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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

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

                                    FORM 10-Q

                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                  FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002

                                       OR

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

                  FOR THE TRANSITION PERIOD FROM_____ TO _____

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

                        Commission File Number 000-23597


                          EXTENDED SYSTEMS INCORPORATED
             (Exact name of registrant as specified in its charter)


                DELAWARE                                    82-0399670
                --------                                    ----------
    (State or other jurisdiction of                      (I.R.S. Employer
     incorporation or organization)                     Identification No.)


                    5777 NORTH MEEKER AVENUE, BOISE, ID 83713
               (Address of principal executive office) (Zip Code)

       Registrant's telephone number, including area code: (208) 322-7575

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


The number of shares outstanding of the registrant's Common Stock as of April
30, 2002 was 11,152,439.
================================================================================
<PAGE>




                          EXTENDED SYSTEMS INCORPORATED

                                    FORM 10-Q

               FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2002

                                      INDEX


<TABLE><CAPTION>
PART I.  FINANCIAL INFORMATION                                                                       PAGE
                                                                                                     ----

<S>                                                                                                  <C>
         Item 1.  Financial Statements

                     Condensed Consolidated Statements of Operations for the Three and
                     Nine Months Ended March 31, 2002 and 2001                                         1

                     Condensed Consolidated Statements of Comprehensive Loss for the
                     Three and Nine Months Ended March 31, 2002 and 2001                               1

                     Condensed Consolidated Balance Sheets
                     as of  March 31, 2002 and June 30, 2001                                           2

                     Condensed Consolidated Statements of Cash Flows
                     for the Nine Months Ended March 31, 2002 and 2001                                 3

                     Notes to Condensed Consolidated Financial Statements                              4

         Item 2.  Management's Discussion and Analysis of Financial Condition
                  and Results of Operations                                                            9

         Item 3.  Quantitative and Qualitative Disclosures about Market Risk                          24


PART II.  OTHER INFORMATION

         Item 1.  Legal Proceedings                                                                   25

         Item 6.  Exhibits and Reports on Form 8-K                                                    25

         (Items 2, 3, 4 and 5 of Part II are not applicable and have been omitted)

SIGNATURE                                                                                             26
</TABLE>
<PAGE>

                          PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

EXTENDED SYSTEMS INCORPORATED

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

<TABLE><CAPTION>
                                                                 THREE MONTHS ENDED          NINE MONTHS ENDED
                                                                      MARCH 31,                   MARCH 31,
                                                              ------------------------    ------------------------
                                                                 2002          2001          2002          2001
                                                              ----------    ----------    ----------    ----------
<S>                                                           <C>           <C>           <C>           <C>
Revenue:
    License fees and royalties ..........................     $    5,035    $    4,665    $   14,855    $   15,039
    Services ............................................            824           813         2,339         1,811
    Hardware and other ..................................            531         2,791         1,742         9,985
                                                              ----------    ----------    ----------    ----------

        Total net revenue ...............................          6,390         8,269        18,936        26,835

Cost of revenue:
    License fees and royalties ..........................            358           308           995         1,274
    Services ............................................            331           515           899         1,308
    Hardware and other ..................................            372         2,136         1,238         7,814
                                                              ----------    ----------    ----------    ----------

        Total cost of revenue ...........................          1,061         2,959         3,132        10,396
                                                              ----------    ----------    ----------    ----------

              Gross profit ..............................          5,329         5,310        15,804        16,439
                                                              ----------    ----------    ----------    ----------
Operating expenses:
    Research and development ............................          2,467         3,164         8,157         9,161
    Marketing and sales .................................          3,376         4,870        10,445        13,881
    General and administrative ..........................          1,157         1,284         3,349         3,954
    Amortization of intangibles .........................            243           243           729           729
                                                              ----------    ----------    ----------    ----------

        Loss from operations ............................         (1,914)       (4,251)       (6,876)      (11,286)
Other expense (income), net .............................             69          (268)          (14)         (470)
                                                              ----------    ----------    ----------    ----------

        Loss before income taxes ........................         (1,983)       (3,983)       (6,862)      (10,816)
Income tax benefit ......................................         (1,641)       (1,478)       (1,641)       (4,014)
                                                              ----------    ----------    ----------    ----------

        Loss from continuing operations .................           (342)       (2,505)       (5,221)       (6,802)
Income from discontinued operations, net of tax .........            119           614           191         1,736
                                                              ----------    ----------    ----------    ----------

        Net loss ........................................     $     (223)   $   (1,891)   $   (5,030)   $   (5,066)
                                                              ==========    ==========    ==========    ==========

Loss per share from continuing operations:
    Basic and diluted ...................................     $    (0.03)   $    (0.23)   $    (0.47)   $    (0.65)
Net loss per share:
    Basic and diluted ...................................     $    (0.02)   $    (0.18)   $    (0.46)   $    (0.48)
Number of shares used in per share calculation:
    Basic and diluted ...................................         11,083        10,736        11,013        10,521
</TABLE>

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
  (IN THOUSANDS)
(UNAUDITED)
<TABLE><CAPTION>
                                                                 THREE MONTHS ENDED          NINE MONTHS ENDED
                                                                      MARCH 31,                   MARCH 31,
                                                              ------------------------    ------------------------
                                                                 2002          2001          2002          2001
                                                              ----------    ----------    ----------    ----------
<S>                                                           <C>           <C>           <C>           <C>

 Net loss................................................     $     (223)   $   (1,891)   $   (5,030)   $   (5,066)
 Change in currency translation..........................             10           (69)           31          (117)
                                                              ----------    ----------    ----------    ----------


     Comprehensive loss..................................     $     (213)   $   (1,960)   $   (4,999)   $   (5,183)
                                                              ==========    ==========    ==========    ==========

The accompanying notes are an integral part of the condensed consolidated financial statements
</TABLE>
                                       1
<PAGE>

EXTENDED SYSTEMS INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS
  (IN THOUSANDS, EXCEPT PAR VALUE)
  (unaudited)

<TABLE><CAPTION>
                                                                             MARCH 31,       JUNE 30,
                                                                               2002            2001
                                                                            ----------      ----------
<S>                                                                         <C>             <C>
ASSETS
Current:
    Cash and cash equivalents .........................................     $    4,628      $    6,585
    Receivables, net ..................................................          6,774           8,490
    Inventories, net ..................................................            121             441
    Prepaid and other .................................................            704             996
                                                                            ----------      ----------

        Total current assets ..........................................         12,227          16,512
Property and equipment, net ...........................................          6,052           7,002
Intangibles, net ......................................................          3,663           4,629
                                                                            ----------      ----------

        Total assets ..................................................     $   21,942      $   28,143
                                                                            ==========      ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current:
    Accounts payable ..................................................     $    1,940      $    3,371
    Accrued expenses ..................................................          2,952           4,492
    Deferred revenue ..................................................          1,995           1,342
                                                                            ----------      ----------

        Total current liabilities .....................................          6,887           9,205
                                                                            ----------      ----------
Stockholders' equity:
    Preferred Stock; $0.001 par value per share, 5,000 shares
        authorized; no shares issued or  outstanding ..................           --              --
    Common stock; $0.001 par value per share, 75,000 shares
        authorized; 11,126 and 10,971 shares issued and
        outstanding ...................................................             11              11
    Additional paid-in capital ........................................         33,763          32,648
    Accumulated deficit ...............................................        (17,963)        (12,934)
    Accumulated other comprehensive loss ..............................           (756)           (787)
                                                                            ----------      ----------

        Total stockholders' equity ....................................         15,055          18,938
                                                                            ----------      ----------

        Total liabilities and stockholders' equity ....................     $   21,942      $   28,143
                                                                            ==========      ==========

The accompanying notes are an integral part of the condensed consolidated financial statements
</TABLE>
                                       2
<PAGE>

EXTENDED SYSTEMS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)

<TABLE><CAPTION>
                                                                                     NINE MONTHS ENDED
                                                                                          MARCH 31,
                                                                                 --------------------------
                                                                                    2002            2001
                                                                                 ----------      ----------
<S>                                                                              <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net loss ...............................................................     $   (5,030)     $   (5,066)
    Adjustments to reconcile net loss to net cash used by
        operating activities:
        Provision for bad debts ............................................            238             218
        Provision for write-down of inventory ..............................              3             605
        Depreciation and amortization ......................................          2,213           2,337
        Tax benefit from employee stock options ............................           --             1,308
        Deferred income taxes ..............................................           --            (4,438)
        Other ..............................................................             42            (293)
        Changes in assets and liabilities, net of effect of
           acquisitions:
           Receivables .....................................................          1,495             (97)
           Inventories .....................................................            317             388
           Prepaid and other assets ........................................            476            (126)
           Accounts payable and accrued expenses ...........................         (2,997)            591
           Deferred revenue ................................................            653           1,408
                                                                                 ----------      ----------

               Net cash used by operating activities .......................         (2,590)         (3,165)
                                                                                 ----------      ----------


CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchase of property and equipment .....................................            (51)           (915)
    Acquisition - AppReach, net of cash acquired ...........................            (15)           --
    Other investing activities .............................................             77              18
                                                                                 ----------      ----------

               Net cash provided by (used by) investing activities .........             11            (897)
                                                                                 ----------      ----------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from the issuance of common stock .............................            614           2,466
    Payments on long-term debt .............................................           --               (67)
                                                                                 ----------      ----------

               Net cash provided by financing activities ...................            614           2,399
    Effect of exchange rate changes on cash ................................              8             (30)
                                                                                 ----------      ----------

    Net decrease in cash and cash equivalents ..............................         (1,957)         (1,693)
CASH AND CASH EQUIVALENTS:
    Beginning of period ....................................................          6,585           6,191
                                                                                 ----------      ----------

    End of period ..........................................................     $    4,628      $    4,498
                                                                                 ==========      ==========

The accompanying notes are an integral part of the consolidated financial statements
</TABLE>
                                       3
<PAGE>

EXTENDED SYSTEMS INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Extended Systems provides mobile information management products, including both
mobile data management and universal mobile connectivity products, that extend
enterprise applications to mobile and wireless environments.

BASIS OF PRESENTATION. The accompanying condensed consolidated financial
statements include Extended Systems Incorporated, a Delaware corporation, and
its subsidiaries. We have eliminated all significant intercompany accounts and
transactions. Tabular amounts are in thousands, except percentages and per share
amounts.

We have prepared the unaudited interim condensed consolidated financial
statements on the same basis as the annual consolidated financial statements
which, in the opinion of management, reflect all adjustments, which include only
normal recurring adjustments, necessary to present fairly our financial
position, as of March 31, 2002, the results of operations for the three and nine
months ended March 31, 2002 and 2001, and cash flows for the nine months ended
March 31, 2002 and 2001. These condensed consolidated financial statements and
notes thereto should be read in conjunction with our audited consolidated
financial statements and related notes included in our Annual Report on Form
10-K as filed with the Securities and Exchange Commission on September 17, 2001
for the year ended June 30, 2001. The condensed consolidated balance sheet as of
June 30, 2001 was derived from audited financial statements but does not include
all disclosures required by generally accepted accounting principles, primarily
disclosures in the notes to the consolidated financial statements. The results
for interim periods are not necessarily indicative of the expected results for
any other interim period or the year ending June 30, 2002.

The preparation of financial statements in conformity with generally accepted
accounting principles requires that we make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of our financial statements. It
also requires that we make estimates and assumptions that affect the reported
amounts of our revenue and expenses during the reporting periods. Our actual
results could differ from those estimates.

As a result of the disposition of our printing solutions business in our fourth
quarter of fiscal 2001, we have reclassified our consolidated statements of
operations and other related disclosures for all periods presented to present
the results of the printing solutions segment as discontinued operations. We
have made other reclassifications to the consolidated financial statements to
conform the presentations.

CURRENCY TRANSLATION. Our international subsidiaries use their local currency as
their functional currency except for our Singapore subsidiary, which uses the
United States dollar as its functional currency. We translate assets and
liabilities of international subsidiaries (except Singapore) into U.S. dollars
using exchange rates in effect at the balance sheet date, and we reflect gains
and losses from this translation process as a component of comprehensive income
or loss. We translate revenue and expenses into United States dollars using the
average exchange rate for the period.

From time to time, we enter into foreign currency forward contracts, typically
against the euro and the British pound sterling to manage fluctuations in the
value of foreign currencies on transactions with our international subsidiaries,
thereby limiting our risk that would otherwise result from changes in currency
exchange rates. While these instruments are subject to fluctuations in value,
these fluctuations are generally offset by fluctuations in the value of the
underlying asset or liability being managed. We had $2.1 million and $2.8
million in forward contracts in place, which approximated fair value, against
the euro and British pound sterling at March 31, 2002 and June 30, 2001,
respectively, which matured within 30 days. We recognized a net currency
exchange loss of $26,000 and a gain of $38,000 in the three months ended March
31, 2002 and 2001, respectively. We recognized net currency exchange losses of
$67,000 and a gain of $12,000 in the nine months ended March 31, 2002 and 2001,
respectively.
                                        4
<PAGE>

EARNINGS OR LOSS PER SHARE. We compute basic earnings or loss per share by
dividing net income or loss by our weighted-average number of common shares
outstanding during the period. We compute diluted earnings or loss per share by
dividing net income or loss by the weighted-average number of common shares
outstanding increased by the additional common shares that would be outstanding
if we had issued the potentially dilutive common shares. We exclude from the
diluted earnings or loss per share computations stock options to the extent that
their effect would have been antidilutive. Our diluted earnings or loss per
share computations exclude options to purchase 2.9 million and 2.6 million
shares of common stock as of March 31, 2002 and 2001, respectively, because to
include such shares would have been antidilutive.

BUSINESS COMBINATIONS. In February 2002, we acquired all of the outstanding
stock of AppReach, Inc. for 33,950 shares of our Common Stock valued at $204,379
plus acquisition expenses of approximately $16,000. AppReach, based in
Baltimore, Md., specialized in the development of enterprise software that
extends customer resource management (CRM) applications to mobile and wireless
devices.

A summary of the net assets acquired at the date of the acquisition is as
follows:

Net working capital..............................................   $  (20)
Property and equipment...........................................        5
Goodwill.........................................................      235
                                                                    ------
  Net assets acquired as of date of acquisition..................   $  220
                                                                    ======

This transaction was accounted for by the purchase method of accounting in
accordance with Statement of Financial Accounting Standard No. 141, "Business
Combinations," and accordingly, the results of operations of the company have
been included in the consolidated statement of operations since the acquisition
date.

RECENTLY ISSUED ACCOUNTING STANDARDS. In July 2001, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standard No. 141,
"Business Combinations," which requires that we account for all business
combinations by the purchase method. This statement applies to all business
combinations for which the date of acquisition is July 1, 2001, or later.

In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 142, "Goodwill and Other Intangible Assets,"
which addresses the accounting for intangible assets that are acquired
individually or with a group of other assets, other than those acquired in a
business combination, upon their acquisition. This statement also addresses the
accounting for goodwill and other intangible assets after they have been
initially recognized in the financial statements. We are currently evaluating
the impact that this statement may have on our operations. We are required to
adopt this statement in our first quarter of fiscal 2003 ending September 30,
2002.

In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 144, "Accounting for Impairment or Disposal of
Long-Lived Assets," which supersedes various existing standards on accounting
for long-lived assets. This new standard establishes a single accounting model
for long-lived assets to be disposed of by sale and is based on the framework of
Statement of Financial Accounting Standard No. 121. We are required to adopt
this statement in our first quarter of fiscal 2003 ending September 30, 2002.

In March 2000, the Emerging Issues Task Force reached a consensus on EITF Issue
No. 00-14, "Accounting for Certain Sales Incentives." This consensus provides
guidance on the recognition, measurement and income statement classification of
sales incentives which are offered voluntarily by a vendor without charge to
customers that can be used in, or that are exercisable by a customer as a result
of, a single exchange transaction. Our accounting policies conform to the
guidance in this consensus; therefore, we effectively adopted Issue No. 00-14
upon its issuance.

In November 2001, the Emerging Issues Task Force issued EITF Issue No. 01-09,
"Accounting for Consideration Given by a Vendor to a Customer (Including a

                                        5
<PAGE>

Reseller of the Vendor's Products)." Our accounting policies conform to the
guidance in this consensus; therefore, we effectively adopted Issue No. 01-09
upon its issuance.

In November 2001, the Emerging Issues Task Forces issued EITF Issue No. 01-14,
"Income Statement Characterization of Reimbursements Received for
"Out-of-Pocket" Expenses Incurred." This issue requires that reimbursements
received from our customers for out-of-pocket expenses incurred are classified
as revenue in our statement of operations. Our accounting policies conform to
the guidance in this consensus; therefore, we effectively adopted Issue No.
01-14 upon its issuance.

                                                 AS OF           AS OF
                                                MARCH 31,       JUNE 30,
                                                  2002            2001
                                               ----------      ----------
RECEIVABLES
-----------
Accounts receivable..........................  $    6,226      $    8,835
Income tax receivable........................       1,566              --
Other receivables............................          --             442
Allowance for doubtful accounts..............      (1,018)           (787)
                                               ----------      ----------
                                               $    6,774      $    8,490
                                               ==========      ==========
INVENTORIES
-----------
Purchased parts..............................  $       74      $       93
Work in process..............................           1              48
Finished goods...............................          46             300
                                               ----------      ----------
                                               $      121      $      441
                                               ==========      ==========
PROPERTY AND EQUIPMENT
----------------------
Land and land improvements...................  $      897      $      897
Buildings....................................       5,891           5,891
Computer equipment...........................       5,570           5,621
Furniture and fixtures.......................       2,484           2,259
                                               ----------      ----------
                                                   14,842          14,668
Less accumulated depreciation................      (8,790)         (7,666)
                                               ----------      ----------
                                               $    6,052      $    7,002
                                               ==========      ==========
INTANGIBLE ASSETS
-----------------
Goodwill.....................................  $    4,650      $    4,415
Purchased technology.........................       3,128           3,128
Other intangibles............................         447             447
                                               ----------      ----------
                                                    8,225           7,990
Less accumulated amortization................      (4,562)         (3,361)
                                               ----------      ----------
                                               $    3,663      $    4,629
                                               ==========      ==========
ACCRUED EXPENSES
----------------
Accrued payroll and related benefits.........  $    1,485      $    2,600
Accrued warranty and support costs...........         200             317
Other                                               1,267           1,575
                                               ----------      ----------
                                               $    2,952      $    4,492
                                               ==========      ==========

                                        6
<PAGE>

LINE OF CREDIT
--------------

On January 15, 2002, we entered into a loan and security agreement with Silicon
Valley Bank, under which we can currently access up to $5.0 million of financing
in the form of a demand line of credit, subject to current accounts receivable
balances. The line of credit is collateralized by certain of our assets.
Interest on any borrowings will be paid at prime plus one percent but not less
than 5.5%. The line of credit agreement requires us to maintain certain
financial ratios and expires on January 15, 2004.

DISCONTINUED OPERATIONS
-----------------------

We entered into an Asset Purchase Agreement, dated May 30, 2001, pursuant to
which we agreed to sell various assets, including all assets primarily used in
our printing solutions segment, to Troy Group, Inc for an aggregate purchase
price of $1.6 million, net of expenses. In accordance with the Asset Purchase
Agreement, on May 31, 2001, we transferred to Troy certain inventory, equipment,
patents, trademarks and other intellectual property rights, customer and
supplier lists and rights under certain contracts that existed as of the close
of business on May 30, 2001. Troy also assumed certain of our contractual and
warranty obligations and purchase commitments.

As a result of this disposition in our fourth quarter of fiscal 2001, our
printing solutions segment was accounted for as discontinued operations in
accordance with Accounting Principles Bulletin No. 30. Amounts in the financial
statements and related notes for all prior periods shown have been reclassified
to reflect the discontinued operations. Operating results for the discontinued
operations are reported, net of tax, under "Income from discontinued operations"
on the accompanying Condensed Consolidated Statements of Operations.
<TABLE><CAPTION>
                                                   THREE MONTHS ENDED     NINE MONTHS ENDED
                                                        MARCH 31,             MARCH 31,
                                                   -------------------   -------------------
                                                     2002       2001       2002       2001
                                                   --------   --------   --------   --------
<S>                                                <C>        <C>        <C>        <C>
Net revenue ....................................   $     --   $  3,082   $    183   $ 10,602
Gross profit ...................................        232      1,468        371      4,705
Income tax provision ...........................        113        366        148      1,036
Income from discontinued operations,
   net of taxes ................................        119        614        191      1,736
Earnings per share from discontinued operations:
   Basic and diluted ...........................       0.01       0.06       0.02       0.17
Number of shares used in per share calculation:
   Basic and diluted ...........................     11,083     10,736     11,013     10,521
</TABLE>

INCOME TAXES
------------

In the three and nine months ended March 31, 2002, we recorded an income tax
benefit comprised of the following:

<TABLE><CAPTION>
                                                   THREE MONTHS ENDED     NINE MONTHS ENDED
                                                        MARCH 31,             MARCH 31,
                                                   -------------------   -------------------
                                                     2002       2001       2002       2001
                                                   --------   --------   --------   --------
<S>                                                <C>        <C>        <C>        <C>
Income tax benefit..............................   $ (2,256)  $ (1,093)  $ (3,865)  $ (2,961)
Valuation allowance.............................        615        (19)     2,224        (15)
Net income tax benefit..........................   $ (1,641)  $ (1,112)  $ (1,641)  $ (2,976)
                                                   ===================   ===================
</TABLE>

Included in the income tax benefit for the three and nine months ended March 31,
2002 is an income tax refund of approximately $1.6 million resulting from the
increase in the net operating loss carryback period created by the Job Creation
and Worker Assistance Act of 2002. As of March 31, 2002, we had a total
valuation allowance of $20.5 million to reduce our deferred tax

                                        7
<PAGE>

assets to estimated realizable value. The valuation allowance primarily relates
to net operating loss carryforwards resulting from tax benefits from employee
stock transactions and from our operating losses, deferred tax assets arising
from our acquisition of Advance Systems and foreign tax credit carryforwards.

BUSINESS SEGMENTS
-----------------

We determine our reportable segments by evaluating our internal organizational
structure, the manner in which these operations are managed and their
performance as evaluated by management, the availability of separate financial
information and overall materiality. At March 31, 2002, we operated in a single
operating segment.

SUBSEQUENT EVENTS
-----------------

On April 10, 2002, we announced a restructuring plan to reduce costs and improve
operating efficiencies and, as a result, we expect to incur approximately
$270,000 in restructuring costs in the fourth quarter of fiscal 2002. The
restructuring charge will consist primarily of costs related to the termination
of approximately 25 employees in research and development, marketing and sales,
and administration. Approximately 80% of the terminated employees were in the
United States and 20% were in Europe.

On April 22, 2002, Pumatech, Inc. filed a patent infringement action against us
in the U.S. District Court in Northern California. The action alleges that our
XTNDConnect server and desktop synchronization products infringe on seven of
Pumatech's synchronization-related patents. The action seeks an injunction
against further sales of our server and desktop synchronization products, as
well as unspecified damages for past sales of our products. We believe that
Pumatech's claims are without merit, and we intend to defend the suit
vigorously. Given the inherently uncertain nature of litigation, however, we are
currently in the process of evaluating the suit and estimating the magnitude of
our exposure, if any.

                                        8
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

FORWARD-LOOKING STATEMENTS
--------------------------

In addition to historical information, this Form 10-Q contains forward-looking
statements. In this Form 10-Q, the words "expects," "anticipates," "believes,"
"intends," "will" and similar expressions identify forward-looking statements,
which are based upon information currently available to us, speak only as of the
date hereof and are subject to certain risks and uncertainties. These
forward-looking statements include, but are not limited to, statements
regarding:

o   levels of international sales;
o   levels of software product sales;
o   levels of service revenue;
o   levels of original equipment manufacturer sales;
o   claims made by Pumatech, Inc.;
o   anticipated gross margin;
o   staffing and expense levels;
o   levels of accounts receivable;
o   levels of capital expenditures;
o   anticipated cash funding needs;
o   future acquisitions; and
o   future profitability.

We assume no obligation to update any forward-looking statements. Our actual
results may differ materially from the results discussed in such forward-looking
statements. Factors that may cause a difference include, but are not limited to,
those discussed in this section entitled "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Factors That May Affect Future
Results and Market Price of Stock." You should carefully review the risk factors
described in other documents that we file from time to time with the Securities
and Exchange Commission, including our 2001 Annual Report on Form 10-K and other
Quarterly Reports on Form 10-Q that we will file in fiscal 2002.

All period references are to our third fiscal quarters ended March 31, 2002 and
2001, and our fiscal years ended June 30, 2002 and 2001, unless otherwise
indicated. Tabular amounts are in thousands, except percentages.

OVERVIEW
--------

We classify our product offerings into one operating segment, our mobile
information management segment, which includes both mobile data management and
universal mobile connectivity products that extend enterprise applications to
mobile and wireless environments. The products in our mobile information
management segment include data synchronization and management software,
wireless connectivity products and client/server database management systems
with remote access capabilities. Until April 2001, we also marketed and sold
enterprise Internet appliances.

We sell our mobile information management products primarily to enterprises,
original equipment manufacturers, application developers and resellers both
directly and through our e-commerce storefronts on the Internet. We derive
revenue from:

o   software license fees and royalties;
o   support and maintenance fees;
o   non-recurring development fees that we generate when we adapt products to
    customers' specifications; and
o   sales of hardware products.
                                        9
<PAGE>

Our future results of operations will be highly dependent upon the success of
our software products, specifically our XTNDConnect data synchronization and
management software and our XTNDAccess and XTNDConnect infrared and Bluetooth
wireless connectivity software. We expect the license fees and royalties
generated by these products to continue to constitute a significant majority of
our revenue.

We derive a significant amount of our revenue from sales to customers outside of
the United States, principally from our international sales subsidiaries,
overseas original equipment manufacturers and from a limited number of
international distributors.

Based on the region in which the customer resides, net revenue from continuing
operations is as follows:

<TABLE><CAPTION>
                                                   THREE MONTHS ENDED     NINE MONTHS ENDED
                                                        MARCH 31,             MARCH 31,
                                                   -------------------   -------------------
NET REVENUE PERCENTAGES BY REGION                    2002       2001       2002       2001
---------------------------------                  --------   --------   --------   --------
<S>                                                <C>        <C>        <C>        <C>
Domestic.....................................          48%        41%        49%        38%
International:
   Europe....................................          37         42         37         37
   Asia                                                13         14         11         23
   Other regions.............................           2          3          3          2
                                                   -------------------   -------------------
      Total international....................          52         59         51         62
                                                   -------------------   -------------------
         Total net revenue...................         100%       100%       100%       100%
                                                   ===================   ===================
</TABLE>

In the nine months ended March 31, 2001, sales to an international distributor
of our software products accounted for 11% of our net revenue from continuing
operations and consisted primarily of sales of our infrared hardware products.
For all other periods present, no individual customer accounted for more than
10% of our net revenues.

We expect that international sales will continue to represent a substantial
portion of our net revenue in the foreseeable future and will comprise between
45% and 55% of our net revenue throughout fiscal 2003.

We market and sell most of our products through multiple indirect channels,
primarily distributors and resellers. We support our indirect channels with our
own marketing and sales organization.
<TABLE><CAPTION>
                                                         THREE MONTHS ENDED              NINE MONTHS ENDED
                                                              MARCH 31,                        MARCH 31,
                                                   ------------------------------   ------------------------------
RESULTS OF CONTINUING OPERATIONS                     2002      CHANGE      2001       2002      CHANGE      2001
--------------------------------                   ------------------------------   ------------------------------
<S>                                                <C>        <C>        <C>        <C>        <C>        <C>
Revenue:
License fees and royalties......................   $  5,035        8%    $  4,665   $ 14,855       (1)%   $ 15,039
Services........................................        824        1          813      2,339       29        1,811
Hardware and other..............................        531      (81)       2,791      1,742      (83)       9,985
                                                   ------------------------------   ------------------------------
    Total net revenue...........................   $  6,390      (23)%   $  8,269   $ 18,936      (29)%   $ 26,835
</TABLE>

License fees and royalty revenue increased in the three months ended March 31,
2002 from the same period in the prior year primarily as a result of an increase
in the number of XTNDConnect Server and Advantage software licenses sold. This
increase was partially offset by a decrease in revenue from our Bluetooth and
infrared software development kits caused by changes in customers' development
project budgets and schedules and the impact of the downturn in the overall
economy on customer spending for new technology. License fees and royalty
revenue decreased slightly in the nine months ended March 31, 2002 from the
prior year as a result of a decrease in revenue from our Bluetooth and infrared
software development kits due to the timing of original equipment manufacturer's
development. These decreases were partially offset by an increase in the number
of XTNDConnect Server and Advantage software licenses sold.

                                       10
<PAGE>

Service revenue increased in the three and nine months ended March 31, 2002 from
the same periods in fiscal 2001, primarily due to an increase in revenue from
support and maintenance contracts, as a result of contracts on new licenses sold
and contract renewals. It was partially offset by a decrease in revenue from
non-recurring engineering and other consulting products, which fluctuates as a
result of the timing of customer projects.

The decrease in revenue from hardware products was due primarily to an expected
decrease in unit sales of our infrared products sold to original equipment
manufacturers and a decrease in sales of our Internet products.

We expect license fees and royalty revenue from our mobile information software
products to continue to increase overall in the fourth quarter of fiscal 2002.
This increase is expected to come primarily from increased licensing of our
XTNDConnect data synchronization and management products. We do not currently
anticipate that Bluetooth royalty revenue will be a material component of our
net revenue. We expect service revenue to fluctuate based primarily on the
timing of non-recurring engineering fees earned and we expect that revenue from
our mobile information management hardware products will continue to decrease in
the fourth quarter of fiscal 2002.

Throughout fiscal 2001, we consolidated three of our offices in the US and
Europe and, as a result, reduced operating expenses and reduced our workforce by
approximately 40 employees. During our first quarter of fiscal 2002 ended
September 30, 2001, we also completed the restructuring plan that we announced
in our fourth quarter of fiscal 2001, which further reduced costs and improved
operating efficiencies. This restructuring included the termination of
approximately 40 employees in research and development, marketing and sales,
administration and manufacturing. The effect of these and other cost-saving
measures are reflected in our cost of goods sold and our operating expenses for
fiscal 2002 as compared to the same period last year.

<TABLE><CAPTION>
                                                         THREE MONTHS ENDED              NINE MONTHS ENDED
                                                              MARCH 31,                        MARCH 31,
                                                   ------------------------------   ------------------------------
                                                     2002      CHANGE      2001       2002      CHANGE      2001
                                                   ------------------------------   ------------------------------
<S>                                                <C>        <C>        <C>        <C>        <C>        <C>
Gross profit....................................   $  5,329         --   $  5,310   $ 15,804       (4)%   $ 16,439
Gross margin....................................        83%                   64%        83%                   61%
</TABLE>

Our cost of net revenue consists primarily of costs associated with:

o   post-sales support;
o   component, labor and overhead costs of our hardware products;
o   amortization of purchased technology;
o   royalties for the use of third-party software; and
o   other production-related activities.

The increase in gross margin in the three and nine months of fiscal 2002 from
the same periods last year was the result of an increase in license fees and
royalty revenue from our software products, which have higher gross margins than
our hardware products. Revenue from our higher-margin mobile information
management software products, which includes license fees, royalties, and
services, represented 92% and 91% of our net revenue from continuing operations
in the three and nine months ended March 31, 2002, respectively, compared to 66%
and 63% in the same periods last year. The increase was also due, to a much
lesser extent, to the cost reductions implemented throughout fiscal 2001 and in
the first quarter of fiscal 2002, as described above.

We expect that increased sales of our mobile information management software
products will continue to have a positive impact on our gross margin. We expect
our gross margin to be in the range of 86% to 89% through fiscal 2003.

<TABLE><CAPTION>
                                                         THREE MONTHS ENDED              NINE MONTHS ENDED
                                                              MARCH 31,                        MARCH 31,
                                                   ------------------------------   ------------------------------
                                                     2002      CHANGE      2001       2002      CHANGE      2001
                                                   ------------------------------   ------------------------------
<S>                                                <C>        <C>        <C>        <C>        <C>        <C>
Research and development........................   $  2,467      (22)%   $  3,164   $  8,157      (11)%   $  9,161
As a % of net revenue...........................        39%                   38%        43%                   34%
</TABLE>

                                       11
<PAGE>

Research and development expenses generally consist of salaries and other
personnel costs of our research and development teams, consulting costs and
facility costs. The decrease in research and development expenses in the three
and nine months ended March 31, 2002 from the same periods last year was
primarily the result of a reduction in personnel subsequent to our
restructuring. At March 31, 2002, we had 98 full-time equivalent research and
development personnel and contractors, a decrease from the 111 full-time
equivalent personnel at the same time last year.

We expect research and development expenses to decrease moderately in the fourth
quarter of fiscal 2002 as a result of decreased staffing, although these
expenses may vary as a percentage of net revenue.

<TABLE><CAPTION>
                                                         THREE MONTHS ENDED              NINE MONTHS ENDED
                                                              MARCH 31,                        MARCH 31,
                                                   ------------------------------   ------------------------------
                                                     2002      CHANGE      2001       2002      CHANGE      2001
                                                   ------------------------------   ------------------------------
<S>                                                <C>        <C>        <C>        <C>        <C>        <C>
Marketing and sales.............................   $  3,376      (31)%   $  4,870   $ 10,445      (25)%   $ 13,881
As a % of net revenue...........................        53%                   59%        55%                   52%
</TABLE>

Marketing and sales expenses consist primarily of salaries, commissions and
other personnel costs of our marketing and sales personnel, promotional
expenses, pre-sales support costs and travel costs. The decrease in marketing
and sales expenses for the three and nine months ended March 31, 2002 from the
same periods last year was primarily due to a reduction in promotional expenses
of approximately $600,000 and a reduction in marketing and sales personnel
subsequent to our restructuring in our quarter ending September 30, 2001. At
March 31, 2002, we had 117 full-time equivalent marketing and sales personnel
and contractors, as compared to 150 full-time equivalent personnel at the same
time last year.

We expect marketing and sales expenses to decrease slightly in the fourth
quarter of fiscal 2002 as a result of decreased staffing, although these
expenses may vary as a percentage of net revenue.

<TABLE><CAPTION>
                                                         THREE MONTHS ENDED              NINE MONTHS ENDED
                                                              MARCH 31,                        MARCH 31,
                                                   ------------------------------   ------------------------------
                                                     2002      CHANGE      2001       2002      CHANGE      2001
                                                   ------------------------------   ------------------------------
<S>                                                <C>        <C>        <C>        <C>        <C>        <C>
General and administrative......................   $  1,157      (10)%   $  1,284   $  3,349      (15)%   $  3,954
As a % of net revenue...........................        18%                   16%        18%                   15%
</TABLE>

General and administrative expenses generally consist of salaries and other
personnel costs of our finance, management information systems, human resources
and other administrative employees, and professional service and insurance
costs. The decrease in general and administrative expenses in the three and nine
months ended March 31, 2002 from the same periods last year was primarily
attributable to a decrease in personnel subsequent to our restructuring
completed in the quarter ended September 30, 2001. At March 31, 2002, we had 39
full-time equivalent general and administrative personnel, as compared to 59
full-time equivalent personnel at the same time last year.

We expect general and administrative expenses to remain consistent in the fourth
quarter of fiscal 2002 as compared to the third quarter of 2002, although these
expenses may vary as a percentage of net revenue.

<TABLE><CAPTION>
                                                         THREE MONTHS ENDED              NINE MONTHS ENDED
                                                              MARCH 31,                        MARCH 31,
                                                   ------------------------------   ------------------------------
                                                     2002      CHANGE      2001       2002      CHANGE      2001
                                                   ------------------------------   ------------------------------
<S>                                                <C>        <C>        <C>        <C>        <C>        <C>
Income tax benefit..............................   $ (1,641)       11%   $ (1,478)  $ (1,641)     (59)%   $ (4,014)
As a % of loss before income taxes..............        83%                   37%        24%                   37%
</TABLE>

                                       12
<PAGE>

In the three months ended March 31, 2002, we have recorded an income tax benefit
of approximately $1.6 million for the refund we received as a result of the
increase in the net operating loss carryback period created by the Job Creation
and Worker Assistance Act of 2002. We received the cash proceeds from the tax
refund in our fourth quarter of fiscal 2002. For the three and nine months ended
March 31, 2002, we recorded no income tax benefit for the net deferred tax
assets generated during each period.

As of March 31, 2002, we had recorded a total valuation allowance of $20.5
million against our deferred tax assets. In assessing our ability to realize
deferred income tax assets, we consider whether it is more likely than not that
some or all of the deferred tax assets will be realized. The ultimate
realization of the deferred tax assets is dependent on whether we generate
taxable income during periods in which the temporary differences reverse and net
operating loss and tax credit carryforwards expire.

We recorded a valuation allowance equal to 100 percent of our remaining deferred
tax assets at June 30, 2001, as a result of several factors that arose in our
fourth quarter of fiscal 2001. Such factors were:

o   the sale of our profitable printing solutions segment in May 2001;
o   the decline in the overall economy and the impact it had on us and our
    customers in our fourth quarter;
o   changes in our sales force that occurred in our fourth quarter; and
o   the operating losses in our mobile information management segment.

Based on these factors, and because our remaining operating segment has not been
profitable, we determined that, under generally accepted accounting principles,
sufficient evidence no longer existed to enable us to determine that it was more
likely than not that we would be able to generate taxable income during periods
in which our temporary differences reverse and net operating loss and tax credit
carryforwards expire; as a result, we recorded a valuation allowance equal to
all of the remaining deferred tax assets at that time.

RESULTS OF DISCONTINUED OPERATIONS
----------------------------------

On May 31, 2001, we sold our printing solutions segment, which included our
network print server and non-network printer sharing products, to Troy Group,
Inc. for $1.6 million in cash, net of expenses. We sold our printing solutions
segment to Troy because the segment was not consistent with our core business
strategy, which focuses on mobile information management solutions.

Pursuant to the terms of the Asset Purchase Agreement between the parties, on
May 31, 2001, we transferred to Troy certain inventory, equipment, patents,
trademarks and other intellectual property rights, customer and supplier lists
and rights under certain contracts that existed as of the close of business on
May 30, 2001. Troy also assumed from us certain contractual and warranty
obligations and purchase commitments. Subsequent to the sale of our printing
solutions segment, Troy hired approximately 40 of our employees.

As a result of this disposition in our fourth quarter of fiscal 2001, our
printing solutions segment has been accounted for as discontinued operations in
accordance with Accounting Principles Bulletin No. 30. Amounts in this Quarterly
Report on Form 10-Q for our printing solutions segment, including the financial
statements and related notes, have been reclassified in the prior year to
reflect the discontinued operations.

LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
----------------------------------------------------

                                                    NINE MONTHS ENDED MARCH 31,
                                                     -------------------------
                                                        2002           2001
                                                     ----------     ----------
Net cash used by operating activities.............   $   (2,590)    $   (3,165)

Net cash used by operating activities in the first nine months of fiscal 2002
was primarily the result of our net loss and the result of a decrease in
accounts payable and accrued expenses, adjusted for such non-cash items as
depreciation and amortization. These cash uses were partially offset by a

                                       13
<PAGE>

decrease in receivables, prepaid and other assets and inventories, and an
increase in deferred revenue.

Net cash used by operating activities in the nine months ended March 31, 2001
was comprised primarily of our net loss, adjusted for such non-cash items as
deferred income taxes, depreciation and amortization and a provision for
write-down of inventory. These cash uses were partially offset by an increase in
accounts payable and accrued expenses and an increase in deferred revenue.

Accounts receivable, net of allowances, were $6.8 million at March 31, 2002 and
$8.5 million at June 30, 2001. We expect that accounts receivable may increase
in the future if our net revenue increases and if net revenue from original
equipment manufacturers and international customers becomes a higher percentage
of our net revenue, for these customers generally have longer payment cycles.

                                                     NINE MONTHS ENDED MARCH 31,
                                                      -------------------------
                                                         2002           2001
                                                      ----------     ----------
Net cash provided by (used by) investing activities.. $       11     $     (897)

As part of our effort to control cash and expenses, we did not make a
significant investment in property and equipment in the nine months ended March
31, 2002. Net cash used by investing activities in the nine months ended March
31, 2001 consisted primarily of purchases of property and equipment.

We currently plan to incur aggregate capital expenditures of approximately
$500,000 through fiscal 2003, primarily for software, system improvements and
personal computers.
                                                     NINE MONTHS ENDED MARCH 31,
                                                      -------------------------
                                                         2002           2001
                                                      ----------     ----------
Net cash provided by financing activities........     $      614     $    2,399

Net cash provided by financing activities in the nine months ended March 31,
2002 and 2001 consisted primarily of proceeds from the issuance of common stock
under our stock plans.

On January 15, 2002, we entered into a loan and security agreement with Silicon
Valley Bank, under which we can currently access up to $5.0 million of financing
in the form of a demand line of credit, subject to current accounts receivable
balances. The line of credit is collateralized by certain of our assets.
Interest on any borrowings will be paid at prime plus one percent but not less
than 5.5%. The line of credit agreement requires us to maintain certain
financial ratios and expires on January 15, 2004.

We believe that our existing working capital and the funds we expect to generate
from our operations will be sufficient to fund our anticipated working capital
and capital expenditure requirements through the next twelve months. In the
longer term, we may require additional sources of liquidity to fund future
growth. These sources of liquidity may include borrowing against our line of
credit or offering additional equity securities, which could result in dilution
to our stockholders, or additional debt financing.

We intend to continue to pursue strategic acquisitions of, or strategic
investments in, companies with complementary products, technologies or
distribution networks in order to broaden our mobile information management
product offerings. We currently have no commitments or agreements regarding any
material transaction of this kind; however, we may acquire businesses, products
or technologies in the future. As a result, we may require additional financing
in the future and, if we were required to obtain additional financing in the
future, sources of capital may not be available on terms favorable to us, if at
all.

EFFECTS OF FOREIGN CURRENCY EXCHANGE RATES
------------------------------------------

We derive a substantial portion of our net revenue from international sales,
principally through our international subsidiaries and through a limited number
of independent distributors and overseas original equipment manufacturers. Sales
made by our international subsidiaries, excluding our

                                       14
<PAGE>

Singapore subsidiary, are generally denominated in each country's respective
currency. Fluctuations in exchange rates could cause our results to fluctuate
when we translate revenue and expenses denominated in other currencies into
United States dollars. Fluctuations in exchange rates also may make our products
more expensive to original equipment manufacturers and independent distributors
who purchase our products in United States dollars.

In participating countries, we have completed the transition of our product
prices to the European single currency, the euro, and have converted financial
systems from local denominations to the euro. We did not experience significant
costs to make the transition and all such costs were expensed to operations as
they were incurred.

We do not hold or issue financial instruments for speculative purposes. From
time to time, we enter into foreign currency forward contracts, typically
against the euro and the British pound sterling, to manage fluctuations in the
value of foreign currencies on transactions with our international subsidiaries.
While these instruments are subject to fluctuations in value, these fluctuations
are generally offset by fluctuations in the value of the underlying asset or
liability being managed, resulting in minimal net exposure for us. The success
of these currency activities depends upon estimation of intercompany balances
denominated in various foreign currencies. To the extent that these forecasts
are overstated or understated during periods of currency volatility, we could
experience unanticipated currency gains or losses. We had $2.1 million and $2.8
million in forward contracts in place, which approximated fair value, against
the euro and British pound sterling at March 31, 2002 and June 30, 2001,
respectively, which matured within 30 days. We recognized net currency exchange
loss of $26,000 and a gain of $38,000 in the three months ended March 31, 2002
and 2001, respectively. We recognized net currency exchange losses of $67,000
and a gain of $12,000 in the nine months ended March 31, 2002 and 2001,
respectively.

RECENTLY ISSUED ACCOUNTING STANDARDS
------------------------------------

In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 141, "Business Combinations," which requires
that we account for all business combinations by the purchase method. This
statement applies to all business combinations for which the date of acquisition
is July 1, 2001, or later.

In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 142, "Goodwill and Other Intangible Assets,"
which addresses the accounting for intangible assets that are acquired
individually or with a group of other assets, other than those acquired in a
business combination, upon their acquisition. This statement also addresses the
accounting for goodwill and other intangible assets after they have been
initially recognized in the financial statements. We are currently evaluating
the impact that this statement may have on our operations. We are required to
adopt this statement in our first quarter of fiscal 2003 ending September 30,
2002.

In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 144, "Accounting for Impairment or Disposal of
Long-Lived Assets," which supersedes various existing standards on accounting
for long-lived assets. This new standard establishes a single accounting model
for long-lived assets to be disposed of by sale and is based on the framework of
Statement of Financial Accounting Standard No. 121. We are required to adopt
this statement in our first quarter of fiscal 2003 ending September 30, 2002.

In March 2000, the Emerging Issues Task Force reached a consensus on EITF Issue
No. 00-14, "Accounting for Certain Sales Incentives." This consensus provides
guidance on the recognition, measurement and income statement classification of
sales incentives which are offered voluntarily by a vendor without charge to
customers that can be used in, or that are exercisable by a customer as a result
of, a single exchange transaction. Our accounting policies conform to the
guidance in this consensus; therefore, we effectively adopted Issue No. 00-14
upon its issuance.

In November 2001, the Emerging Issues Task Force issued EITF Issue No. 01-09,
"Accounting for Consideration Given by a Vendor to a Customer (Including a
Reseller of the Vendor's Products)." Our accounting policies conform to the
guidance in this consensus; therefore, we effectively adopted Issue No. 01-09
upon its issuance.
                                       15
<PAGE>

In November 2001, the Emerging Issues Task Forces issued EITF Issue No. 01-14,
"Income Statement Characterization of Reimbursements Received for
"Out-of-Pocket" Expenses Incurred." This issue requires that reimbursements
received from our customers for out-of-pocket expenses incurred are classified
as revenue in our statement of operations. Our accounting policies conform to
the guidance in this consensus; therefore, we effectively adopted Issue No.
01-14 upon its issuance.































                                       16
<PAGE>

FACTORS THAT MAY AFFECT FUTURE RESULTS AND MARKET PRICE OF STOCK
----------------------------------------------------------------

WE HAVE A RECENT HISTORY OF LOSSES AND ANTICIPATE CONTINUED LOSSES AT LEAST
THROUGH OUR FIRST QUARTER OF FISCAL 2003.

Since the third quarter of our fiscal 1999, we have devoted significant
financial resources to the research and development and marketing and sales for
our mobile information management software products and, as a result, we have
generated operating losses. We intend to continue to devote significant
financial resources to product development and marketing and sales and, as a
result, we expect to continue to incur operating losses and may incur negative
cash flow from operations through at least the end of our first quarter of
fiscal 2003. We currently believe that we will be profitable and will generate
positive cash flow from operations for our second quarter of fiscal 2003. Our
ability to do so, and our ability to maintain profitability in subsequent
periods, will depend on a number of factors, including:

o   our ability to generate sufficient revenue and control expenses;
o   changes in the buying patterns of corporate information technology and our
    original equipment manufacturer customers;
o   changes in customer demand for our products;
o   the market adoption rate of Bluetooth or other technologies on which a
    number of our products are based;
o   announcements or introductions of new products or services by our
    competitors;
o   the outcome of our dispute with Pumatech, Inc. and the impact of any
    litigation on our financial and management resources;
o   delays in our development and introduction of new products and services;
o   changes in our pricing policies as a result of increased competition;
o   the mix of distribution channels through which we sell our products;
o   the market acceptance of our new and enhanced products and the products of
    our original equipment manufacturers;
o   the emergence of new technologies or industry standards;
o   normal seasonality that we experience in the first quarter of our fiscal
    year;
o   the timing of customer orders, which can be influenced by fiscal year-end
    buying patterns, seasonal trends or general economic conditions; and
o   a shift in the mix of our products sold, which may result in fluctuations in
    our gross margin.

OUR BUSINESS MAY BE HARMED BY DECLINES IN INFORMATION TECHNOLOGY SPENDING.

The market for our products depends on economic conditions affecting the broader
economic climate and spending on information technology, including mobile
applications and devices. Downturns in the overall economy may cause enterprises
to delay implementation of mobile device and application rollouts, reduce their
overall information technology budgets or reduce or cancel orders for our
products. Our original equipment manufacturer customers may also limit
development of new products that incorporate our products or reduce their level
of purchases of our products in the face of slower information technology
spending by their customers. We have seen a severe downturn in the worldwide
economy in the past year. We expect this downturn to continue and are uncertain
as to the severity and duration of the downturn, in part because of the
uncertainty regarding the potential long-term impact of terrorist attacks, such
as the attacks on the United States on September 11, 2001, and the resulting
military actions. In particular, capital spending in the information technology
sector generally has decreased in the past 12 months and many of our customers
and potential customers have experienced declines in their revenue and
operations. In this environment, customers may experience financial difficulty
or cease operations.

While we believe we have adequately factored these conditions into our current
revenue forecasts, if these conditions worsen, demand for our products may be
further reduced as a result of enterprises reducing information technology
spending on our products and original equipment manufacturers reducing their use
of our products in their own products. As a result, our revenue may fail to grow
or decline, which would harm our operating results. If the current economic
slowdown persists or worsens, we also may be forced to reduce our operating
expenses, which could result in additional one-time charges incurred in
connection with restructuring or other cost-cutting measures we may

                                       17
<PAGE>

take. On April 10, 2002, we announced a restructuring plan to reduce costs and
improve operating efficiencies and, as a result, will expect to incur
approximately $270,000 in restructuring costs in our fourth quarter of fiscal
2002.

OUR QUARTERLY AND ANNUAL OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY AND FAIL
TO MEET THE EXPECTATIONS OF SECURITIES ANALYSTS OR INVESTORS, WHICH COULD CAUSE
OUR STOCK PRICE TO DECLINE.

Our operating results have fluctuated in the past and may continue to do so in
the future. Our revenue and operating results will vary from quarter to quarter
for many reasons beyond our control, including those described in this section.
If our operating results fall below the expectations of securities analysts or
investors, the price of our stock may fall. In addition, quarter-to-quarter
variations in our revenue and operating results could create uncertainty about
the direction or progress of our business, which could result in a decline in
the price of our stock.

WE FORECAST MANY OF OUR OPERATING EXPENSES BASED ON FORECASTED REVENUE AND GROSS
PROFIT, WHICH IS DIFFICULT TO PREDICT. IF WE FAIL TO ACCURATELY PREDICT REVENUE
AND GROSS PROFIT IN A PARTICULAR PERIOD, WE MAY BE UNABLE TO ADJUST OUR
EXPENDITURES IN THAT PERIOD AND OUR OPERATING RESULTS WOULD BE HARMED.

Our quarterly revenue and operating results depend in large part on the volume
and timing of orders received within the quarter and on the number of software
seats licensed, which are difficult to forecast. In addition, a significant
portion of our revenue results from the sale of products to a number of original
equipment manufacturers and distributors, which are difficult to predict.
Significant portions of our expenses are related to personnel and, therefore,
are fixed in advance, based in large part on our forecast of future revenue. If
revenue and gross profit are below expectations in any given quarter, the
adverse impact of the shortfall on our operating results may be magnified by our
inability to adjust personnel and other expenditures to compensate for the
shortfall.

IF THE MARKETS FOR OUR PRODUCTS DO NOT CONTINUE TO GROW OR GROW AT EXPECTED
RATES, DEMAND FOR OUR PRODUCTS WOULD BE REDUCED AND OUR BUSINESS WOULD BE
HARMED.

The success of our products will rely to a large degree on the increased use of
mobile devices, including personal digital assistants, cell phones, pagers and
laptop and handheld computers, and on increased use of technologies such as
SyncML and Bluetooth. Even if markets for our products grow, our products may
not be successful. Enterprises and original equipment manufacturers may not
develop sufficient confidence in mobile devices to deploy our products to a
significant degree. Any inability to continue to penetrate the existing markets
for mobile data management and universal mobile connectivity products, the
failure of current markets to grow, new markets to develop or these markets to
be receptive to our products and technologies on which our products are based,
could harm our business. The emergence of these markets will be affected by a
number of factors beyond our control.

WE DEPEND ON A NUMBER OF KEY BUSINESS RELATIONSHIPS AND IF WE FAIL TO MAINTAIN
THESE RELATIONSHIPS, OR ARE UNABLE TO DEVELOP NEW RELATIONSHIPS, OUR BUSINESS
WOULD SUFFER.

An important element of our strategy is the development of key business
relationships with other companies that are involved in product development,
joint marketing and the development of mobile communication protocols. If we
fail to maintain our current relationships or are unable to develop new
relationships, our business would suffer. Some of these relationships impose
substantial product support obligations on us, which may not be offset by
significant revenue. The benefits to us may not outweigh or justify our
obligations in these relationships. Also, in order to meet our current or future
obligations to original equipment manufacturers, we may be required to allocate
additional internal resources to original equipment manufacturers' product
development projects, which may delay the completion dates of our other current
product development projects.

Our existing key business relationships do not, and any future key business
relationships may not, provide us any exclusive rights. Many of the companies
with which we have established and intend to establish key business
relationships have multiple strategic relationships, and these companies may not
regard their relationships with us as significant. In most of these
relationships, either party may terminate the relationship with little notice.
In addition, these companies may attempt to develop

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or acquire products that compete with our products. They may do so on their own
or in collaboration with others, including our competitors. Further, our
existing business relationships may interfere with our ability to enter into
other business relationships.

MARKETS FOR OUR PRODUCTS ARE BECOMING INCREASINGLY COMPETITIVE, WHICH COULD
RESULT IN LOWER PRICES FOR OUR PRODUCTS OR A LOSS OF MARKET SHARE.

We may not compete successfully against current or future competitors, some of
whom have longer operating histories, greater name recognition, more employees
and significantly greater financial, technical, marketing, public relations and
distribution resources. Increased competition may result in price reductions,
reduced margins, loss of market share and a change in our business and marketing
strategies, any of which could harm our business. The competitive environment
may require us to make changes in our products, pricing, licensing, services or
marketing to maintain and extend the market acceptance of our products. Price
concessions or the emergence of other pricing or distribution strategies by our
competitors or us may diminish our revenue.

We compete with:

o   mobile data management companies, including Synchrologic, Aether Software,
    Pumatech and AvantGo;
o   client/server database providers, including Microsoft, Interbase, Pervasive
    Software and Oracle;
o   mobile connectivity companies, including Widcomm, Open Interface and IVT
    Corporation; and
o   internal research and development departments of original equipment
    manufacturers, many of whom are our current customers.

As the markets for mobile information management products grow, we expect
competition from existing competitors to intensify. We also expect new
competitors, including original equipment manufacturers to which we sell our
products, to introduce products that compete with ours.

WE MAY NOT BE ABLE TO SUCCESSFULLY DEVELOP OR INTRODUCE NEW PRODUCTS.

The markets for our products are characterized by:

o   rapidly changing technologies;
o   evolving industry standards;
o   frequent new product introductions; and
o   short product life cycles.

Any delays in the introduction or shipment of new or enhanced products, the
inability of our products to achieve market acceptance or problems associated
with new product transitions could harm our business. The product development
process involves a number of risks. Development of new, technologically advanced
products is a complex and uncertain process requiring high levels of innovation,
as well as the accurate anticipation of technological and market trends. The
introduction of new or enhanced products also requires us to manage the
transition from older products to minimize disruption in customer ordering
patterns.

IF SPECIFIC INDUSTRY-WIDE STANDARDS AND PROTOCOLS, SUCH AS BLUETOOTH, SYNCML AND
IRDA, UPON WHICH OUR PRODUCTS ARE OR WILL BE BASED, DO NOT ACHIEVE WIDESPREAD
ACCEPTANCE, OUR BUSINESS WOULD BE HARMED.

We have designed a number of our current and upcoming products to conform to
industry standards and protocols, such as:

o   Bluetooth, a short-range radio communication protocol;
o   SyncML, a data synchronization protocol; and
o   IrDA, a wireless communication protocol created by the Infrared Data
    Association.

If these standards and protocols do not achieve acceptance, our business would
be harmed. Even if accepted, these industry-wide specifications may not be
widely adopted, or competing specifications may emerge. In addition,
technologies based on these standards and specifications may not be

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<PAGE>

adopted as the standard or preferred technologies for wireless connectivity,
thereby discouraging manufacturers of personal computers and mobile devices from
bundling or integrating these technologies in their products.

WE MAY NOT BE ABLE TO ADEQUATELY PROTECT OUR PATENT, TRADEMARK, COPYRIGHT OR
OTHER INTELLECTUAL PROPERTY RIGHTS FROM COMPETITORS, AND WE MAY BE REQUIRED TO
USE A SIGNIFICANT AMOUNT OF OUR RESOURCES TO DEFEND OURSELVES FROM INFRINGEMENT
CLAIMS MADE BY OTHERS.

Our patents, trademarks or copyrights may be invalidated, circumvented or
challenged, and the rights granted under these patents, trademarks and
copyrights may not provide us with any competitive advantage, which could harm
our business. Any of our pending or future patent applications may not be issued
with the scope of the claims we are seeking, if at all. In addition, others may
develop technologies that are similar or superior to our technology, duplicate
our technology or design around our patents. Further, effective intellectual
property protection may be unavailable or limited in some countries outside of
the United States.

Companies in the software industry frequently resort to litigation over
intellectual property rights. If a court finds that we infringe on the
intellectual property rights of any third party, we could be subject to
liabilities, which could harm our business. As a result, we might be required to
seek licenses from other companies or to refrain from using, manufacturing or
selling specific products or using specific processes. Holders of patents and
other intellectual property rights may not offer licenses to use their patents
or other intellectual property rights on acceptable terms, or at all. Failure to
obtain these licenses on commercially reasonable terms or at all could harm our
business.

For instance, on April 22, 2002, Pumatech, Inc. filed a patent infringement
action against us in the U.S. District Court in Northern California. The action
alleges that our XTNDConnect server and desktop synchronization products
infringe on seven of Pumatech's synchronization-related patents. The action
seeks an injunction against further sales of our server and desktop
synchronization products, as well as unspecified damages for past sales of our
products. We believe that Pumatech's claims are without merit, and we intend to
defend the suit vigorously. However, litigation is inherently uncertain, and we
may not prevail in our defense against the claims. In addition, litigation is
frequently expensive and time-consuming, and management may be required to spend
significant time defending the suit; such costs and the diversion of management
time could have a material adverse effect on our business. We are unable to
estimate the magnitude of our exposure at this time.

In order to protect our proprietary rights, we may decide to sue third parties.
Any litigation, whether brought by or against us, could cause us to incur
significant expenses and could divert a large amount of management time and
effort. A claim by us against a third party could in turn cause a counterclaim
by the third party against us, which could impair our intellectual property
rights and harm our business.

WE INTEND TO PURSUE ADDITIONAL ACQUISITIONS, AND ANY ACQUISITIONS COULD PROVE
DIFFICULT TO INTEGRATE WITH OUR BUSINESS, DISRUPT OUR BUSINESS, DILUTE
STOCKHOLDER VALUE OR ADVERSELY AFFECT OUR OPERATING RESULTS.

As part of our strategy, we intend to continue to pursue the acquisition of
companies that either complement or expand our existing business. If we fail to
properly evaluate and execute acquisitions, our business would be harmed. We may
not be able to properly evaluate the technology and accurately forecast the
financial impact of the transaction, including accounting charges and
transaction expenses. Acquisitions involve a number of risks and difficulties,
including:

o   the integration of acquired technologies with our existing products and
    technologies;
o   diversion of management's attention and other resources to the assimilation
    of the operations and personnel of the acquired companies;
o   availability of equity or debt financing on terms favorable to us and our
    stockholders;
o   integration of management information systems, personnel, research and
    development and marketing, sales and support operations;
o   expansion into new markets and business areas; and
o   potential adverse short-term effects on our operating results.

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<PAGE>

In addition, if we conduct acquisitions using debt or equity securities, our
existing stockholders' investments may be diluted, which could affect the market
price of our stock.

INTERNATIONAL SALES AND OPERATIONS REPRESENT A SUBSTANTIAL PORTION OF OUR
REVENUE. OUR BUSINESS MAY BE HARMED DUE TO RISKS ASSOCIATED WITH INTERNATIONAL
SALES AND OPERATIONS.

In our quarter ended March 31, 2002, 52% of our revenue was generated from
international sales. We expect that international sales will continue to
represent a substantial portion of our revenue for the foreseeable future.
International sales are subject to a number of risks, including:

o   changes in government regulations;
o   export license requirements;
o   tariffs, taxes and trade barriers;
o   fluctuations in currency exchange rates, which could cause our products to
    become relatively more expensive to customers in a particular country and
    lead to a reduction in sales in that country; longer collection and payment
    cycles than those in the United States;
o   difficulty in staffing and managing international operations; and
o   political and economic instability, including military actions.

WE DEPEND ON NON-EXCLUSIVE LICENSES FOR SOME OF THE TECHNOLOGY WE USE WITH OUR
PRODUCTS.

We license technology on a non-exclusive basis from several companies for use
with our products and anticipate that we will continue to do so in the future.
For example, we license authentication and encryption technology from Certicom
Corporation, which we include in our XTNDConnect Server products. Our inability
to continue to license this technology, or to license other technology necessary
for use with our products, could result in the loss of, or delays in the
inclusion of, important features of our products or result in substantial
increases in royalty payments that we would have to pay pursuant to alternative
third-party licenses, any of which could harm our business. In addition, the
effective implementation of our products depends upon the successful operation
of licensed software in conjunction with our products. Any undetected errors in
products resulting from this licensed software may prevent the implementation or
impair the functionality of our products, delay new product introductions and
injure our reputation.

CURRENCY EXCHANGE RATE FLUCTUATIONS COULD CAUSE OUR OPERATING RESULTS TO
FLUCTUATE.

The transactions made through our subsidiaries in France, Germany, Italy, the
Netherlands and the United Kingdom are primarily denominated in local
currencies. Accordingly, these international operations expose us to currency
exchange rate fluctuations, which in turn could cause our operating results to
fluctuate when we translate revenue and expenses denominated in other currencies
into United States dollars.

From time to time, we enter into foreign currency forward contracts, typically
against the euro and British pound sterling, to manage currency fluctuations on
payments and receipts of foreign currencies on transactions with our
international subsidiaries. The success of these currency activities depends
upon estimation of intercompany balances denominated in various foreign
currencies. To the extent that these forecasts are overstated or understated
during periods of currency volatility, we could experience unanticipated
currency gains or losses.

THE COMPLEX COMPUTER SOFTWARE AND HARDWARE PRODUCTS THAT WE PRODUCE MAY CONTAIN
DEFECTS FOR WHICH WE MAY BE LIABLE.

The complex software and computer hardware products we offer may contain
undetected errors when first introduced or as new versions are released. These
errors could result in dissatisfied customers, product liability claims and the
loss of or delay in market acceptance of new or enhanced products, any of which
could harm our business. Testing of our products is particularly challenging
because it is difficult to simulate the wide variety of computing environments
in which our customers may deploy our products. For example, our mobile
information management products are used in a wide variety of telecommunications
environments. Changes in technology standards or an increase

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<PAGE>

in the number of telecommunications technologies used in the marketplace may
create compatibility issues with our products and our customers' environments.
Accordingly, despite testing by us and by current and potential customers,
errors could be found after commencement of commercial shipment. A successful
product liability claim brought against us could result in our payment of
significant legal fees and damages, which would harm our business.


OUR STOCK PRICE MAY BE VOLATILE AND COULD DROP SIGNIFICANTLY, RESULTING IN THE
PARTIAL OR TOTAL LOSS OF A STOCKHOLDER'S INVESTMENT.

The trading price of our common stock may fluctuate significantly, which may
cause a stockholder's investment to decrease in value. The following factors may
have a significant impact on the market price of our common stock:

o   quarter-to-quarter variations in our operating results;
o   announcements of technological innovations or new products by us or our
    competitors;
o   general conditions in the computer and mobile device industry;
o   general economic conditions and their impact on corporate information
    technology spending;
o   price and trading volume volatility in the public stock markets in general;
o   announcements and updates of our business outlook; and
o   changes in security analysts' earnings estimates or recommendations
    regarding our competitors, our customers or us.

IF WE ARE UNABLE TO EFFECTIVELY MANAGE OUR GROWTH, OUR BUSINESS WILL SUFFER.

Growth in our business may place a significant strain on our administrative,
operational and financial resources and increase demands on our systems and
controls, which could harm our business. Growth may also result in an increase
in the scope of responsibility for management personnel.

We anticipate that our growth and expansion will require that we recruit, hire,
train and retain new engineering, executive, sales and marketing personnel.
Difficulty in recruiting qualified personnel could require us to incur
significant costs to recruit personnel or could limit our ability to grow. In
addition, in order to manage our growth successfully, we will need to continue
to expand and improve our operational, management and financial systems and
controls. The failure to do so could harm our business.

THE LOSS OF KEY PERSONNEL, OR OUR INABILITY TO ATTRACT AND RETAIN ADDITIONAL
PERSONNEL, MAY HARM OUR BUSINESS.

Our success depends upon the continuing contributions of our key management,
engineering, sales and marketing and finance personnel and our ability to
attract and retain key personnel. We do not maintain any key-person life
insurance policies. The loss of key personnel could harm our business. In our
first quarter of fiscal 2002, we completed a restructuring plan and reduced our
workforce by approximately 40 employees. In the fourth quarter of fiscal 2002,
we will reduce our workforce by approximately 25 additional employees. Despite
this reduction in workforce, we will continue to recruit personnel with the
specific technical skills that are critical to our business.

IT MAY BE DIFFICULT FOR A THIRD PARTY TO ACQUIRE US, EVEN IF DOING SO WOULD BE
BENEFICIAL TO OUR STOCKHOLDERS.

Provisions in our restated certificate of incorporation and our bylaws may have
the effect of deterring hostile takeovers or delaying or preventing changes in
control or management of us, including transactions in which stockholders might
otherwise receive a premium for their shares over then current market prices.
For example, our restated certificate of incorporation divides the board of
directors into three classes, each serving a staggered three-year term, and does
not permit action by written consent of the stockholders or cumulative voting.
In addition, our board of directors has the authority to issue up to 5,000,000
shares of preferred stock and to determine the price, rights, preferences and
privileges of those shares without any further vote or action by our
stockholders. The rights of the holders of common stock will be subject to, and
may be adversely affected by, the rights of the holders of any preferred stock
that may be issued in the future. While we have no

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<PAGE>

present intention to issue shares of preferred stock, 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 a majority of our outstanding voting
stock. Further, we are subject to the anti-takeover provisions of Section 203 of
the Delaware General Corporation Law, which prohibits us from engaging in a
business combination with an interested stockholder for three years after the
date of the transaction in which the person became an interested stockholder,
unless the business combination is approved in a prescribed manner. The
application of Section 203 could have the effect of delaying or preventing a
change of control.



























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<PAGE>

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Substantially all of our liquid investments are at fixed interest rates and,
therefore, the fair value of these instruments is affected by changes in market
interest rates. All of our liquid investments mature within 90 days or less of
March 31, 2002, therefore, we believe that the market risk arising from our
holdings of liquid investments is minimal.

Sales made by our international subsidiaries are generally denominated in the
foreign country's currency, with the exception of our Singapore subsidiary,
which are denominated in U.S. dollars. Fluctuations in exchange rates between
the United States dollar and other currencies could materially harm our
business. From time to time, we enter into foreign currency forward contracts,
typically against the British pound sterling and the euro, to manage
fluctuations in the value of foreign currencies on transactions with our
international subsidiaries, thereby limiting our risk that would otherwise
result from changes in exchange rates. While these instruments are subject to
fluctuations in value, these fluctuations are generally offset by fluctuations
in the value of the underlying asset or liability being managed, resulting in
minimal net exposure for us. The success of these hedging activities depends
upon estimation of intercompany balances denominated in various foreign
currencies. To the extent that these forecasts are overstated or understated
during periods of currency volatility, we could experience unanticipated
currency gains or losses. We had $2.1 million and $2.8 million in forward
contracts in place at March 31, 2002 and June 30, 2001, respectively, which
matured within 30 days and which approximated fair value.














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<PAGE>

PART II.  OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

 On April 22, 2002, Pumatech, Inc. filed a patent infringement action against us
in the U.S. District Court in Northern California. The action alleges that our
XTNDConnect server and desktop synchronization products infringe on seven of
Pumatech's synchronization-related patents. The action seeks an injunction
against further sales of our server and desktop synchronization products, as
well as unspecified damages for past sales of our products. We believe that
Pumatech's claims are without merit, and we intend to defend the suit
vigorously. However, litigation is inherently uncertain, and we may not prevail
in our defense against the claims. In addition, litigation is frequently
expensive and time-consuming, and management may be required to spend
significant time defending the suit; such costs and the diversion of management
time could have a material adverse effect on our business. We are unable to
estimate the magnitude of our exposure at this time.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a) EXHIBITS

    10.24    Employment Agreement between Extended Systems and Holmes T. Lundt

(b) REPORTS ON FORM 8-K

We filed no reports on Form 8-K in our quarter ended March 31, 2002.

ITEMS 2, 3, 4 AND 5 OF PART II ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
















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<PAGE>

                                    SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                              Extended Systems Incorporated



                              By: /s/ Karla K. Rosa
                                  -------------------------------------
                                  Karla K. Rosa
                                  Vice President, Finance
                                  Chief Financial Officer

                                  (Principal Financial and Accounting Officer
                                  and Duly Authorized Officer)

















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