable, that any
patent issued to us may not provide us with any competitive advantages, or that
the patents of others will harm our ability to do business. Legal protections
afford only limited protection for our technology. Despite our efforts to
protect our proprietary rights, unauthorized parties may attempt to copy aspects
of our products or to obtain and use information that we regard as proprietary.
Litigation may be necessary in the future to enforce our intellectual property
rights, to protect our trade secrets, to determine the validity and scope of the
proprietary rights of others or to defend against claims of infringement or
invalidity. Any resulting litigation could result in substantial costs and
diversion of resources. Our means of protecting our proprietary rights may not
be adequate and our competitors may independently develop technology that is
similar to ours.

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<PAGE> 39

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

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

PLAN OF OPERATION

We believe that the net proceeds of this offering, together with our
current cash and cash equivalents, will be sufficient to meet our working
capital needs for at least the next 12 months. Our current cash position
includes the proceeds from the sale of our preferred stock in July 1999 and the
exercise of a preferred stock purchase right in May 2000. During the remainder
of fiscal year 2000 and the first half of fiscal year 2001, we expect to
increase our capital expenditures and expand operations in new markets
internationally. In addition, we expect our selling, general and administrative
expenses to increase as we promote and maintain our brand and market our
products. We also expect to increase our spending on research and development.
The amount of these expenditures depends on the amount of our future revenues
and the pace of our expansion. Our expansion plans may also be affected by the
availability and cost of capital. We expect to materially increase our number of
employees as we expand our operations internationally and to add personnel
engaged in sales and marketing and research and development.

EMPLOYEES

As of April 1, 2000, we had a total of 132 employees, of which 32 were in
research and development, 23 were in manufacturing services, 47 were in
marketing and sales and 30 were in general and administrative. We plan to hire
substantial numbers of additional personnel in all areas of our business,
particularly in sales and marketing. We consider our relationships with
employees to be good. None of our employees is covered by collective bargaining
agreements. Competition for qualified personnel in our industry and geographical
location is intense, and we cannot assure you that we will be successful in
attracting, integrating, retaining and motivating a sufficient number of
qualified personnel to conduct our business in the future.

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<PAGE> 40

FACILITIES

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

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

LEGAL PROCEEDINGS

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

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<PAGE> 41

MANAGEMENT

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

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Donna L. Dubinsky.............. 44 President and Chief Executive Officer and a Director
Jeffrey C. Hawkins............. 42 Chief Product Officer and a Director
Edward T. Colligan............. 39 Senior Vice President, Marketing and Sales
Bernard J. Whitney............. 43 Chief Financial Officer and Secretary
Michael Gallucci............... 43 Vice President, Worldwide Manufacturing
Celeste Baranski............... 42 Vice President, Engineering
David G. Pine.................. 41 Vice President and General Counsel
William Holtzman............... 47 Vice President, International
John Hartnett.................. 37 Vice President, Service and Support
Patricia A. Tomlinson.......... 42 Vice President, Human Resources
Kim B. Clark(1)................ 51 Director
L. John Doerr(2)............... 48 Director
Bruce W. Dunlevie(1)(2)........ 43 Director
Mitchell E. Kertzman(1)........ 51 Director
</TABLE>

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

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

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

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

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

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<PAGE> 42

holds a B.S. degree in finance from California State University at Chico and an
M.B.A. from San Jose State University.

Mr. Gallucci has served as Vice President, Worldwide Manufacturing, for
Handspring since November 1998. From November 1996 to November 1998, he served
as Director, Worldwide Manufacturing and Logistics at Palm. From February 1992
to November 1996, Mr. Gallucci served as Director of Materials at Bay Networks
(now Nortel), a computer networking company. He holds a B.S. degree in marketing
and an M.B.A. from Arizona State University.

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

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

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

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

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

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<PAGE> 43

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

Mr. Doerr has served as a director of Handspring since October 1998. He has
been a general partner of Kleiner Perkins Caufield & Byers since September 1980.
Before his tenure at Kleiner Perkins, Mr. Doerr was employed by Intel
Corporation for five years. He serves on the board of directors of Amazon.com,
Inc., At Home Corporation, Drugstore.com, Epicore, Healtheon/WebMD,
Homestore.com, Intuit Inc., Martha Stewart Living Omnimedia and Sun
Microsystems, Inc. Mr. Doerr holds B.S.E.E. and M.E.E. degrees from Rice
University and an M.B.A. from the Harvard Graduate School of Business
Administration.

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

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

COMPOSITION OF BOARD OF DIRECTORS

Our board of directors currently consists of six directors. Upon completion
of this offering, our board of directors will be divided into three classes that
serve staggered three-year terms. The class I directors, initially Bruce W.
Dunlevie and Kim B. Clark, will stand for reelection at the 2001 meeting of
stockholders. The class II directors, initially Jeffrey C. Hawkins and L. John
Doerr, will stand for reelection at the 2002 meeting of stockholders. The class
III directors, initially Donna L. Dubinsky and Mitchell E. Kertzman, will stand
for reelection at the 2003 meeting of stockholders. As a result, only one class
of directors will be elected each year, while the directors in the other classes
continue on the board for the remainder of their terms. This classification of
our board could make it more difficult for a third party to acquire, or could
discourage a third party from acquiring, control of Handspring.

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<PAGE> 44

COMMITTEES OF BOARD OF DIRECTORS

Our board of directors has a compensation committee and an audit committee.

Our compensation committee consists of Mr. Doerr and Mr. Dunlevie. The
compensation committee reviews and makes recommendations to our board of
directors concerning the salaries and incentive compensation of our officers and
employees. Although the board of directors currently administers the issuance of
stock options and other awards under our 1998 Equity Incentive Plan and 1999
Executive Equity Incentive Plan, the compensation committee will administer our
2000 Equity Incentive Plan and our 2000 Employee Stock Purchase Plan.

The members of the audit committee are Dr. Clark, Mr. Dunlevie and Mr.
Kertzman. The audit committee reviews and monitors our financial statements and
accounting practices, makes recommendations to our board regarding the selection
of independent auditors and reviews the results and scope of the audit and other
services provided by our independent auditors.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

None of our executive officers serves as a member of the board of directors
or compensation committee of any entity that has one or more executive officers
serving as a member of our board of directors or compensation committee.

DIRECTOR COMPENSATION

None of the board members receives a fee for attending board or committee
meetings. In April 2000, we granted an option to purchase 37,500 shares of our
common stock at a price of $13.33 per share to each of Dr. Clark and Mr.
Kertzman under our 1999 Executive Equity Incentive Plan.

Each member of the board, who is not our employee, or an employee of a
parent, subsidiary or affiliate of ours, will be considered an outside director
and will be eligible to participate in our 2000 Equity Incentive Plan, which
will become effective immediately upon the completion of this offering. Under
this plan, the option grants to outside directors are automatic and
nondiscretionary. Each outside director who first becomes a member of our board
of directors on or after the date of this offering will automatically be granted
an option to purchase 37,500 shares of our common stock on the date the outside
director joins the board of directors. Immediately after each annual meeting of
our stockholders, each director who is an outside director at that time will
automatically be granted an additional option to purchase 11,250 shares if the
director has served continuously as a member of our board since the date of the
director's initial grant, if applicable, and for a period of at least one year
before the annual meeting.

The options granted to Dr. Clark and Mr. Kertzman and options granted
automatically in the future to outside directors under the 2000 Equity Incentive
Plan have or will have an exercise price equal to the fair market value of our
common stock on the date of grant. The options have or will have ten-year terms
and will terminate three months after the date the director ceases to be a
director or 12 months if the termination is due to death or disability. These
options vest over a four year period at a rate of 25% of the total shares
granted on the first anniversary of the date of grant, and ratably over the next
36 months, so long as the outside director continuously remains our director or
consultant. In the event of our dissolution or liquidation or a "change in
control" transaction, these options will become 100% vested and exercisable in
full.

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<PAGE> 45

EXECUTIVE COMPENSATION

The following table shows the total compensation received for services
rendered to us during the fiscal year ended June 30, 1999 by our Chief Executive
Officer and each of our other most highly compensated executive officers whose
compensation in fiscal 1999 was more than $100,000.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL -------------------
COMPENSATION SHARES OF COMMON
----------------- STOCK UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS
--------------------------- -------- ----- -------------------
<S> <C> <C> <C>
Donna L. Dubinsky................................ $111,442 $-- --
President and Chief Executive Officer
Jeffrey C. Hawkins............................... 111,442 -- --
Chief Product Officer
Edward T. Colligan............................... 109,712 -- 6,057,693
Senior Vice President, Marketing and Sales
</TABLE>

For fiscal 2000, Donna L. Dubinsky, Jeffrey C. Hawkins, Edward Colligan,
Michael Gallucci and Celeste Baranski have an annual base salary of $150,000.
Bernard J. Whitney has an annual base salary of $180,000 and David G. Pine has
an annual base salary of $200,000.

OPTION GRANTS IN FISCAL 1999

The following table shows information about grants of stock options to
those executive officers listed in the Summary Compensation Table above for the
fiscal year ended June 30, 1999.

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

- Multiplying the number of shares of common stock subject to the option by
the initial public offering price of $20.00 per share;

- Assuming that the total stock value derived from that calculation
compounds at the annual 5% or 10% rate shown in the table until the
expiration of the options; and

- Subtracting from that result the total option exercise price.

The option listed in the following table is immediately exercisable. The
option vested as to 25% of the total shares on October 8, 1999 and the remainder
vest ratably over the next 36 months. The option has a ten-year term, subject to
earlier termination if the option holder's service with us ceases.

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
--------------------------------------------------- ANNUAL RATES
NUMBER OF PERCENT OF OF STOCK PRICE
SHARES OF TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION ---------------------------
NAME GRANTED FISCAL 1999 PER SHARE DATE 5% 10%
---- ---------- ------------- --------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Donna L. Dubinsky......... -- --% $ -- -- $ -- $ --
Jeffrey C. Hawkins........ -- -- -- -- -- --
Edward T. Colligan........ 6,057,693 33.6 0.05 10/11/08 197,043,987 313,939,026
</TABLE>

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<PAGE> 46

AGGREGATED OPTION EXERCISES IN FISCAL 1999 AND FISCAL YEAR-END OPTION VALUES

The table below shows information regarding shares acquired upon exercise
of options in fiscal 1999 and about options held as of June 30, 1999 by the
officers indicated below. There was no public trading market for our common
stock as of June 30, 1999. Accordingly, the values in the table have been
calculated on the basis of the initial public offering price of $20.00 per share
less the applicable exercise price.

<TABLE>
<CAPTION>
NUMBER OF NUMBER OF SHARES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED OPTIONS AT JUNE 30, 1999 AT JUNE 30, 1999
ON VALUE ---------------------------- -----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------- ----------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Donna L. Dubinsky..... -- $ -- -- -- $ -- $--
Jeffrey C. Hawkins.... -- -- -- -- -- --
Edward T. Colligan.... 900,000 17,955,000 5,157,693 -- 102,895,975 --
</TABLE>

CHANGE OF CONTROL ARRANGEMENTS

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

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

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

EMPLOYEE BENEFIT PLANS

1998 Equity Incentive Plan. As of April 1, 2000, options to purchase
15,801,356 shares of our common stock were outstanding under our 1998 Equity
Incentive Plan, 9,002,078 shares had been issued upon exercise of options and
3,904,259 shares of our common stock remained available for

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<PAGE> 47

issuance upon the exercise of options that may be granted in the future. The
options outstanding as of April 1, 2000 had a weighted average exercise price of
$0.71 per share. Our 2000 Equity Incentive Plan will be effective upon the
effectiveness of this offering. As a result, no options will be granted under
our 1998 Equity Incentive Plan after this offering. However, any outstanding
options under our 1998 Equity Incentive Plan will remain outstanding and subject
to our 1998 Equity Incentive Plan and stock option agreement until exercise or
until they terminate or expire by their terms. Options granted under our 1998
Equity Incentive Plan are subject to terms substantially similar to those
described below with respect to options granted under our 2000 Equity Incentive
Plan.

1999 Executive Equity Incentive Plan. As of April 1, 2000, options to
purchase 4,883,643 shares of our common stock were outstanding under our 1999
Executive Equity Incentive Plan, 1,719,373 shares had been issued upon exercise
of options and 3,746,984 shares of our common stock remained available for
issuance upon the exercise of options that may be granted in the future. The
options outstanding as of April 1, 2000 had a weighted average exercise price of
$1.91 per share. Our 2000 Equity Incentive Plan will be effective upon the
effectiveness of this offering. As a result, no options will be granted under
our 1999 Executive Equity Incentive Plan after this offering. However, any
outstanding options under our 1999 Executive Equity Incentive Plan will remain
outstanding and subject to our 1999 Executive Equity Incentive Plan and stock
option agreement until exercise or until they terminate or expire by their
terms. Options granted under our 1999 Executive Equity Incentive Plan are
subject to terms substantially similar to those described below with respect to
options granted under our 2000 Equity Incentive Plan.

2000 Equity Incentive Plan. In April 2000, our board of directors adopted
and in May 2000 our stockholders approved the 2000 Equity Incentive Plan. The
2000 Equity Incentive Plan will become effective on the date of this prospectus
and will serve as the successor to our 1998 Equity Incentive Plan and 1999
Executive Equity Incentive Plan. The 2000 Equity Incentive Plan authorizes the
award of options, restricted stock and stock bonuses.

The 2000 Equity Incentive Plan will be administered by the compensation
committee of our board of directors, which consists of Mr. Doerr and Mr.
Dunlevie, each of whom is an outside director as defined under applicable
federal tax laws. The compensation committee will have the authority to
interpret this plan and any agreement entered into under the plan, grant awards
and make all other determinations for the administration of the plan.

Our 2000 Equity Incentive Plan will provide for the grant of both incentive
stock options that qualify under Section 422 of the Internal Revenue Code and
nonqualified stock options. The incentive stock options may be granted only to
our employees or employees of any of our subsidiaries. The nonqualified stock
options, and all awards other than incentive stock options, may be granted to
our employees, officers, directors, consultants, independent contractors and
advisors and those of any of our subsidiaries. However, consultants, independent
contractors and advisors are only eligible to receive awards if they render bona
fide services not in connection with the offer and sale of securities in a
capital-raising transaction. The exercise price of incentive stock options must
be at least equal to the fair market value of our common stock on the date of
grant. The exercise price of incentive stock options granted to 10% stockholders
must be at least equal to 110% of the fair market value of our common stock on
the date of grant. The exercise price of nonqualified stock options must be at
least equal to 85% of the fair market value of our common stock on the date of
grant.

The maximum term of the options granted under our 2000 Equity Incentive
Plan is ten years. The awards granted under this plan may not be transferred in
any manner other than by will or by the laws of descent and distribution and
options may be exercised during the lifetime of the option holder only by the
option holder. The compensation committee may allow exceptions to this
restriction for awards that are not incentive stock options. Options granted
under our 2000 Equity Incentive Plan generally expire three months after the
termination of the option holder's service to us

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<PAGE> 48

or to a parent or subsidiary of ours, or 12 months if the termination is due to
death or disability. If an option holder is terminated for cause, then options
granted to that holder will expire immediately on the date of termination. In
the event of a liquidation, dissolution or "change in control" transaction,
except for options granted to non-employee directors, all outstanding options
may be assumed or substituted by the successor company. If, within one year
after a change in control, an option holder is terminated without cause, then
the vesting of that option holder's option will accelerate so that an additional
25% of the option holder's shares become vested. The vesting of options granted
to non-employee directors will accelerate in full upon a change in control
transaction.

We have reserved 15,000,000 shares of our common stock for issuance under
the 2000 Equity Incentive Plan. The number of shares reserved for issuance under
this plan will be increased to include:

- any shares of our common stock reserved under our 1998 Equity Incentive
Plan and 1999 Executive Equity Incentive Plan that are not issued or
subject to outstanding grants on the date of this prospectus;

- any shares of our common stock issued under our 1998 Equity Incentive
Plan and 1999 Executive Equity Incentive Plan that are repurchased by us
at the original purchase price; and

- any shares of our common stock issuable upon exercise of options granted
under our 1998 Equity Incentive Plan and 1999 Executive Equity Incentive
Plan that expire or become unexercisable without having been exercised in
full at any time after this offering.

In addition, under the terms of the 2000 Equity Incentive Plan, the number
of shares of our common stock reserved for issuance under the plan will increase
automatically on January 1 of each year by an amount equal to 5% of our total
outstanding shares of common stock as of the immediately preceding December 31.

Shares available for grant and issuance under our 2000 Equity Incentive
Plan include:

- shares of our common stock issuable upon exercise of an option granted
under this plan that is terminated or cancelled before the option is
exercised;

- shares of our common stock issued upon exercise of any option granted
under this plan that we repurchase at the original purchase price;

- shares of our common stock subject to awards granted under this plan that
are forfeited or repurchased by us at the original issue price; and

- shares of our common stock subject to stock bonuses granted under this
plan that otherwise terminate without shares being issued.

During any calendar year, no person will be eligible to receive more than
3,000,000 shares, or 4,500,000 shares in the case of a new employee, under the
2000 Equity Incentive Plan. The 2000 Equity Incentive Plan will terminate in
March 2010, unless it is terminated earlier by our board of directors.

2000 Employee Stock Purchase Plan. In April 2000, our board of directors
adopted and in May 2000 our stockholders approved the 2000 Employee Stock
Purchase Plan. The 2000 Employee Stock Purchase Plan will become effective on
the first day on which price quotations are available for our common stock on
The Nasdaq National Market. The employee stock purchase plan is designed to
enable eligible employees to purchase shares of our common stock at a discount
on a periodic basis through payroll deductions.

Our compensation committee will administer the 2000 Employee Stock Purchase
Plan. Our employees generally will be eligible to participate in this plan if
they are employed by us, or a

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<PAGE> 49

subsidiary of ours that we designate, for more than 20 hours per week and more
than five months in a calendar year. Our employees are not eligible to
participate in our 2000 Employee Stock Purchase Plan if they are 5% stockholders
or would become 5% stockholders as a result of their participation in the plan.
Under the 2000 Employee Stock Purchase Plan, eligible employees may acquire
shares of our common stock through payroll deductions. Our eligible employees
may select a rate of payroll deduction between 1% and 10% of their cash
compensation. An employee's participation in this plan will end automatically
upon termination of employment for any reason.

No participant will be able to purchase shares having a fair market value
of more than $25,000, determined as of the first day of the applicable offering
period, for each calendar year in which the employee participates in the 2000
Employee Stock Purchase Plan. Except for the first offering period, each
offering period will be for two years and will consist of four six-month
purchase periods. The first offering period is expected to begin on the first
business day on which price quotations for our common stock are available on The
Nasdaq National Market. The first purchase period may be more or less than six
months long. After that, the offering periods will begin on January 31 and July
31. The purchase price for shares of our common stock purchased under the 2000
Employee Stock Purchase Plan will be 85% of the lesser of the fair market value
of our common stock on the first day of the applicable offering period or the
last day of each purchase period. Our compensation committee will have the power
to change the starting date of any later offering period, the purchase date of a
purchase period and the duration of any offering period or purchase period
without stockholder approval if this change is announced before the relevant
offering period or purchase period. Our 2000 Employee Stock Purchase Plan is
intended to qualify as an "employee stock purchase plan" under Section 423 of
the Internal Revenue Code.

We have initially reserved 750,000 shares of our common stock for issuance
under the 2000 Employee Stock Purchase Plan. The number of shares reserved for
issuance under the plan will increase automatically on January 1 of each year by
an amount equal to 1% of our total outstanding shares as of the immediately
preceding December 31. Our board of directors or compensation committee may
reduce the amount of the increase in any particular year. The 2000 Employee
Stock Purchase Plan will terminate in March 2010, unless it is terminated
earlier by our board of directors.

401(k) Plan. We sponsor a defined contribution plan intended to qualify
under Section 401 of the Internal Revenue Code, or a 401(k) plan. Employees are
generally eligible to participate and may enter the plan on the first day of the
plan year in which the employee met the eligibility requirements. Participants
may make pre-tax contributions to the plan of a percentage of their eligible
compensation, not to exceed the limits allowable under the Internal Revenue
Code. Each participant is fully vested in his or her contributions and the
investment earnings. The plan does not provide for any matching contributions by
us. Contributions by the participants to the plan, and the income earned on
these contributions, are generally not taxable to the participants until
withdrawn. Participant contributions are held in trust as required by law.
Individual participants may direct the trustee to invest their accounts in
authorized investment alternatives.

INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION ON LIABILITY

Our certificate of incorporation provides that our directors shall not be
liable to us or our stockholders for monetary damages for any breach of
fiduciary duty, except to the extent otherwise required by the Delaware General
Corporation Law. This provision will not prevent our stockholders from obtaining
injunctive or other relief against our directors nor does it shield our
directors from liability under federal or state securities laws.

Our bylaws require us to indemnify our directors and officers to the
fullest extent permitted by the Delaware General Corporation Law, subject to
certain very limited exceptions where indemnification is not permitted by
applicable law. Our bylaws also require us to advance expenses, as

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<PAGE> 50

incurred, to our directors and executive officers in connection with any legal
proceeding to the fullest extent permitted by the Delaware General Corporation
Law. These rights are not exclusive.

In addition to the indemnification provisions contained in our bylaws, we
have entered into indemnity agreements with each of our current directors and
executive officers. These agreements provide for the indemnification of our
executive officers and directors for all expenses and liabilities incurred in
connection with any action or proceeding brought against them by reason of the
fact that they are or were agents of Handspring. We also have obtained
directors' and officers' insurance to cover our directors, executive officers
and some of our employees for specific liabilities, including public securities
matters. We believe that these indemnification provisions and agreements and
this insurance are necessary to attract and retain qualified directors and
officers.

The limitation of liability and indemnification provisions in our
certificate of incorporation and bylaws may discourage stockholders from
bringing a lawsuit against our directors for breach of their fiduciary duty.
They may also reduce the likelihood of derivative litigation against directors
and officers, even though an action, if successful, might benefit us and other
stockholders. Furthermore, your investment may be adversely affected to the
extent we pay the costs of settlement and damage awards against directors and
officers as required by these indemnification provisions. At present, there is
no pending litigation or proceeding involving any of our directors, officers or
employees for which indemnification by Handspring is sought, nor are we aware of
any threatened litigation that may result in claims for indemnification.

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<PAGE> 51

RELATED PARTY TRANSACTIONS

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

TRANSACTIONS WITH PROMOTERS

In August 1998, we sold 40,950,000 shares of common stock to Jeffrey C.
Hawkins and 22,050,000 shares of common stock to Donna L. Dubinsky at a price
per share of $0.00111 under restricted stock purchase agreements. On the same
day that they purchased their shares, Mr. Hawkins and Ms. Dubinsky transferred
their shares to trusts of which they are trustees. At the time of issuance, 80%
of the shares held by Mr. Hawkins and Ms. Dubinsky were unvested and subject to
our right of repurchase upon termination of their employment. On July 13, 1999,
this right of repurchase expired as to an additional 20% of the shares, and
continues to expire as to an additional 1.667% of the shares each following
month so long as we continue to employ Mr. Hawkins and Ms. Dubinsky, as
applicable. If we are acquired by, or sell all or substantially all of our
assets to, another entity, then our right of repurchase with respect to the
shares held by Mr. Hawkins and Ms. Dubinsky will expire as to an additional 25%
of the shares. On or before July 13, 2002, the right of repurchase will expire
in full.

We borrowed $300,000 from Jeffrey C. Hawkins under a three-month unsecured
promissory note dated October 1, 1998 bearing interest at a rate of 5.06%
annually. We repaid this loan in full, with interest, on October 26, 1998.

ISSUANCE OF SERIES A PREFERRED STOCK

In October 1998, we sold a total of 8,076,924 shares of Series A preferred
stock at a price per share of $2.23 to the following investors:

- entities affiliated with Kleiner Perkins Caufield & Byers VIII, L.P.,
which purchased a total of 4,038,462 shares of Series A preferred stock,
which is convertible into 18,173,079 shares of common stock, for a total
purchase price of $9.0 million. These entities hold more than 5% of our
capital stock and L. John Doerr, one of our directors, is a general
partner of KPCB VIII Associates, L.P., which is a general partner of
Kleiner Perkins Caufield & Byers VIII, L.P.; and

- Benchmark Capital Partners II, L.P., which purchased a total of 4,038,462
shares of Series A preferred stock, which is convertible into 18,173,079
shares of common stock, for a total purchase price of $9.0 million as
nominee for several affiliated entities. These entities hold more than 5%
of our capital stock and Bruce W. Dunlevie, one of our directors, is a
managing member of Benchmark Capital Management Co. II, L.L.C., which is
a general partner of Benchmark Capital Partners II, L.P.

ISSUANCE OF SERIES B PREFERRED STOCK

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

- QUALCOMM Incorporated, which purchased a total of 649,954 shares of
Series B preferred stock, which is convertible into 2,924,793 shares of
common stock, for a total purchase price of $7.0 million. QUALCOMM
licenses CDMA technology to us;

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<PAGE> 52

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

- Benchmark Capital Partners II, L.P., which purchased a total of 139,276
shares of Series B preferred stock, which is convertible into 626,742
shares of common stock, for a total purchase price of $1.5 million as
nominee for several affiliated entities.

INVESTORS RIGHTS AGREEMENT

In connection with our issuances of Series A preferred stock and Series B
preferred stock, we have entered into an investors rights agreement granting the
holders of the preferred stock registration rights with respect to the common
stock issuable upon conversion of their preferred stock. Their registration
rights are described in more detail under "Description of Capital
Stock -- Registration Rights."

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<PAGE> 53

PRINCIPAL STOCKHOLDERS

The following table sets forth information regarding the beneficial
ownership of our common stock as of April 1, 2000, and as adjusted to reflect
the sale of the shares in this offering for:

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

- each of our directors;

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

- all directors and executive officers as a group.

The percentage of beneficial ownership for the following table is based on
115,253,728 shares of common stock outstanding on April 1, 2000, assuming the
conversion of all outstanding shares of preferred stock into common stock, and
125,253,728 shares of common stock outstanding after the completion of this
offering, including the exercise of a right to purchase 895,342 shares of common
stock in May 2000, and assuming no exercise of the underwriters' over-allotment
option.

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

The number of shares beneficially owned by each stockholder is determined
in accordance with the rules of the Securities and Exchange Commission and does
not necessarily indicate beneficial ownership for any other purpose. Under these
rules, beneficial ownership includes those shares of common stock over which the
stockholder exercises sole or shared voting or investment power. It also
includes shares of common stock that the stockholder has a right to acquire
within 60 days after April 1, 2000 through the exercise of any option. The
percentage ownership of the outstanding common stock, however, is based on the
assumption, expressly required by the rules of the Securities and Exchange
Commission, that only the person or entity whose ownership is being reported has
converted options into shares of common stock.

<TABLE>
<CAPTION>
NUMBER OF PERCENT BENEFICIALLY OWNED
SHARES BENEFICIALLY ---------------------------------
NAME OF BENEFICIAL OWNER OWNED BEFORE OFFERING AFTER OFFERING
------------------------ ------------------- --------------- --------------
<S> <C> <C> <C>
Jeffrey C. Hawkins(1)..................... 40,927,500 35.5% 32.7%
Donna L. Dubinsky(2)...................... 22,032,000 19.1 17.6
L. John Doerr(3).......................... 18,799,821 16.3 15.0
Kleiner Perkins Caufield & Byers
2750 Sand Hill Road
Menlo Park, California 94205
Bruce W. Dunlevie(4)...................... 18,799,821 16.3 15.0
Benchmark Capital Partners II, L.P.
2480 Sand Hill Road
Menlo Park, California 94205
Edward T. Colligan(5)..................... 6,012,693 5.0 4.6
Kim B. Clark(6)........................... -- -- --
Mitchell E. Kertzman(6)................... -- -- --
Executive officers and directors as a
group (11 persons)(7)................... 110,213,504 90.0 83.2
</TABLE>

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<PAGE> 54

-------------------------
(1) Includes 40,680,000 shares held of record by Mr. Hawkins and his spouse as
trustees under the Strauss-Hawkins Trust Agreement dated April 17, 1991 of
which 19,108,908 shares are subject to a lapsing repurchase right. Also
includes 247,500 shares held of record by various charitable trusts for
which Mr. Hawkins is the trustee.

(2) Represents shares held of record by Ms. Dubinsky as trustee under the
Amended and Restated Dubinsky Trust Agreement dated May 23, 1995, of which
10,289,412 shares are subject to a lapsing repurchase right.

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

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

(5) Represents 855,000 shares held by Mr. Colligan and his spouse and 5,157,693
shares subject to fully exercisable options held by Mr. Colligan.

(6) Dr. Clark and Mr. Kertzman were appointed to the board of directors in April
2000.

(7) Includes 1,561,500 shares held by our executive officers who were not
individually listed in this table, of which 1,272,116 shares are subject to
a lapsing repurchase right, and 7,237,862 shares subject to exercisable
options held by Mr. Colligan and the other executive officers who were not
individually listed in this table.

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<PAGE> 55

DESCRIPTION OF CAPITAL STOCK

Immediately after the closing of this offering, our authorized capital
stock will consist of 1,000,000,000 shares of common stock, par value $0.001 per
share, and 10,000,000 shares of preferred stock, par value $0.001 per share. As
of April 1, 2000, including the exercise of a right to purchase 895,342 shares
of common stock in May 2000, and assuming the conversion of all outstanding
shares of preferred stock into common stock immediately prior to the closing of
this offering, there were outstanding 115,253,728 shares of common stock, held
of record by approximately 116 stockholders. We also had outstanding options to
purchase 20,684,999 shares of common stock.

COMMON STOCK

Each holder of common stock is entitled to one vote for each share on all
matters to be voted upon by the stockholders. There are no cumulative voting
rights. Subject to preferences to which holders of preferred stock issued after
the sale of the common stock in this offering may be entitled, holders of common
stock will be entitled to receive ratably any dividends that may be declared
from time to time by the board of directors out of funds legally available for
that purpose. In the event of our liquidation, dissolution or winding up,
holders of common stock will be entitled to share in our assets remaining after
the payment of liabilities and the satisfaction of any liquidation preference
granted to the holders of any shares of preferred stock that may be outstanding.
Holders of common stock have no preemptive or conversion rights or other
subscription rights. There are no redemption or sinking fund provisions that
apply to the common stock. All shares of common stock outstanding are, and the
shares of common stock offered in this offering, when they are issued and paid
for will be, fully paid and nonassessable. The rights, preferences and
privileges of the holders of common stock are subject to, and may be adversely
affected by, the rights of the holders of shares of any series of preferred
stock that we may designate in the future.

PREFERRED STOCK

Upon the closing of this offering, the board of directors will be
authorized, subject to any limitations imposed by law, without stockholder
approval, from time to time to issue up to a total of 10,000,000 shares of
preferred stock, par value $0.001 per share, in one or more series, each series
to have rights and preferences, including voting rights, dividend rights,
conversion rights, redemption privileges and liquidation preferences, as the
board of directors may determine. The issuance of preferred stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire, or of discouraging a third party from attempting to
acquire, a majority of our voting stock outstanding. We have no present plans to
issue any shares of preferred stock.

REGISTRATION RIGHTS

We entered into an Investors' Rights Agreement with our preferred
stockholders that grants rights for registration under the Securities Act to the
holders of 40,524,435 shares of our common stock upon the completion of this
offering.

At any time after six months after the effective date of this offering, the
holders of a majority of the shares that have registration rights can request
that we register all or a portion of their shares as long as the total offering
price of the shares to the public in that offering is at least $20.0 million. We
are required to file up to two registration statements under this right. The
holders of shares that have registration rights can request that we register
their shares if we are eligible to file a registration statement on Form S-3 and
if the total price of the shares offered to the public is at least $2.0 million.
We could be required to file one Form S-3 registration statement in any period
of 12 months.

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<PAGE> 56

In addition, the stockholders with registration rights have the right to
include their shares in any registration statement that we file, except for
registration statements that cover an employee benefit plan or a corporate
reorganization. These stockholders have waived their rights with respect to this
offering. If marketing reasons dictate, the managing underwriter of any
underwritten offering will have the right to limit the number of shares
registered for these holders in the registration to 25% of the total shares
covered by the registration statement.

We will pay all expenses incurred in connection with these registration
statements, except for underwriters' and brokers' discounts and commissions,
which the selling stockholders will pay. The registration rights expire for any
particular stockholder if the stockholder can sell all of its shares in one
period of three months under Rule 144 under the Securities Act. The registration
rights expire for all stockholders five years after completion of this offering.

ANTI-TAKEOVER EFFECTS OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS AND
DELAWARE LAW

Provisions of our restated certificate of incorporation and bylaws that
will be in effect after this offering may have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
attempting to acquire, control of us. These provisions could limit the price
that investors might be willing to pay in the future for shares of our common
stock. These provisions:

- divide our board of directors into three classes serving staggered
three-year terms;

- eliminate the right of stockholders to act by written consent without a
meeting;

- eliminate the right of stockholders to call special meetings of
stockholders;

- eliminate cumulative voting in the election of directors;

- allow us to issue preferred stock without any vote or further action by
the stockholders; and

- require approval of at least two-thirds of the outstanding shares of
common stock to remove a director.

The classification system of electing directors may tend to discourage a
third party from making a tender offer or otherwise attempting to obtain control
of us and may maintain the incumbency of our board of directors, as the
classification of the board of directors increases the difficulty of replacing a
majority of the directors. These provisions may have the effect of deterring
hostile takeovers, or delaying changes in our control or management, or may make
it more difficult for stockholders to take certain corporate actions. The
amendment of any of these provisions would require approval by holders of at
least two-thirds of the outstanding common stock.

In addition, we are subject to Section 203 of the Delaware General
Corporation Law, which, subject to some exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder unless specified conditions are met.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for our common stock is EquiServe Trust
Company, N.A.

LISTING

Our common stock has been approved for listing on The Nasdaq Stock Market's
National Market under the trading symbol "HAND."

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<PAGE> 57

SHARES ELIGIBLE FOR FUTURE SALE

The sale of a substantial amount of our common stock, including shares
issued upon exercise of outstanding options, in the public market after this
offering could cause a decline in the prevailing market price of our common
stock. Furthermore, because no shares will be available for sale shortly after
this offering due to the contractual restrictions on resale described in the
section entitled "Underwriting" and the legal restrictions on resale described
below, the sale of a substantial amount of common stock in the public market
after these restrictions lapse could adversely affect the prevailing market
price of our common stock and our ability to raise equity capital in the future.

Upon completion of this offering, we will have 125,253,728 shares of common
stock outstanding, based on shares of common stock outstanding as of April 1,
2000, including the exercise of a right to purchase 895,342 shares of common
stock in May 2000, and assuming no exercise of the underwriters' over-allotment
option. Of these shares, all of the 10,000,000 shares of our common stock sold
in this offering will be freely tradable without restriction or further
registration under the Securities Act, unless the shares are purchased by
"affiliates" as that term is defined in Rule 144 under the Securities Act. Any
shares purchased by an affiliate may not be resold except under an effective
registration statement or an exemption from registration, including an exemption
under Rule 144 of the Securities Act. The remaining 115,253,728 shares of common
stock held by existing stockholders are "restricted securities" as that term is
defined in Rule 144 under the Securities Act. Of these shares, 102,980,142
shares are held by our directors, executive officers and other affiliates, and
are subject to volume limitations under Rule 144 and various vesting agreements.
These restricted securities may be sold in the public market only if they are
registered or if they qualify for an exemption from registration under Rule 144
or Rule 701 under the Securities Act. These rules are summarized below. All of
the remaining shares of common stock that constitute restricted securities held
by existing stockholders are subject to contractual restrictions on resale as
described more fully in the section entitled "Underwriting."

Upon the expiration of the contractual restrictions on resale described in
the section entitled "Underwriting" and subject to various vesting agreements
and the provisions of Rule 144 and Rule 701, 115,253,728 restricted shares of
common stock will be available for sale in the public market beginning 180 days
after the date of this prospectus. The sale of these restricted securities is
subject, in the case of shares held by affiliates, to the volume restrictions
contained in Rule 144.

RULE 144

In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year from the later of the date those shares of
common stock were acquired from us or from an affiliate of ours would be
entitled to sell within any three-month period a number of shares that does not
exceed the greater of:

(1) one percent of the number of shares of common stock then
outstanding, which will equal approximately 1,252,537 shares immediately
after this offering; or

(2) the average weekly trading volume of the common stock on the
Nasdaq National Market during the four calendar weeks preceding the filing
of a notice on Form 144 with respect to the sale of any shares of common
stock.

Sales of shares under Rule 144 are also subject to manner of sale
provisions and notice requirements and to the availability of current public
information about us. Affiliates may sell shares not constituting restricted
securities in accordance with the volume limitations and other restrictions, but
without regard to the one-year holding period.

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<PAGE> 58

RULE 144(k)

In addition, under Rule 144(k), a person who is not one of our affiliates
at any time during the three months before a sale, and who has beneficially
owned the shares proposed to be sold for at least two years from the later of
the date the shares were acquired from us or from an affiliate of ours,
including the holding period of any previous owner other than an affiliate, is
entitled to sell those shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.

RULE 701

In general, under Rule 701 under the Securities Act as currently in effect,
each of our employees, consultants or advisors who purchased shares from us in
connection with a compensatory stock plan or other written agreement is eligible
to resell those shares 90 days after the effective date of this offering in
reliance on Rule 144, but without compliance with some of the restrictions,
including the holding period, contained in Rule 144.

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<PAGE> 59

UNDERWRITING

Under the terms and subject to the conditions contained in the underwriting
agreement dated June 20, 2000, we have agreed to sell to the underwriters named
below, for whom Credit Suisse First Boston Corporation, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Donaldson, Lufkin & Jenrette Securities Corporation
and U.S. Bancorp Piper Jaffray Inc. are acting as representatives, the following
respective numbers of shares of common stock:

<TABLE>
<CAPTION>
NUMBER OF
SHARES
UNDERWRITER ----------
<S> <C>
Credit Suisse First Boston Corporation...................... 3,937,500
Merrill Lynch, Pierce, Fenner & Smith Incorporated.......... 2,187,500
Donaldson, Lufkin & Jenrette Securities Corporation......... 1,750,000
U.S. Bancorp Piper Jaffray Inc. ............................ 875,000
Bear, Stearns & Co. Inc. ................................... 125,000
Chase Securities Inc. ...................................... 125,000
Dain Rauscher Incorporated.................................. 125,000
A.G. Edwards & Sons, Inc. .................................. 125,000
E*Offering Corp. ........................................... 125,000
W.R. Hambrecht + Co., LLC................................... 125,000
Prudential Securities Incorporated.......................... 125,000
Salomon Smith Barney Inc. .................................. 125,000
UBS Warburg LLC............................................. 125,000
Wit SoundView Corporation................................... 125,000
----------
Total............................................. 10,000,000
==========
</TABLE>

The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.

We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to 1,500,000 additional shares from us at the initial public
offering price less the underwriting discounts and commissions. The option may
be exercised only to cover any over-allotments of common stock.

The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $0.81 per share. The
underwriters and selling group members may allow a discount of $0.10 per share
on sales to other broker/dealers. After the initial public offering, the public
offering price and concession and discount to broker/dealers may be changed by
the representatives.

The following table summarizes the compensation and estimated expenses we
will pay.

<TABLE>
<CAPTION>
Per Share Total
------------------------------- -------------------------------
Without With Without With
Over-allotment Over-allotment Over-allotment Over-allotment
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting discounts and
commissions paid by us............ $1.35 $1.35 $13,500,000 $15,525,000
Expenses payable by us.............. $0.15 $0.13 $ 1,500,000 $ 1,500,000
</TABLE>

The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.

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<PAGE> 60

We have agreed that we will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act relating
to, any shares of our common stock or securities convertible into or
exchangeable or exercisable for any shares of our common stock, or publicly
disclose the intention to make any such offer, sale, pledge, disposition or
filing, without the prior written consent of Credit Suisse First Boston
Corporation for a period of 180 days after the date of this prospectus, except
in the case of issuances of stock options and stock purchase rights pursuant to
our stock option and purchase plans and issuances of common stock pursuant to
the exercise of employee stock options outstanding on the date of this
prospectus.

Our officers and directors and the holders of substantially all our common
stock have agreed that they will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, any shares of our common stock or
securities convertible into or exchangeable or exercisable for any shares of our
common stock, enter into a transaction which would have the same effect, or
enter into any swap, hedge or other arrangement that transfers, in whole or in
part, any of the economic consequences of ownership of our common stock, whether
any such aforementioned transaction is to be settled by delivery of our common
stock or such other securities, in cash or otherwise, or publicly disclose the
intention to make any such offer, sale, pledge or disposition, or to enter into
any such transaction, swap, hedge or other arrangement, without, in each case,
the prior written consent of Credit Suisse First Boston Corporation for a period
of 180 days after the date of this prospectus.

The underwriters have reserved for sale, at the initial public offering
price, up to 300,000 shares of common stock for business partners, such as
suppliers, developers and consultants, who have expressed an interest in
purchasing common stock in the offering. The number of shares available for sale
to the general public in the offering will be reduced to the extent such persons
purchase such reserved shares. Any reserved shares not so purchased will be
offered by the underwriters to the general public on the same terms as the other
shares.

We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments which the underwriters may be required
to make in that respect.

The shares of common stock have been approved for listing on The Nasdaq
Stock Market's National Market under the symbol "HAND."

Prior to this offering, there has been no public market for the common
stock. The initial public offering price was determined by negotiation between
us and the underwriters. The principal factors considered in determining the
public offering price include:

- the information set forth in this prospectus and otherwise available to
the underwriters;

- the history and the prospects for the industry in which we will compete;

- the ability of our management;

- the prospects for our future earnings;

- the present state of our development and our current financial condition;

- the general condition of the securities markets at the time of this
offering; and

- the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies.

The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Exchange Act.

- Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.

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<PAGE> 61

- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.

- Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.

- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by such
syndicate member is purchased in a syndicate covering transaction to
cover syndicate short positions.

These stabilizing transactions, syndicate covering transactions and penalty bids
may cause the price of the common stock to be higher than it would otherwise be
in the absence of these transactions. These transactions may be effected on The
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.

A prospectus in electronic format will be made available on the Web sites
maintained by one or more of the underwriters or their affiliates participating
in this offering. The representatives may agree to allocate a number of shares
to underwriters for sale to their online brokerage account holders. Internet
distributions will be allocated by the underwriters that will make Internet
distributions on the same basis as other allocations.

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<PAGE> 62

NOTICE TO CANADIAN RESIDENTS

RESALE RESTRICTIONS

The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common stock
in Canada must be made in accordance with applicable securities laws which will
vary depending on the relevant jurisdiction, and which may require resales to be
made in accordance with available statutory exemptions or pursuant to a
discretionary exemption granted by the applicable Canadian securities regulatory
authority. Purchasers are advised to seek legal advice prior to any resale of
the common stock.

REPRESENTATIONS OF PURCHASERS

Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom the
purchase confirmation is received that (i) the purchaser is entitled under
applicable provincial securities laws to purchase the common stock without the
benefit of a prospectus qualified under such securities laws, (ii) where
required by law, that such purchaser is purchasing as principal and not as
agent, and (iii) the purchaser has reviewed the text above under "Resale
Restrictions."

RIGHTS OF ACTION (ONTARIO PURCHASERS)

The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.

ENFORCEMENT OF LEGAL RIGHTS

All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.

NOTICE TO BRITISH COLUMBIA RESIDENTS

A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by the purchaser in this offering. Such report must be in
the form attached to British Columbia Securities Commission Blanket Order BOR
#95/17, a copy of which may be obtained from us. Only one such report must be
filed in respect of common stock acquired on the same date and under the same
prospectus exemption.

TAXATION AND ELIGIBILITY FOR INVESTMENT

Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.

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<PAGE> 63

LEGAL MATTERS

Fenwick & West LLP, Palo Alto, California, will pass upon the validity of
the common stock that we are selling in this offering. Davis Polk & Wardwell,
Menlo Park, California, is representing the underwriters.

EXPERTS

The financial statements as of June 30, 1999 and April 1, 2000 and for the
period from July 29, 1998 (date of inception) to June 30, 1999 and the nine
month period ended April 1, 2000 have been so included in reliance on the report
of PricewaterhouseCoopers LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.

WHERE YOU MAY FIND MORE INFORMATION

We have filed with the Securities and Exchange Commission a Registration
Statement on Form S-1, including exhibits and schedule, under the Securities Act
with respect to the common stock to be sold in this offering. This prospectus,
which constitutes a part of the Registration Statement, does not contain all of
the information that is in the Registration Statement or the exhibits and
schedule. Any statements made in this prospectus as to the contents of any
contract, agreement or other document are not necessarily complete. With respect
to each contract, agreement or other document filed as an exhibit to the
Registration Statement, we refer you to the exhibit for a more complete
description of the matter involved, and each statement in this prospectus is
qualified in its entirety by this reference. You may read and copy all or any
portion of the Registration Statement or any reports, statements or other
information at the following public reference facilities of the Securities and
Exchange Commission:

<TABLE>
<S> <C> <C>
Washington, D.C. New York, New York Chicago, Illinois
Room 1024, Judiciary Plaza Seven World Trade Center 500 West Madison Street
450 Fifth Street, N.W. Suite 1300 Suite 1400
Washington, D.C., 20549 New York, New York 10048 Chicago, Illinois 60661
</TABLE>

You can request copies of these documents upon payment of a duplicating fee
by writing to the Commission. You may call the Commission at 1-800-SEC-0330 for
further information on the operation of its public reference rooms. Our filings,
including the Registration Statement, will also be available to you on the Web
site maintained by the Commission at sec.gov.

We intend to furnish our stockholders with annual reports containing
financial statements audited by our independent auditors, and make available to
our stockholders quarterly reports for the first three quarters of each year
containing unaudited interim financial statements.

63
<PAGE> 64

HANDSPRING, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Stockholders' Deficit and
Comprehensive Loss........................................ F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>

F-1
<PAGE> 65

REPORT OF INDEPENDENT ACCOUNTANTS

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

In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of stockholders' deficit and
comprehensive loss and of cash flows present fairly, in all material respects,
the financial position of Handspring, Inc. and its subsidiaries at June 30, 1999
and April 1, 2000 and the results of their operations and their cash flows for
the period from July 29, 1998 (date of inception) to June 30, 1999 and for the
nine months ended April 1, 2000, in conformity with accounting principles
generally accepted in the United States. 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 of these statements in accordance with auditing standards generally
accepted in the United States which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

/s/ PricewaterhouseCoopers LLP

San Jose, California
May 16, 2000

F-2
<PAGE> 66

HANDSPRING, INC.

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

<TABLE>
<CAPTION>
PRO FORMA
JUNE 30, 1999 APRIL 1, 2000 APRIL 1, 2000
------------- ------------- -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 7,533 $ 17,407 $ 18,907
Short-term investments................................. 6,234 -- --
Accounts receivable, net............................... -- 13,736 13,736
Prepaid expenses and other current assets.............. 616 1,688 1,688
------- -------- --------
Total current assets................................ 14,383 32,831 34,331
Property and equipment, net.............................. 1,034 5,033 5,033
Other assets............................................. 214 787 787
------- -------- --------
Total assets........................................ $15,631 $ 38,651 $ 40,151
======= ======== ========
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable....................................... $ 1,208 $ 17,007 $ 17,007
Accrued liabilities.................................... 67 9,527 9,527
------- -------- --------
Total current liabilities........................... 1,275 26,534 26,534
Long-term liabilities.................................... -- 64 64
Redeemable convertible preferred stock, $0.001 par value
per share, 9,300,000 shares authorized actual and pro
forma, 8,076,924 and 9,005,430 shares issued and
outstanding at June 30, 1999 and April 1, 2000,
respectively; no shares issued or outstanding pro
forma; (aggregate liquidation preference of $17,972 and
$27,962 at June 30, 1999 and April 1, 2000,
respectively; pro forma, nil).......................... 17,972 27,962 --
Commitments and contingencies (Note 7)
Stockholders' equity (deficit):
Common stock, $0.001 par value per share, 157,500,000
shares authorized actual and pro forma; 69,365,078
and 73,833,951 shares issued and outstanding at June
30, 1999 and April 1, 2000 respectively; 115,253,728
shares issued and outstanding pro forma............. 69 74 115
Additional paid-in capital............................. 14,455 96,580 126,001
Deferred stock compensation............................ (9,745) (63,458) (63,458)
Accumulated other comprehensive income (loss).......... (6) 48 48
Accumulated deficit.................................... (8,389) (49,153) (49,153)
------- -------- --------
Total stockholders' equity (deficit)................ (3,616) (15,909) 13,553
------- -------- --------
Total liabilities, redeemable convertible preferred
stock and stockholders' equity (deficit).......... $15,631 $ 38,651 $ 40,151
======= ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE> 67

HANDSPRING, INC.

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

<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
JULY 29, 1998 JULY 29, 1998 NINE MONTHS
(DATE OF INCEPTION) (DATE OF INCEPTION) ENDED
TO JUNE 30, 1999 TO MARCH 31, 1999 APRIL 1, 2000
------------------- ------------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Revenue.................................... $ -- $ -- $ 50,111
------- ------- --------
Costs and operating expenses:
Cost of revenue.......................... -- -- 34,171
Research and development................. 2,738 1,137 6,733
Selling, general and administrative...... 2,451 898 23,888
Amortization of deferred stock
compensation(*)....................... 3,646 2,425 26,420
------- ------- --------
Total costs and operating expenses.... 8,835 4,460 91,212
------- ------- --------
Loss from operations....................... (8,835) (4,460) (41,101)
Interest and other income, net............. 446 301 337
------- ------- --------
Net loss................................... $(8,389) $(4,159) $(40,764)
======= ======= ========
Basic and diluted net loss per share....... $ (0.71) $ (0.36) $ (1.34)
======= ======= ========
Shares used in calculating basic and
diluted net loss per share............... 11,772 11,451 30,403
======= ======= ========
Pro forma basic and diluted net loss per
share (Note 2)........................... $ (0.22) $ (0.57)
======= ========
Shares used in calculating pro forma basic
and diluted net loss per share (Note
2)....................................... 38,976 71,731
======= ========

(*)Amortization of deferred stock
compensation:
Cost of revenue.......................... $ 526 $ 236 $ 4,131
Research and development................. 1,217 907 6,789
Selling, general and administrative...... 1,903 1,282 15,500
------- ------- --------
$ 3,646 $ 2,425 $ 26,420
======= ======= ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE> 68

HANDSPRING, INC.

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

<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL DEFERRED OTHER
---------------- PAID-IN STOCK COMPREHENSIVE ACCUMULATED
SHARES AMOUNT CAPITAL COMPENSATION INCOME (LOSS) DEFICIT TOTAL
------- ------ ---------- ------------ ------------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock.................. 63,000 $ 63 $ 7 $ -- $ -- $ -- $ 70
Issuance of common stock for services..... 90 -- 15 -- -- -- 15
Issuance of common stock on exercise of
stock options........................... 6,275 6 443 -- -- -- 449
Issuance of right to purchase Series A
convertible preferred stock in
connection with financing agreement..... -- -- 599 -- -- -- 599
Deferred stock compensation............... -- -- 13,391 (13,391) -- -- --
Amortization of deferred stock
compensation............................ -- -- -- 3,646 -- -- 3,646
Unrealized loss on securities............. -- -- -- -- (6) -- (6)
Net loss.................................. -- -- -- -- -- (8,389) (8,389)
------ ------ -------- --------- ---- -------- --------
Balances, June 30, 1999................... 69,365 69 14,455 (9,745) (6) (8,389) (3,616)
Issuance of common stock for services..... 23 -- 15 -- -- -- 15
Issuance of common stock on exercise of
stock options........................... 4,446 5 1,977 -- -- -- 1,982
Deferred stock compensation............... -- -- 80,133 (80,133) -- -- --
Amortization of deferred stock
compensation............................ -- -- -- 26,420 -- -- 26,420
Unrealized gain on securities............. -- -- -- -- 40 -- 40
Foreign currency translation
adjustments............................. -- -- -- -- 14 -- 14
Net loss.................................. -- -- -- -- -- (40,764) (40,764)
------ ------ -------- --------- ---- -------- --------
Balances, April 1, 2000................... 73,834 $ 74 $ 96,580 $ (63,458) $ 48 $(49,153) $(15,909)
====== ====== ======== ========= ==== ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE> 69

HANDSPRING, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
JULY 29, 1998 JULY 29, 1998 NINE MONTHS
(DATE OF INCEPTION) (DATE OF INCEPTION) ENDED
TO JUNE 30, 1999 TO MARCH 31, 1999 APRIL 1, 2000
------------------- ---------------------- ---------------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss...................................... $ (8,389) $(4,159) $(40,764)
Adjustment to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization............... 70 34 1,456
Amortization of deferred stock
compensation.............................. 3,646 2,425 26,420
Amortization of costs associated with
financing agreement....................... 31 -- 453
Amortization of premium or discount on
short-term investments.................... (108) (45) (100)
Stock compensation to non-employees......... 15 -- 15
Changes in assets and liabilities:
Accounts receivable....................... -- -- (13,736)
Prepaid expenses and other current
assets................................. (48) (33) (1,491)
Other assets.............................. (214) (204) (573)
Accounts payable.......................... 884 242 15,799
Accrued liabilities....................... 67 29 9,435
-------- ------- --------
Net cash used in operating
activities........................... (4,046) (1,711) (3,086)
-------- ------- --------
Cash flows from investing activities:
Purchases of short-term investments........... (10,965) (9,499) (1,968)
Proceeds from maturities or sales of
short-term investments...................... 4,833 982 8,308
Purchases of property and equipment........... (780) (577) (5,359)
-------- ------- --------
Net cash provided by (used in)
investing activities................. (6,912) (9,094) 981
-------- ------- --------
Cash flows from financing activities:
Principal payments on equipment financing
obligations................................. -- -- (7)
Issuance of Series A redeemable convertible
preferred stock, net........................ 17,972 17,972 --
Issuance of Series B redeemable convertible
preferred stock, net........................ -- -- 9,990
Proceeds from issuance of common stock........ 519 70 1,982
-------- ------- --------
Net cash provided by financing
activities........................... 18,491 18,042 11,965
-------- ------- --------
Effect of exchange rate changes on
cash................................. -- -- 14
-------- ------- --------
Net increase in cash and cash equivalents....... 7,533 7,237 9,874
Cash and cash equivalents:
Beginning of period........................... -- -- 7,533
-------- ------- --------
End of period................................. $ 7,533 $ 7,237 $ 17,407
======== ======= ========
Supplemental disclosures of non-cash investing
and financing activities:
Accounts payable incurred upon acquisition of
property and equipment...................... $ 324 $ -- $ --
-------- ------- --------
Purchase of property and equipment under
financing agreement......................... $ -- $ -- $ 96
-------- ------- --------
Unrealized gain (loss) on securities.......... $ (6) $ (2) $ 40
-------- ------- --------
Deferred stock compensation................... $ 13,391 $ 7,347 $ 80,133
-------- ------- --------
Issuance of right to purchase Series A
redeemable convertible preferred stock in
connection with financing agreement......... $ 599 $ -- $ --
-------- ------- --------
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE> 70

HANDSPRING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

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

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

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

Reincorporation -- In May 2000, the Company reincorporated in the State of
Delaware. As a result of the reincorporation, the Company is authorized to issue
157,500,000 shares of $0.001 par value common stock and 9,300,000 shares of
$0.001 par value preferred stock. The accompanying financial statements reflect
the reincorporation.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Interim financial information -- The consolidated financial statements for
the period from inception to March 31, 1999 are unaudited and should be read in
conjunction with the Company's financial statements for the period from July 29,
1998 (date of inception) to June 30, 1999 and for the nine months ended April 1,
2000. Such interim financial statements have been prepared in conformity with
the rules and regulations of the Securities and Exchange Commission. Certain
disclosures normally included in the financial statements prepared in accordance
with accounting principles generally accepted in the United States have been
condensed or omitted pursuant to such rules and regulations pertaining to
interim financial statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) necessary for the fair presentation
have been included.

Cash and cash equivalents -- The Company considers all highly liquid debt
or equity instruments purchased with an original maturity at the date of
purchase of 90 days or less to be cash equivalents.

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

Short-term investments -- Short-term investments consist primarily of
highly liquid debt securities and commercial paper purchased with an original
maturity at the date of purchase of greater than 90 days. Short-term investments
are classified as available-for-sale securities and are stated at market value
with any temporary difference between an investment's amortized cost and its
market value

F-7
<PAGE> 71
HANDSPRING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

recorded as a separate component of stockholders' equity (deficit) until such
gains or losses are realized. Gains or losses on the sales of securities are
determined on a specific identification basis.

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

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

The Company's accounts receivable are derived from revenue earned from
customers located primarily in the United States. The Company performs periodic
credit evaluations of its open account customers' financial condition and,
generally, requires no collateral. The Company maintains an allowance for
doubtful accounts receivable based upon the expected collectibility of accounts
receivable. At April 1, 2000, three customers accounted for 32%, 31%, and 30% of
net receivables. There was no customer which accounted for more than 10% of
revenue during the nine months ended April 1, 2000.

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

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

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

Research and Development -- Research and development costs are expensed as
incurred. The Company has not capitalized any costs during the period from
inception to April 1, 2000 pursuant to SFAS No. 86, Computer Software to be
Sold, Leased or Otherwise Marketed.

F-8
<PAGE> 72
HANDSPRING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

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

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

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

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

Unaudited pro forma information -- As discussed in Note 6 to the
consolidated financial statements, there was an outstanding right to purchase
198,965 shares of Series A redeemable convertible preferred stock at $7.539 per
share at April 1, 2000. This right was exercised on May 1, 2000. In addition,
upon the closing of the initial public offering, each of the outstanding shares
of redeemable convertible preferred stock will convert into three shares of
common stock. The pro forma balance sheet presents the Company's balance sheet
as if both of these events had occurred at April 1, 2000.

Pro forma net loss per share -- Pro forma basic and diluted net loss per
share is computed by dividing net loss applicable to common stockholders by the
weighted average number of common shares outstanding for the period (excluding
shares subject to repurchase) and the weighted average number of common shares
resulting from the assumed conversion of outstanding shares of redeemable
convertible preferred stock, including those redeemable convertible preferred
shares assumed to have been purchased under the outstanding right as discussed
in the previous paragraph.

F-9
<PAGE> 73
HANDSPRING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Revenue recognition -- Revenue from sales is recognized when a purchase
order has been received, the product has been shipped, the sales price is fixed
and determinable and collection of the resulting receivable is probable. No
significant post-delivery obligations exist with respect to revenue recognized
during the nine months ended April 1, 2000. Provisions are made at the time the
related revenue is recognized for estimated product returns and warranty.

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

Advertising costs -- The cost of advertising is expensed as incurred. For
the period from July 29, 1998 (date of inception) to June 30, 1999 and for the
nine months ended April 1, 2000 advertising costs totaled $114,000 and
$2,727,000, respectively.

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

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

Use of estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those estimates.

F-10
<PAGE> 74
HANDSPRING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. SHORT-TERM INVESTMENTS

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

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

The Company realized no gains or losses on the sale of securities during
the period from July 29, 1998 (date of inception) to June 30, 1999. There were
no sales of available-for-sale investments during the nine months ended April 1,
2000.

4. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
JUNE 30, 1999 APRIL 1, 2000
------------- ---------------
(IN THOUSANDS)
<S> <C> <C>
Tooling..................................... $ 633 $ 2,136
Computer and office equipment............... 304 2,090
Furniture and fixtures...................... 89 1,407
Software.................................... 78 332
Leasehold improvements...................... -- 561
------ -------
Total property and equipment.............. 1,104 6,526
Less: Accumulated depreciation and
amortization.............................. (70) (1,493)
------ -------
Property and equipment, net............... $1,034 $ 5,033
====== =======
</TABLE>

There were no assets acquired under capital leases during fiscal 1999. At
April 1, 2000 property, plant and equipment includes $96,000 of computer and
office equipment acquired under capital leases. Accumulated amortization of
assets under capital leases totaled $14,000 at April 1, 2000.

F-11
<PAGE> 75
HANDSPRING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. ACCRUED LIABILITIES

Accrued liabilities consist of the following:

<TABLE>
<CAPTION>
JUNE 30, 1999 APRIL 1, 2000
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Accrued product warranty...................... $-- $3,948
Accrued royalty expense....................... -- 1,867
Accrued compensation and related benefits..... 31 225
Other......................................... 36 3,487
--- ------
$67 $9,527
=== ======
</TABLE>

6. SUBORDINATED DEBT AND EQUIPMENT LEASE FACILITY

In June 1999, the Company obtained a subordinated debt facility of
$6,000,000, which is available until June 2000. Borrowings under this facility
bear interest at 10.0% per annum, and are collateralized by the Company's assets
and subordinated to senior indebtedness. Without the lender's consent the
Company may not incur any other indebtedness in excess of $1,000,000. The
lender, at its sole discretion, has the right to purchase 198,965 shares of
Series A redeemable convertible preferred stock at $7.539 per share. The Company
valued this right using the Black-Scholes option pricing model, applying an
actual life of 11 months, a weighted average risk-free rate of 4.78%, an
expected dividend yield of zero percent, an expected volatility of 70% and a
deemed fair value of common stock of $1.96 per share. The fair value of the
right of $599,000 is being amortized over the period of the agreement. The
Company has reserved 198,965 shares of Series A redeemable convertible preferred
stock for exercise which shares will automatically convert into common stock in
accordance with the terms described in Note 8. Only monthly interest is payable
until the earlier of the completion of an initial public offering of the
Company's stock or 18 months from the date of any advance under the loan
followed by 18 monthly payments of principal and interest. There were no
outstanding borrowings at June 30, 1999 or April 1, 2000. The subordinated debt
facility prohibits declaration or payment of any cash dividend without the prior
consent of the lender.

In connection with the above agreement, the Company also obtained an
equipment and software lease facility of $1,000,000, which is available until
September 2000. Equipment leases up to $600,000 under this facility have a 42
month term. Leases for software, tooling, tenant improvements and other costs up
to $400,000 under this facility have a 36 month term. All borrowings under this
agreement bear interest at 7.5% per annum. There were no outstanding borrowings
at June 30, 1999 and $89,000 was outstanding as of April 1, 2000.

7. COMMITMENTS AND CONTINGENCIES

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

F-12
<PAGE> 76
HANDSPRING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

<TABLE>
<CAPTION>
CAPITAL OPERATING
PERIODS ENDING JUNE 30, LEASES LEASES
----------------------- ------- ---------
(IN THOUSANDS)
<S> <C> <C>
2000 (three months).................................... $ 8 $ 463
2001................................................... 31 1,781
2002................................................... 31 1,746
2003................................................... 30 1,661
2004................................................... -- 1,719
2005................................................... -- 288
---- ------
Total minimum lease payments........................... 100 $7,658
======
Less: Amounts representing interest.................... (11)
----
Present value of minimum lease payments................ $ 89
====
</TABLE>

Rent expense under operating leases, net of sublease income, for the period
from July 29, 1998 (date of inception) to June 30, 1999 and for the nine months
ended April 1, 2000 was $283,000 and $1,026,000, respectively.

The Company has entered into a purchase agreement with a manufacturer in
Malaysia which provides for the manufacturer to supply certain levels of
handheld computer products according to rolling forecasts and purchase orders
provided by Handspring, Inc. The term of this agreement is for one year, and it
is cancellable upon 90 days notice by either party. The Company guarantees a
minimum production commitment based on this rolling forecast. The Company is
liable for the purchase price of products scheduled to be delivered within 30
days of the date of cancellation. In addition, the Company is liable for the
actual cost of materials plus a handling fee for orders cancelled within 31-90
days of the date of scheduled delivery. The Company may cancel orders with
scheduled delivery more than 90 days from the date of cancellation without
liability. The Company has not cancelled any orders pursuant to this purchase
agreement since the Company's inception. Had the Company cancelled any such
orders, its maximum liability at April 1, 2000 under the cancellation provisions
of this purchase agreement would have approximated $7.2 million. The handheld
computer products are to be purchased by a third-party subcontractor.
Handspring, Inc. has guaranteed prompt payment of all invoices and charges in
the event of default related to said charges by the third-party subcontractor.

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

The Company's commitments relating to the logistics provider and the
provider for repair services are based on individual purchase orders issued to
these providers on a regular basis. The Company's liability with respect to such
orders issued at April 1, 2000 aggregated $9.7 million, which is included in
current liabilities.

F-13
<PAGE> 77
HANDSPRING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. REDEEMABLE CONVERTIBLE PREFERRED STOCK

At April 1, 2000, the amounts, terms and liquidation values of Series A and
Series B redeemable convertible preferred stock are as follows:

<TABLE>
<CAPTION>
SHARES OF COMMON AGGREGATE
SHARES ISSUED AND AMOUNT, NET OF STOCK RESERVED LIQUIDATION
SERIES DESIGNATED OUTSTANDING ISSUANCE COSTS FOR CONVERSION PREFERENCE
------ ---------- ----------------- -------------- ---------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
A..................... 8,300 8,077 $17,972 36,346 $17,972
B..................... 1,000 928 9,990 4,178 9,990
----- ----- ------- ------ -------
9,300 9,005 $27,962 40,524 $27,962
===== ===== ======= ====== =======
</TABLE>

At June 30, 1999 only shares of Series A redeemable convertible preferred
stock were outstanding.

Significant terms of the outstanding redeemable convertible preferred stock
are as follows:

- Each share of redeemable convertible preferred stock is convertible into
4.5 shares of common stock, subject to certain adjustments. Such shares
will be converted automatically into common stock immediately prior to
the closing of a firm commitment underwritten public offering of at least
$20 million and at least $2.39 per share, or upon the written consent of
a majority of the shares of preferred stock outstanding at the time of
such vote. The stockholders have certain registration rights, and the
right to participate in future issuances of the Company's securities.

- Each share of redeemable convertible preferred stock has voting rights
equivalent to the number of shares of common stock into which it is
convertible. So long as at least 2,000,000 shares of Series A redeemable
convertible preferred stock are outstanding, the holders of the
redeemable convertible preferred stock, voting together as a separate
class, are entitled to elect two directors of the Company. The holders of
common stock, voting together as a separate class, are also entitled to
elect two directors of the Company. Remaining directors are elected
jointly by all stockholders. So long as any shares of redeemable
convertible preferred stock are outstanding, the Company shall not,
without the approval of a majority of the then outstanding redeemable
convertible preferred stock, (i) amend its articles of incorporation or
bylaws in any manner that would change or affect the rights, preferences,
privileges or restrictions of the redeemable convertible preferred stock,
(ii) authorize any other equity security having rights or preferences
senior to or on a parity with the redeemable convertible preferred stock
as to dividend rights, liquidation preferences, redemption or voting,
(iii) effect any merger or other transaction that would result in a
change in the majority voting control of the Company, (iv) sell all or
substantially all of the assets in a single transaction or series of
transactions, liquidate or dissolve or (v) declare or pay any dividends,
other than dividends payable solely in shares of the Company's own common
stock. So long as any shares of a particular series of redeemable
convertible preferred stock remain outstanding, the Company shall not,
without the approval of a majority of the then outstanding shares of the
particular series of redeemable convertible preferred stock, authorize
additional shares of such series of redeemable convertible preferred
stock.

- Stockholders are entitled to receive noncumulative dividends at the per
annum rate of $0.0892 per share for Series A redeemable convertible
preferred stock and $0.4308 per share for

F-14
<PAGE> 78
HANDSPRING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Series B redeemable convertible preferred stock, when and if declared by
the Board of Directors. If after dividends have been fully paid or
declared and set apart for the redeemable convertible preferred stock,
the Company declares additional dividends in the same year, then the
holders of redeemable convertible preferred stock will also be entitled
to participate in the additional dividends on common stock based on the
number of shares of common stock held on an as-if converted basis. No
dividends have been declared in the period from inception to April 1,
2000.

- In the event of liquidation, dissolution or winding up of the Company,
holders of Series A and Series B redeemable convertible preferred stock
are entitled to receive the original issue price ($2.23 per share and
$10.77 per share, respectively), plus any declared and unpaid dividends
with respect to such shares. If the assets and funds to be distributed
are insufficient to permit full payment of the preferential amount, then
the funds shall be distributed on an equal priority, pro rata basis to
the redeemable convertible preferred stockholders. Upon completion of the
distribution to the redeemable convertible preferred stockholders, the
holders of the common stock will receive all remaining assets of the
corporation. A reorganization, consolidation or merger of the Company
with another company or a sale of all or substantially all of the assets
of the Company is deemed to be a liquidation, dissolution or winding up
of the Company.

9. COMMON STOCK

Common stock issued to the founders is subject to repurchase agreements
whereby the Company has the option to repurchase unvested shares upon
termination of employment at the original issue price. These shares vest 20% at
the date of the agreements, an additional 20% on July 13, 1999, 1.667% per month
thereafter and an additional 25% in the event of an acquisition or merger of the
Company. There were 50,400,000 and 29,398,320 shares of the founders' common
stock subject to repurchase by the Company at June 30, 1999 and April 1, 2000,
respectively. The Company has the right of first refusal should any common
stockholder decide to sell shares. In addition, if the Company does not exercise
its first refusal right with respect to common stock proposed to be sold by the
founders, the preferred stockholders have the right to participate in the sale
of stock by the founders.

The Company issued 90,000 and 22,500 shares of common stock for services
during fiscal 1999 and the nine months ended April 1, 2000, respectively. The
per share price of these shares was equal to the fair value of the common stock,
as determined by the Board of Directors, on the date the Board of Directors
approved the stock issuances.

F-15
<PAGE> 79
HANDSPRING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Common Stock Reserved for Issuance

The Company has 157,500,000 shares of common stock authorized, of which
69,365,078 and 73,833,951 were issued and outstanding as of June 30, 1999 and
April 1, 2000, respectively. Common stock reserved for future issuances is as
follows:

<TABLE>
<CAPTION>
JUNE 30, 1999 APRIL 1, 2000
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Issuance under stock options.................. 15,533 28,336
Conversion of redeemable convertible preferred
stock....................................... 36,346 40,524
Exercise of right to purchase redeemable
convertible preferred stock................. 895 895
------ ------
Total shares reserved....................... 52,774 69,755
====== ======
</TABLE>

Stock Option Plans

Under the 1998 Equity Incentive Plan (the "1998 Plan"), the Company may
grant options to purchase up to 28,707,693 shares of common stock to employees,
officers, directors and consultants. Options granted under the 1998 Plan may be
either incentive stock options or nonqualified stock options. Incentive stock
options ("ISO") may be granted only to Company employees (including officers and
directors who are also employees). Nonqualified stock options ("NSO") may be
granted to Company employees, officers, directors, and consultants. Options
under the 1998 Plan may be granted at prices no less than 85% of the estimated
fair value of the shares at the date of grant, provided, however, that (i) the
exercise price of an ISO shall not be less than 100% of the fair value of the
shares on the date of grant, and (ii) the exercise price of any option granted
to a 10% shareholder shall not be less than 110% of the fair value of the shares
on the date of grant, respectively. Options generally vest 25% one year from the
vest start date and ratably over the next 36 months and expire 10 years (five
years in certain instances) from the date of grant. Options granted prior to
December 1999 are immediately exercisable, and options granted on or after
December 1999 are generally exercisable only as the shares underlying the option
become vested. Shares issued upon exercise of options that are unvested are
subject to repurchase by the Company upon termination of that option recipient's
services to the Company. The Company is not obligated to repurchase such
unvested shares. The repurchase price is the original exercise price,
proportionately adjusted for any stock split or similar change in the capital
structure of the Company. A stockholder who holds unvested shares is entitled to
vote those shares and is entitled to receive dividends declared on those shares,
but may not freely sell the shares until they become vested. There were
6,275,078 and 5,463,268 shares issued under the 1998 Plan outstanding at June
30, 1999 and April 1, 2000 that were subject to repurchase, respectively.

The 1999 Executive Equity Incentive Plan was adopted by the Company during
August 1999. A total of 10,350,000 shares of common stock has been reserved for
issuance under the 1999 Executive Equity Incentive Plan. The terms of options
issued under the 1999 Executive Equity Incentive Plan are generally the same as
those that may be issued under the 1998 Equity Incentive Plan. There were
1,719,373 shares issued under the 1999 Executive Equity Incentive Plan that were
subject to repurchase at April 1, 2000.

In March 2000, the Board of Directors approved the Company's 2000 Equity
Incentive Plan and the 2000 Employee Stock Purchase Plan ("ESPP"), subject to
stockholder approval. The Plans

F-16
<PAGE> 80
HANDSPRING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

become effective on the effective date of the Company's initial public offering.
Options granted under the 2000 Equity Incentive Plan may be either incentive
stock options or nonqualified stock options. ISOs may be granted only to Company
employees (including officers and directors who are also employees). NSOs may be
granted to Company employees, officers, directors, consultants, independent
contractors and advisors of the Company. All other terms of options issued are
generally the same as those that may be issued under the 1999 Executive Equity
Incentive Plan. Under the ESPP, eligible employees may purchase common stock
through payroll deductions, which may not exceed 10% of any employee's
compensation. A total of 750,000 and 15,000,000 shares of common stock have been
reserved for issuance under the ESPP and 2000 Equity Incentive Plan,
respectively.

Option activity under the 1998 Equity Incentive Plan and 1999 Executive
Equity Incentive Plan is as follows:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------
OPTIONS WEIGHTED
AVAILABLE AVERAGE
FOR GRANT SHARES EXERCISE PRICE
----------- ---------- --------------
<S> <C> <C> <C>
Authorized............................ 21,807,693 --
Options granted....................... (18,050,884) 18,050,884 $0.08
Options exercised..................... -- (6,275,078) 0.07
----------- ----------
Balance at June 30, 1999................ 3,756,809 11,775,806 0.08
Authorized............................ 17,250,000 --
Options granted....................... (13,355,566) 13,355,566 1.61
Options exercised..................... -- (4,446,373) 0.45
----------- ----------
Balance at April 1, 2000................ 7,651,243 20,684,999 $0.99
=========== ==========
</TABLE>

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

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------------------
WEIGHTED OPTIONS EXERCISABLE
AVERAGE ----------------------------
RANGE OF REMAINING WEIGHTED WEIGHTED
EXERCISE NUMBER CONTRACTUAL AVERAGE NUMBER AVERAGE
PRICES OUTSTANDING LIFE (YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
-------- ----------- ------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 0.05.............. 7,707,806 8.54 $ 0.05 7,707,806 $0.05
$0.11 - $ 0.17.............. 2,149,875 9.12 0.15 2,149,875 0.15
$0.22 - $ 0.44.............. 2,789,266 9.41 0.40 2,789,266 0.40
$0.67 - $ 0.89.............. 4,023,752 9.70 0.81 2,502,752 0.75
$ 1.33.............. 1,224,000 9.80 1.33 -- --
$1.56 - $ 2.11.............. 2,029,950 9.90 1.80 -- --
$13.33.............. 760,350 9.99 13.33 -- --
---------- ----------
$0.05 - $13.33.............. 20,684,999 9.20 $ 0.99 15,149,699 $0.25
========== ==========
</TABLE>

Deferred Stock Compensation

During the period ended June 30, 1999 and nine months ended April 1, 2000
the Company issued stock options under the 1998 Equity Incentive Equity Plan and
the 1999 Executive Equity Incentive Plan at exercise prices deemed by the Board
of Directors at the date of grant to be the fair value. For financial statement
purposes, the Company has recorded deferred compensation for the

F-17
<PAGE> 81
HANDSPRING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

difference between the purchase price of the stock issued to employees under
stock options and the fair value of the Company's stock at the date of grant.
This deferred compensation is amortized to expense over the period during which
the Company's right to repurchase the stock lapses or options become
exercisable, generally four years. At June 30, 1999 and April 1, 2000, the
Company had recorded deferred stock compensation related to these options of
$13,391,000 and $93,524,000, respectively, of which $3,646,000 and $26,420,000
has been amortized to expense during the period ended June 30, 1999 and nine
months ended April 1, 2000, respectively.

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

<TABLE>
<CAPTION>
PERIOD FROM
JULY 29, 1998 NINE MONTHS
(DATE OF INCEPTION) ENDED
TO JUNE 30, 1999 APRIL 1, 2000
------------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
Net loss:
As reported.................................. $(8,389) $(40,764)
Pro forma.................................... (8,483) (41,917)
Basic and diluted net loss per share:
As reported.................................. $ (0.71) $ (1.34)
Pro forma.................................... (0.72) (1.38)
</TABLE>

The Company calculated the fair value of each option grant on the date of
grant using the Black-Scholes option pricing model and the following
assumptions: weighted average expected option term of four years; risk free
interest rates of 4.18% to 6.66%; expected dividend yield of zero percent, and a
volatility of 70% for the periods above. The weighted average fair value of
options granted during the period from July 29, 1998 (date of inception) to June
30, 1999 and the nine months ended April 1, 2000 was $0.76 and $6.65,
respectively.

10. INCOME TAXES

At April 1, 2000, the Company had net operating loss carryforwards of
approximately $12,000,000 available to reduce future federal and state taxable
income. The carryforwards expire beginning in 2020 for federal and 2007 for
state tax purposes unless utilized.

For federal and state tax purposes, the Company's net operating loss
carryforwards may be subject to an annual limitation in the case of a greater
than 50% change in stock ownership, as defined by federal and state tax law.

F-18
<PAGE> 82
HANDSPRING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Temporary differences which gave rise to significant portions of deferred
tax assets are as follows:

<TABLE>
<CAPTION>
JUNE 30, 1999 APRIL 1, 2000
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Net operating losses.......................... $ 1,716 $ 4,797
Capitalized assets............................ 78 326
Tax credit carryforwards...................... 223 670
Reserves and other............................ 12 2,209
------- -------
2,029 8,002
Valuation allowance........................... (2,029) (8,002)
------- -------
Net deferred tax asset........................ $ -- $ --
======= =======
</TABLE>

A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax asset will not be realized. The Company has
established a 100% valuation allowance to the extent of its net deferred tax
assets as no immediate benefit is expected to be received due to the uncertainty
of realizing future tax benefits from its net operating loss carryforwards and
other deferred tax assets.

The extent to which the loss carryforwards can be used to offset future
taxable income may be limited depending on the extent of ownership changes
within any three-year period as provided in the Tax Reform Act of 1986 and the
California Conformity Act of 1987.

11. EMPLOYEE BENEFIT PLAN

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

12. BUSINESS SEGMENT REPORTING

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

<TABLE>
<CAPTION>
JUNE 30, 1999 APRIL 1, 2000
------------- -------------
<S> <C> <C>
North America............................................... $1,248 $3,706
Rest of the World........................................... -- 2,114
------ ------
Total............................................. $1,248 $5,820
====== ======
</TABLE>

F-19
<PAGE> 83

[HANDSPRING LOGO]