<PAGE>


===============================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

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

                                   FORM 10-Q/A

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

                  FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000

                                       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 March
31, 2000 was 10,053,160.

===============================================================================


                                       1
<PAGE>


                          EXTENDED SYSTEMS INCORPORATED

                                    FORM 10-Q

               FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2000

                                      INDEX


<TABLE>
<CAPTION>


PART I.  FINANCIAL INFORMATION                                                                       PAGE
                                                                                                     ----
         <S>                                                                                         <C>

         Item 1.  Financial Statements

                  Consolidated Statement of Operations
                  for the Three and Nine Months Ended March 31, 2000 and 1999                          1

                  Consolidated Statement of Comprehensive Loss
                  for the Three and Nine Months Ended March 31, 2000 and 1999                          1

                  Consolidated Balance Sheet
                  as of March 31, 2000 and June 30, 1999                                               2

                  Consolidated Condensed Statement of Cash Flows
                  for the Nine Months Ended March 31, 2000 and 1999                                    3

                  Notes to Consolidated Financial Statements                                           4

         Item 2.  Management's Discussion and Analysis of Financial Condition
                  and Results of Operations                                                            8

SIGNATURE                                                                                             26

</TABLE>

                                PORTIONS AMENDED

We have restated our Consolidated Condensed Statement of Cash Flows for the
nine months ended March 31, 2000 to reflect a reclassification of a $3.7
million payment of a discount on long-term debt from a financing activity to
an operating activity. We have also restated the "Liquidity, Capital Resources
and Financial Condition" section of "Management's Discussion and Analysis of
Financial Condition and Results of Operations" to reflect this
reclassification.






                                       2
<PAGE>


                          PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

EXTENDED SYSTEMS INCORPORATED

CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

<TABLE>
<CAPTION>

                                                              THREE MONTHS ENDED             NINE MONTHS ENDED
                                                                   MARCH 31,                     MARCH 31,
                                                          ----------------------------  ----------------------------
                                                              2000           1999           2000           1999
                                                          -------------  -------------  -------------  -------------
<S>                                                       <C>            <C>            <C>            <C>

Net revenue                                                   $ 14,896       $ 13,388       $ 43,257      $  36,190
Cost of net revenue                                              7,150          5,920         22,170         17,466
                                                          -------------  -------------  -------------  -------------
Gross profit                                                     7,746          7,468         21,087         18,724

Operating expenses:
   Research and development                                      2,434          1,722          6,882          4,988
   Acquired in-process research and development                      -              -          2,352            758
   Marketing and sales                                           4,621          4,131         13,139         11,852
   General and administrative                                      985            904          3,153          2,861
   Amortization of intangibles                                     241             25            648             41
                                                          -------------  -------------  -------------  -------------
      Income (loss) from operations                               (535)           686         (5,087)        (1,776)

Other expense (income), net                                        (32)           (76)            72           (437)
Interest expense                                                    20            182            255            553
                                                          -------------  -------------  -------------  -------------
Income (loss) before income taxes                                 (523)           580         (5,414)        (1,892)
Income tax provision (benefit)                                    (199)           203         (1,561)          (377)
                                                          -------------  -------------  -------------  -------------
      Net income (loss)                                       $   (324)      $    377       $ (3,853)     $  (1,515)
                                                          =============  =============  =============  =============
Loss per share:
      Basic                                                   $  (0.03)      $   0.04       $  (0.41)     $   (0.18)
      Diluted                                                 $  (0.03)      $   0.04       $  (0.41)     $   (0.18)

Number of shares used in
   per share calculation:
      Basic                                                      9,812          8,477          9,374          8,362
      Diluted                                                    9,812          8,622          9,374          8,362

</TABLE>

CONSOLIDATED STATEMENT OF COMPREHENSIVE LOSS
(IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>

                                                              THREE MONTHS ENDED             NINE MONTHS ENDED
                                                                    MARCH 31,                    MARCH 31,
                                                          ----------------------------  ----------------------------
                                                              2000           1999           2000           1999
                                                          -------------  -------------  -------------  -------------
<S>                                                       <C>            <C>            <C>            <C>

Net income (loss)                                              $  (324)       $   377       $ (3,853)     $  (1,515)
Change in currency translation                                     (36)          (383)          (152)           (29)
                                                          -------------  -------------  -------------  -------------
Comprehensive loss                                             $  (360)       $    (6)      $ (4,005)     $  (1,544)
                                                          =============  =============  =============  =============
</TABLE>

The accompanying notes are an integral part of the financial statements



                                       3
<PAGE>

EXTENDED SYSTEMS INCORPORATED

CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
(UNAUDITED)


<TABLE>
<CAPTION>

                                                                   MARCH 31,            JUNE 30,
                                                                      2000                1999
                                                             -------------------   -----------------
<S>                                                          <C>                   <C>
ASSETS

Current:
    Cash and cash equivalents                                 $           5,097     $         9,668
    Short term investments                                                  -                 3,001
    Accounts receivable, net                                              8,982               9,778
    Income taxes receivable                                               3,051                 664
    Other receivables                                                     1,592               1,147
    Inventories:
      Purchased parts                                                     2,033               2,060
      Work in process                                                       387                 860
      Finished goods                                                      2,113               2,097
    Prepaids and other                                                      774                 945
    Deferred income taxes                                                   332                 584
                                                             -------------------   -----------------
      Total current assets                                               24,361              30,804

Property and equipment, net                                               8,011               8,300
Intangibles, net                                                          6,643               1,402
Deferred income taxes                                                       159                   -
Other assets                                                                293                 293
                                                             -------------------   -----------------
      Total assets                                            $          39,467     $        40,799
                                                             ===================   =================

LIABILITIES AND STOCKHOLDERS' EQUITY

Current:
    Accounts payable and accrued expenses                     $           5,177     $        4,609
    Accrued payroll and related benefits                                  1,304               1,297
    Current debt                                                            131               8,206
                                                             -------------------   -----------------
      Total current liabilities                                           6,612              14,112

Long-term liabilities                                                       -                    92
                                                             -------------------   -----------------
      Total liabilities                                                   6,612              14,204
                                                             -------------------   -----------------

Contingency

Shareholders' equity:
    Preferred stock                                                         -                   -
    Common stock                                                             10                   9
    Additional paid-in capital                                           22,018              12,015
    Retained earnings                                                    11,672              15,525
    Deferred compensation                                                  (292)               (553)
    Accumulated other comprehensive loss                                   (553)               (401)
                                                             -------------------   -----------------
      Total stockholders' equity                                         32,855              26,595
                                                             -------------------   -----------------
      Total liabilities and stockholders' equity              $          39,467     $        40,799
                                                             ===================   =================

</TABLE>

The accompanying notes are an integral part of the financial statements

                                       4

<PAGE>

EXTENDED SYSTEMS INCORPORATED

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


<TABLE>
<CAPTION>

                                                                        FOR THE NINE MONTHS ENDED MARCH 31,
                                                                             2000                 1999
                                                                     -------------------  ---------------------
<S>                                                                  <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income (loss)                                                 $          (3,853)   $            (1,515)
    Adjustments to reconcile net income to net cash
       provided by operating activities:
       Acquired research and development                                          2,352                    758
       Provision for bad debts                                                       44                    329
       Provision for write-down of inventory                                        367                  1,043
       Depreciation and amortization                                              2,183                  1,128
       Accretion of discount on long-term debt                                      174                    491
       Payment of discount on long-term debt                                     (3,675)                     -
       Provision for deferred income taxes                                           68                     53
       Stock option compensation                                                    211                    203
       Other                                                                        (9)                    (6)
       Changes in assets and liabilities, net of:
             effect of acquisitions:
          Receivables                                                            (2,158)                (2,666)
          Inventories                                                                80                    (83)
          Prepaids and other assets                                                 159                   (584)
          Payables                                                                  315                   (610)
                                                                     -------------------  ---------------------
             Net cash used by operating activities                               (3,742)                (1,459)
                                                                     -------------------  ---------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Acquisition:
       Oval (1415) Limited, net of cash acquired                                 (5,273)                     -
       Rand Software Corporation, net of cash acquired                                -                   (682)
       Parallax Research Pte                                                          -                   (346)
    Purchase of property and equipment                                             (788)                  (843)
    Maturities of available-for-sale securities                                   3,001                    750
    Purchase of available-for-sale securities                                         -                 (5,752)
    Issuance of note receivable                                                    (315)                     -
    Other investing activities                                                      152                   (271)
                                                                     -------------------  ---------------------
             Net cash used by investing activities                               (3,223)                (7,144)
                                                                     -------------------  ---------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from the issuance of common stock                                    6,257                    577
    Tax benefit from the exercise of employee stock options                         976                      -
    Payments on long-term debt                                                   (4,803)                  (206)
    Other financing activities                                                        -                     18
                                                                     -------------------  ---------------------
             Net cash provided by financing activities                            2,430                    389

    Effect of exchange rate changes on cash                                         (36)                   (11)
                                                                     -------------------  ---------------------
    Net increase (decrease) in cash and cash equivalents                         (4,571)                (8,225)
CASH AND CASH EQUIVALENTS:
    Beginning of period                                                           9,668                 15,006
                                                                     -------------------  ---------------------
    End of period                                                     $           5,097    $             6,781
                                                                     ===================  =====================

</TABLE>

The accompanying notes are an integral part of the financial statements

                                       5
<PAGE>


EXTENDED SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Extended Systems Incorporated has two primary operating segments. Our mobile
information management segment includes both universal mobile connectivity and
mobile data management products that enable mobile users to access, collect,
disseminate, synchronize and print information on demand. Our printing solutions
segment includes printer connectivity products for network and non-network
computer environments.

BASIS OF PRESENTATION. The unaudited consolidated financial statements include
Extended Systems Incorporated and its subsidiaries (the "Company"). We have
eliminated all significant intercompany accounts and transactions. In our
opinion, the accompanying unaudited consolidated financial statements contain
all adjustments (consisting solely of normal recurring adjustments) necessary to
present fairly our consolidated financial position and our consolidated results
of operations and cash flows. We have made certain reclassifications to the
prior year consolidated financial statements to conform to the fiscal 2000
presentation. Tabular amounts are in thousands, except per share amounts.

The information included in this Form 10-Q should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Financial Statements and Notes thereto included in the
Company's 1999 Annual Report on Form 10-K.

LOSS PER SHARE. Diluted loss per share computations exclude stock options and
shares to the extent that their effect would have been antidilitive.

BUSINESS COMBINATIONS. In August 1999, we acquired all of the outstanding stock
of Oval (1415) Limited ("Oval") for $5.5 million in cash, including acquisition
expenses, and 625,000 shares of our Common Stock valued at $3.0 million. We
accounted this transaction by the purchase method of accounting in accordance
with Accounting Principles Board Opinion No. 16, "Business Combinations" ("APB
16"), and, accordingly, its results of operations have been included in the
consolidated statement of operations since the acquisition date.

Oval, based in Bristol, England, is the parent company of Advance Systems
Limited ("ASL") and Zebedee Software Limited ("Zebedee"). ASL was a developer of
server-based synchronization software for portable computing devices and
high-end cellular phones that allows the update and exchange of data with
enterprise applications such as Microsoft Exchange, Lotus Notes and ODBC-based
corporate databases. Zebedee was a software consulting company. Substantially
all of the net assets owned by, and operations of, the Oval consolidated group
are attributable to ASL, therefore, we will refer to ASL herein when referring
to net assets acquired in the acquisition.

A summary of the net assets acquired at the date of the acquisition, as
determined in accordance with APB 16, is as follows:

<TABLE>

<S>                                                      <C>
Net working capital                                      $          112
Property and equipment                                               45
Developed technology, goodwill
     and other intangibles                                        5,984
Acquired in-process research and development                      2,352
                                                        ----------------

                                                         $        8,493
                                                        ================
</TABLE>

                                       6
<PAGE>


The following unaudited pro forma consolidated results of operations assume the
Oval acquisition occurred at the beginning of each period.

<TABLE>
<CAPTION>
                                            FOR THE NINE MONTHS ENDED
                                                    MARCH 31,
                                      ---------------------------------------
                                             2000                1999
                                      -------------------  ------------------
<S>                                      <C>                  <C>
Net revenue                              $        43,476      $       36,882
Net loss                                          (3,811)             (1,753)
Loss per share:
      Basic                                        (0.40)              (0.20)
      Diluted                                      (0.40)              (0.20)

</TABLE>

Valuation of the intangible assets acquired from ASL, including acquired
in-process research and development, developed technology and goodwill was
determined by independent appraisers. We, based upon such independent
appraisals, estimated that, in aggregate, the fair value of acquired in-process
research and development that had not yet reached technological feasibility and
had no alternative future use was $2.4 million. We expensed the amount allocated
to acquired in-process research and development as a charge to operations in the
first quarter of fiscal 2000.

The appraisers determined the value assigned to acquired in-process research and
development by projecting net cash flows related to future products expected to
result from commercialization of the acquired in-process research and
development. The net cash flows from such projects were based on estimates we
made and excluded amounts expected to result from existing products and
technologies. Projected net revenue included the expected evolution of the
technology and the reliance of future technologies on the in-process
technologies over time, but excluded amounts expected to result from existing
products and technologies. We based the estimated cost of net revenue and
estimated operating expenses on the Company's cost structure and that of
comparable companies.

The net cash flows were adjusted for the stage of completion of the projects and
discounted to their present values based on risk adjusted discount rates of 50%
to 65%. The discount rates were based on various factors such as:

-        the stage of completion at the acquisition date;
-        the complexity of the work completed as of the acquisition date;
-        costs incurred as of the valuation date;
-        difficulties of completing the remaining development in a reasonable
         time;
-        technical uncertainties of the remaining tasks; and
-        the costs remaining to complete the projects.

We used a portion of the acquired in-process research and development to further
enhance ASL's existing server-based synchronization technology by implementing a
plug-in architecture. This type of design allows users and third party software
providers to develop small software components that plug into our XTNDConnect
product and extend the range of applications supported by XTNDConnect. In
September 1999, we implemented the first phase of this architecture with the
release of XTNDConnect Version 2.2, which supports IBM's DB2 Everywhere 1.1
(DB2E) handheld relational database and Microsoft's ActiveX Data Object (ADO)
interface, and provides other enhanced management tools. The acquired in-process
research and development assigned to this project was valued at $943,000 as of
the date of the acquisition. We incurred an estimated $69,000 to complete
Version 2.2.

In November and December 1999, we released versions of XTNDConnect that support
encryption, Lotus Notes/Domino R5 and Symbian's EPOC operating system. The
acquired in-process research and development assigned to this project was valued
at $1.2 million at the date of the acquisition. This project was approximately
60% complete at the time of the acquisition and required an estimated $41,000 to
complete.


                                       7
<PAGE>


We will use the remaining acquired in-process research and development to
provide further enhancements to the architecture of its XTNDConnect product
line, which at the time of the acquisition were only approximately 10-15%
complete. The acquired in-process research and development assigned to this
project was valued at $186,000 as of the date of the acquisition. We expect to
incur an additional $123,000, from the date of the acquisition, to develop the
in-process technology into a commercially viable product with the nature of the
efforts principally relating to development and testing that is required to
establish that the product can be produced to meet its design specifications,
including functions, features and technical performance requirements. The
primary risk with the completion of this project is the overall scope and
complexity. We expect to complete this project by October 2000.

These products may not be successfully developed. If these products are not
successfully developed, or are not developed on a timely basis, our competitive
position, business and results of operations may be adversely affected in future
periods.

BUSINESS SEGMENT, GEOGRAPHIC AREA DATA AND MAJOR CUSTOMERS. We determined our
reportable segments by evaluating our management and internal reporting
structure based primarily on the nature of our products offered to customers and
type or class of customers.

Our mobile information management segment includes both universal mobile
connectivity and mobile data management solutions that enable mobile users to
access, collect, disseminate, synchronize and print information on demand. Our
products in the mobile information management segment include wireless
connectivity products, data management software, virtual private network remote
access servers, Internet appliances and database management systems with remote
access capabilities. We sell mobile information management products primarily to
original equipment manufacturers and corporate enterprises, application
developers and computer resellers.

Our printing solutions segment includes our maturing network print server and
non-network printer sharing product lines that we sell primarily through our
world-wide distribution channel to computer resellers and Fortune 1000
companies. We also sell printing solutions products to a number of original
equipment manufacturers.

Our other products segment primarily includes our discontinued line of
mechanical port replicator products.

The accounting policies of the segments are the same as those described in the
Summary of Significant Accounting Policies in our 1999 Annual Report on Form
10-K. There are no intersegment sales. We measure segment operating results
based on income or loss from operations. We do not generally distinguish our
assets by reportable segment. We allocate depreciation expense and other
indirect expenses to reportable segments using various methods such as
percentage of square footage used to total square footage and percent of direct
expense to total direct expenses.

Segment information is as follows:


                                       8
<PAGE>

<TABLE>
<CAPTION>
                                                     THREE MONTHS ENDED                 NINE MONTHS ENDED
                                                         MARCH 31,                          MARCH 31,
                                               -------------------------------   --------------------------------
                                                   2000             1999              2000             1999
                                               --------------   --------------   ---------------  ---------------
<S>                                             <C>              <C>              <C>              <C>
Net revenue:
     Mobile information management              $     10,577     $      6,757     $      29,133    $      15,123
     Printing solutions                                4,348            6,319            14,110           20,649
     Other products                                      (29)             312                14              418
                                               --------------   --------------   ---------------  ---------------
          Total                                 $     14,896     $     13,388     $      43,257    $      36,190
                                               ==============   ==============   ===============  ===============
Income (loss) from operations:
     Mobile information management              $       (216)    $        132     $      (4,631)   $        (360)
     Printing solutions                                 (280)             496              (385)           2,204
     Other products                                      (39)              58               (71)          (3,620)
                                               --------------   --------------   ---------------  ---------------
          Total                                 $       (535)    $        686     $      (5,087)   $      (1,776)
                                               ==============   ==============   ===============  ===============
</TABLE>


In the three and nine months ended March 31, 2000, the mobile information
management segment's loss from operations includes amortization of goodwill and
other intangibles of $400,000 and $1.1 million, respectively. In the nine months
ended March 31, 2000 and 1999, the mobile information segment's loss from
operations includes acquired in-process research and development charges of $2.4
million and $758,000, respectively, related to acquisitions.

Port replicator returns and a provision for port replicator returns totaling
$1.0 are included in net revenue and the loss from operations for other products
for the nine months ended March 31, 1999. Also included in the other products
loss from operations in the nine months ended March 31, 1999 is a provision for
write-down of port replicator inventory of $1.4 million.

Sales to an original equipment manufacturer accounted for 24% and 13% of net
revenue in the nine months ended March 31, 2000, and in fiscal year 1999,
respectively, and were primarily from mobile information management products.
Sales to a distributor accounted for 10% of our net revenue in fiscal year 1999
and were primarily from printing solutions and other products.

CONTINGENCY. On October 28, 1999, Mobility Electronics, Inc. filed suit against
us and certain other parties in the Superior Court for Maricopa County, Arizona,
seeking unspecified compensatory and punitive damages and alleging breach of
contract and civil conspiracy claims against us. On February 17, 2000, the court
granted our motion to compel arbitration of Mobility's claims pursuant to an
arbitration clause in our agreement with Mobility. As a result, the lawsuit has
been stayed pending completion of arbitration and will be automatically
dismissed on August 18, 2000. To date, Mobility has not instigated arbitration
proceedings based on the claims alleged in their complaint. We believe
Mobility's claims are without merit and the likelihood of an unfavorable outcome
upon any arbitration is remote.

RECENTLY ISSUED ACCOUNTING STANDARDS. In June 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standard No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. The statement requires an entity to recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. Under current operations,
adoption of Statement of Financial Accounting Standard No. 133 is not expected
to have a material impact on our results of operations and financial position.
This statement is effective for our fiscal year ending June 30, 2001.

The Securities and Exchange Commission issued Staff Accounting Bulletin 101,
"Revenue Recognition in Financial Statement" in December 1999. This bulletin
summarizes the Securities and Exchange Commission's view in applying generally
accepted accounting principles to revenue recognition in financial statements.
We are required to adopt Staff Accounting Bulletin 101 by our first fiscal
quarter of 2001. The


                                       9
<PAGE>

Company is currently evaluating the effect, if any, of this bulletin on our
revenue recognition practices and results of operations.





                                       10
<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 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 FUTURE LEVELS OF INTERNATIONAL SALES, FUTURE ORIGINAL EQUIPMENT
MANUFACTURER SALES, FUTURE GROSS MARGIN PERCENTAGES, UNIT SALES AND AVERAGE
SELLING PRICES OF PRODUCTS, FUTURE PRODUCT MIX, FUTURE EXPENSE LEVELS, FUTURE
ACQUISITIONS, THE EXPECTED BENEFITS AND RESULTS OF COMPLETED ACQUISITIONS AND
PENDING LITIGATION. 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 1999 ANNUAL REPORT ON FORM 10-K AND OUR QUARTERLY
REPORTS ON FORM 10-Q THAT WE FILE IN FISCAL 2000. ALL PERIOD REFERENCES ARE TO
OUR FISCAL YEARS ENDED JUNE 30, 2000, 1999 AND 1998, UNLESS OTHERWISE
INDICATED. ALL TABULAR DOLLAR AMOUNTS ARE PRESENTED IN THOUSANDS.

RESULTS OF OPERATIONS

We classify our product offerings into three segments:

-        mobile information management;
-        printing solutions; and
-        other products.

Our mobile information management segment includes both mobile data management
and universal mobile connectivity products that enable users to access,
collect, disseminate, synchronize and print information on demand. Our
products in our mobile information management segment include mobile
synchronization and data management software, wireless connectivity products,
enterprise Internet solutions and client/server database management systems
with remote access capabilities. We sell our mobile information management
products primarily to original equipment manufacturers, enterprises,
application developers and computer resellers both directly and through our
e-commerce storefronts on the Internet. Revenue is derived from:

-        sales of hardware products;
-        software license fees;
-        non-recurring development fees that are generated when we adapt our
         products to a customer's specifications; and
-        royalties.

We believe that net revenue from mobile information management products will
generate a larger percentage of net revenue as we continue to focus our
research and development and our marketing and sales efforts on our mobile
information management products and as our mobile information management
products continue to achieve increased market acceptance. Our future results
of operations will be highly dependent upon the success of recently introduced
products and the success of our recent acquisitions.

Our printing solutions segment includes our maturing network print server and
non-network printer sharing products, sold primarily through our worldwide
distribution channel to computer resellers and Fortune 1000 companies. Our net
revenue and income from operations from the printing solutions segment has
decreased from last year, mainly due to decreased unit sales of both network
print server products and non-network printer sharing products as we shifted
resources to support our mobile information management products. Revenue is
primarily derived from sales of hardware products and, to a lesser extent,
from non-recurring development fees

                                       11

<PAGE>

and royalties. We expect net revenue and income from operations from our
printing solutions products will continue to decline over the next several
quarters and will continue to become a smaller percentage of our net revenue.
Although the printing solutions segment is not our primary focus for the
future, we will continue to update the products, adding emerging technologies
such as fiber and mobile connectivity options.

Our other products segment has primarily consisted of our mechanical port
replicator products. Revenue was derived from sales of hardware products. In
December 1998, we announced our decision to exit the mechanical port
replicator business. Our decision was based on two primary factors. We
predicted a decrease in demand for third-party port replicator products as
laptop vendors became more successful in providing similar products in a more
timely manner. In addition, we were experiencing quality-related problems with
our supplier and, consequently, faced a lack of a reliable source for port
replicators to support future releases of laptop computer models in the
increasingly competitive environment.

We derive a substantial portion of our net revenue from international sales,
principally from our international sales subsidiaries, a limited number of
distributors and from original equipment manufacturers. We expect that
international sales will continue to represent a substantial portion of net
revenue in the foreseeable future. Increasing Asian revenue was primarily
related to original equipment manufacturer sales to large multi-national
companies that incorporate our products into their products and sell their
products worldwide.

Several of our products, in particular our ExtendNet print servers, XTNDAccess
wireless connectivity products, wireless software and XTNDConnect data
management software, are sold to original equipment manufacturers. We intend
to continue to increase sales to original equipment manufacturers in the
future, particularly with our mobile information management products. In the
first nine months of fiscal 2000 and in fiscal year 1999, sales of mobile
information management products and services to Hewlett-Packard accounted for
24% and 13% of our net revenue, respectively. Substantially all of our net
revenue derived from Hewlett-Packard is generated by sales of our IrDA Printer
Adapter for bundling with one of its mid-range printers. Hewlett-Packard also
licenses and purchases other of our mobile information management products. In
April 2000, Hewlett-Packard notified us that it would no longer bundle this
product with its printers sold in North America. As a result, we expect our
revenue from Hewlett-Packard to decline.

Revenue from original equipment manufacturer sales has in the past and is
expected in the future to fluctuate on a quarterly basis, as demand in the
original equipment manufacturer market is difficult to predict and dependent
on the timing of original equipment manufacturer projects and the
effectiveness of the marketing efforts of original equipment manufacturers.

We market and sell some of our products, primarily our printing solution
products, through multiple indirect channels, primarily distributors and
resellers. We support our indirect channels with our own marketing and sales
organization. In fiscal 1999, sales to Ingram Micro accounted for 10% of our
net revenue, primarily from printing solutions products. We provide most of
our distributors and sellers with price protection rights and limited product
return rights for stock rotation. Stock rotation rights permit distributors to
return products to us for credit against an offsetting purchase order, but are
limited based upon amounts purchased by a given distributor during the
preceding quarter. Price protection rights require that we grant retroactive
price adjustments for inventories of our products held by distributors or
resellers if we lower our prices for those products.

We expanded our product offerings in our mobile information management segment
with our August 1999 acquisition of Oval (1415) Limited. Oval, based in
Bristol, England, was the parent company of Advance Systems, a developer of
server-based synchronization and data management software for portable
computing devices and high-end mobile phones, and Zebedee Software, a software
consulting company.


<TABLE>
<CAPTION>

                                              THREE MONTHS ENDED MARCH 31,                NINE MONTHS ENDED MARCH 31,
                                         --------------------------------------     ---------------------------------------
                                             2000      % CHANGE        1999             2000       % CHANGE        1999
                                         --------------------------------------     ---------------------------------------
<S>                                      <C>           <C>          <C>             <C>            <C>          <C>
Net revenue                               $  14,896      11.3%      $  13,388        $ 43,257        19.5%      $  36,190

</TABLE>

The increases in net revenue in the three and nine months ended March 31, 2000
from net revenue in the same periods of the prior year were due primarily to
an increase in revenue from our mobile information management

                                       12

<PAGE>

products which grew 93% and 57%, respectively. The increases were offset, in
part, by decreases in revenue from our printing solutions products of 31% and
32%, respectively.


<TABLE>
<CAPTION>

                                              THREE MONTHS ENDED MARCH 31,                NINE MONTHS ENDED MARCH 31,
                                         --------------------------------------     ---------------------------------------
                                             2000      % CHANGE        1999             2000       % CHANGE        1999
                                         --------------------------------------     ---------------------------------------
<S>                                      <C>           <C>          <C>             <C>            <C>          <C>
Gross profit                              $ 7,746         3.7%      $ 7,468          $ 21,087        12.6%      $ 18,724
Gross margin                                 52.0%                     55.8%             48.7%                      51.7%

</TABLE>

The decreases in gross margin for the three and nine months ended March 31,
2000 from gross margin in the same periods of the prior year were the result
of higher shipments of lower margin mobile information management hardware
products to original equipment manufacturers and a shift in product mix within
the printing solutions segment to lower margin products.

Our cost of net revenue consists primarily of costs associated with
components, out-sourced manufacturing of particular subassemblies, and
in-house labor associated with assembly, testing, shipping and quality
assurance and royalties for the use of third-party software. Our gross margin
is affected by a number of factors, including product mix, competitive product
pricing pressures, manufacturing costs, component costs, provisions for
obsolete inventory and warranty costs. We expect that our gross margin in the
printing solutions segment may continue to decline as a result of a continued
shift in product mix toward lower priced products. We also expect that gross
margin from our mobile information management segment will fluctuate due to
shifts in mix between hardware and software products and the timing of sales
to original equipment manufacturers.


<TABLE>
<CAPTION>

                                              THREE MONTHS ENDED MARCH 31,                NINE MONTHS ENDED MARCH 31,
                                         --------------------------------------     ---------------------------------------
                                             2000      % CHANGE        1999             2000       % CHANGE        1999
                                         --------------------------------------     ---------------------------------------
<S>                                      <C>           <C>          <C>             <C>            <C>          <C>
Research and development                  $  2,434       41.3%      $   1,722         $  6,882       38.0%      $  4,988
   as a % of net revenue                      16.3%                      12.9%            15.9%                     13.8%

</TABLE>

Research and development expenses generally consist of salaries and other
personnel costs of our research and development teams, facilities costs and
travel expenses. The increase in research and development expenses in the
three months ended March 31, 2000 from the same period of the prior year was
the result of additional personnel costs in our mobile information management
segment as a result of the acquisition of Advance Systems in August 1999.

The increase in research and development expenses in the nine months ended
March 31, 2000 from the same period of the prior year was the result of
additional personnel costs in our mobile information management segment as a
result of the acquisitions of Advance Systems in August 1999, Rand Software in
October 1998 and Parallax Research, in November 1998.

We expect research and development expense to continue to increase in the
future, although such expense may vary as a percentage of net revenue.


<TABLE>
<CAPTION>

                                              THREE MONTHS ENDED MARCH 31,                NINE MONTHS ENDED MARCH 31,
                                         --------------------------------------     ---------------------------------------
                                             2000      % CHANGE        1999             2000       % CHANGE        1999
                                         --------------------------------------     ---------------------------------------
<S>                                      <C>           <C>          <C>             <C>            <C>          <C>
Marketing and sales                       $   4,621      11.9%      $   4,131        $  13,139       10.9%      $  11,852
   as a % of net revenue                       31.0%                     30.9%            30.4%                      32.7%

</TABLE>

Marketing and sales expenses consist primarily of salaries, commissions and
other personnel costs of our marketing, sales and support personnel and
promotional expenses. The increase in marketing and sales expense for the
three and nine months ended March 31, 2000 from the same periods last year
were primarily due to increased personnel costs and promotional activities for
the mobile information management segment both domestically and at our
European subsidiaries. The increases were partially offset by decreased
promotional activities within our printing solutions segment and the other
products segment.

                                       13

<PAGE>

We expect marketing and sales expense to continue to increase in the future,
although such expense may vary as a percentage of net revenue.





























                                       14

<PAGE>


<TABLE>
<CAPTION>

                                              THREE MONTHS ENDED MARCH 31,                NINE MONTHS ENDED MARCH 31,
                                         --------------------------------------     ---------------------------------------
                                             2000      % CHANGE        1999             2000       % CHANGE        1999
                                         --------------------------------------     ---------------------------------------
<S>                                      <C>           <C>          <C>             <C>            <C>          <C>
General and administrative                $   985         9.0%      $    904         $   3,153       10.2%      $   2,861
   as a % of net revenue                      6.6%                       6.8%              7.3%                       7.9%

</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 services
expenses. The increase in general and administrative expenses in the three
months ended March 31, 2000 from the same period last year was primarily
attributable to increased personnel costs subsequent to the acquisition of
Advance Systems. The increase in general and administrative expenses in the
nine months ended March 31, from the same period of the prior year was
primarily the result of increased administrative expenses in our mobile
information management segment subsequent to the acquisition of Advance
Systems and Parallax Research.

We expect general and administrative expenses to continue to increase in the
future, although this expense may vary as a percentage of net revenue. As a
result of an increase in our coverage limit resulting from a significant
increase in our market capitalization and the current market environment for
directors and officers' insurance, in general we expect the cost of our
directors and officers' insurance to significantly increase in the next year.


<TABLE>
<CAPTION>

                                              THREE MONTHS ENDED MARCH 31,                NINE MONTHS ENDED MARCH 31,
                                         --------------------------------------     ---------------------------------------
                                             2000      % CHANGE        1999             2000       % CHANGE        1999
                                         --------------------------------------     ---------------------------------------
<S>                                      <C>           <C>          <C>             <C>           <C>           <C>
Amortization of intangibles               $    241      864.0%      $     25         $   648      1,480.5%      $     41
  as a % of net revenue                        1.6%                      0.2%            1.5%                        0.1%

</TABLE>

The increase in amortization of intangibles for the three months ended March
31, 2000 from the same period in the prior year is the result of purchased
technology and other intangibles, which arose from the acquisition of Oval.
The increase for the nine months ended March 31, 2000 from the same period in
the prior year is the result of purchased technology and other intangibles,
which arose from the acquisitions of Oval, Rand Software and Parallax Research.


<TABLE>
<CAPTION>

                                              THREE MONTHS ENDED MARCH 31,                NINE MONTHS ENDED MARCH 31,
                                         --------------------------------------     ---------------------------------------
                                             2000      % CHANGE        1999             2000       % CHANGE        1999
                                         --------------------------------------     ---------------------------------------
<S>                                      <C>           <C>          <C>             <C>            <C>          <C>
Income tax provision (benefit)            $   (199)   (198.0)%      $    203         $  (1,561)     314.1%      $   (377)
   as a % of income before taxes              38.0%                     35.0%             28.8%                     19.9%

</TABLE>

The change in the income tax benefit for the three and nine months ended March
31, 2000 from the same periods in the prior year were attributable to a change
in the net loss before income taxes. The changes in the estimated effective
tax rates for these periods from the prior year were primarily the result of
non-deductible expenses in the prior year associated with the Rand Software
and Parallax Research acquisitions. These increases in the estimated effective
tax rate were offset, in part, by a valuation allowance to reflect the
estimated amount of deferred tax assets arising from the Oval acquisition.
Although realization is not assured, we believe it is more likely than not
that the remaining net deferred tax asset will be realized.

RESULTS OF OPERATIONS BY SEGMENT

The discussion below addresses the operating results attributable to each of
our three product segments.

MOBILE INFORMATION MANAGEMENT SEGMENT

Our mobile information management segment includes both mobile data management
and universal mobile connectivity products that enable users to access,
collect, disseminate, synchronize and print information on

                                       15

<PAGE>

demand. Our products in our mobile information management segment include data
synchronization and management software, wireless connectivity products,
enterprise Internet solutions and client/server database management systems
with remote access capabilities.


<TABLE>
<CAPTION>

                                              THREE MONTHS ENDED MARCH 31,                NINE MONTHS ENDED MARCH 31,
                                         --------------------------------------     ---------------------------------------
                                             2000      % CHANGE        1999             2000       % CHANGE        1999
                                         --------------------------------------     ---------------------------------------
<S>                                      <C>           <C>          <C>             <C>            <C>          <C>
Net revenue                               $  10,577       177%      $   6,757        $  29,133        108%      $  15,123
Loss from operations                           (216)   (263.6)%           123           (4,631)         9%           (368)

</TABLE>

Net revenue from mobile information management products grew to 71% of our net
revenue for the three months ended March 31, 2000, up from 57% in the same
period last year. For the nine months ended March 31, 2000, net revenue from
mobile information management products grew to 67% of our net revenue up from
42% in the same period last year.

The increase in net revenue for the three months ended March 31, 2000 from the
same period in the prior year was due primarily to increased unit sales of
original equipment manufacturer hardware products, increased license fees from
XTNDConnect data synchronization and management products and XTND Access
products and to increased unit sales of Internet appliance products. The
increase was offset by a decrease in the average selling price of hardware
products sold to original equipment manufacturers as a result of a shift in
product mix.

The increase in net revenue for the nine months ended March 31, 2000 from the
same period in the prior year was due primarily to increased unit sales of
hardware products to original equipment manufacturers, increased license fees
from XTNDConnect data synchronization and management products, increased unit
sales of Internet appliance products and increased license revenue from
Advantage Database Server products. The increase was offset by a decrease in
the average selling price of hardware products sold to original equipment
manufacturers as a result of a shift in product mix.

The decreased loss from operations for the mobile information management
segment in the three months ended March 31, 2000 from the same period last
year was primarily the result of increased gross profit as a result of
increased net revenue from mobile information management products. The
increased gross profit was partially offset by increases in our spending for
mobile information management research and development projects for both
mobile data management and universal mobile connectivity products, increased
spending in marketing and sales both domestically and internationally and
increased amortization expense related to the acquisition of Oval in the first
quarter of 2000.

The increased loss from operations for our mobile information management
segment in the nine months ended March 31, 2000 from the same period of the
prior year was primarily the result of an acquired in-process research and
development charge of $2.4 million from our August 1999 acquisition of Oval
and increased amortization of goodwill and other intangibles as a result of
this acquisition. The loss was also attributed to increases in spending for
research and development projects for both mobile data management and
universal mobile connectivity products and increased spending in marketing and
sales for all mobile information management products worldwide. The mobile
information management segment recorded an acquired in-process research and
development charge of $758,000 in the prior year related to the acquisitions
of Rand Software and Parallax Research.

PRINTING SOLUTIONS SEGMENT

The printing solutions segment includes our maturing network print server and
non-network printer sharing products, sold primarily through our worldwide
distribution channel to computer resellers and Fortune 1000 companies.




                                       16

<PAGE>

<TABLE>
<CAPTION>
                                              THREE MONTHS ENDED MARCH 31,                NINE MONTHS ENDED MARCH 31,
                                         ----------------------------------------   -----------------------------------------
                                             2000       % CHANGE       1999             2000       % CHANGE        1999
                                         ----------------------------------------   -----------------------------------------
<S>                                          <C>        <C>            <C>             <C>         <C>             <C>
Net revenue                                  $  4,348       (321)%     $   6,319       $  14,110       (316)%      $ 20,649
Income from operations                           (280)       (64)%           502            (385)       (85)%         2,210

</TABLE>

The decreases in net revenue for the three and nine months ended March 31, 2000
from the same periods last year were principally due to decreased unit sales of
both network print server products and non-network printer sharing products.

Income from operations from the printing solutions segment decreased in the
three and nine months ended March 31, 2000 from the same periods the prior year
primarily due to decreased gross profit partially offset by a decrease in
operating expenses as we shifted resources to support our mobile information
management products.

OTHER PRODUCTS SEGMENT

The primary component of our other products segment is our mechanical port
replicator products, which we discontinued in December 1998.

<TABLE>
<CAPTION>
                                              THREE MONTHS ENDED MARCH 31,                NINE MONTHS ENDED MARCH 31,
                                         ----------------------------------------   -----------------------------------------
                                             2000       % CHANGE       1999             2000       % CHANGE        1999
                                         ----------------------------------------   -----------------------------------------
<S>                                          <C>        <C>             <C>             <C>        <C>             <C>
Net revenue                                  $    (29)       (91)%      $    312        $     14       (103)%      $    418
Income (loss) from operations                     (39)       (61)%            58             (71)      (102)%        (3,618)

</TABLE>

BUSINESS COMBINATIONS

In August 1999, we acquired all of the outstanding stock of Oval (1415) Limited
for $5.5 million in cash, including acquisition expenses, and 625,000 shares of
our Common Stock valued at $3.0 million. We accounted this transaction by the
purchase method of accounting in accordance with Accounting Principles Board
Opinion No. 16, "Business Combinations," and, accordingly, its results of
operations have been included in the consolidated statement of operations since
the acquisition date.

Oval, based in Bristol, England, is the parent company of Advance Systems
Limited and Zebedee Software Limited. Advance Systems was a developer of
server-based synchronization software for portable computing devices and
high-end mobile phones that allows the update and exchange of data with
enterprise applications such as Microsoft Exchange, Lotus Notes and ODBC-based
corporate databases. Zebedee Software was a software consulting company.
Substantially all of the net assets owned by, and operations of, the Oval
consolidated group are attributable to Advance Systems, therefore, we will refer
to Advance Systems herein when referring to net assets acquired in the
acquisition.

A summary of the net assets acquired at the date of the acquisition, as
determined in accordance with APB 16, is as follows:

<TABLE>
<S>                                                      <C>
Net working capital                                      $          112
Property and equipment                                               45
Developed technology, goodwill
     and other intangibles                                        5,984
Acquired in-process research and development                      2,352
                                                        ----------------

                                                         $        8,493
                                                        ================
</TABLE>

Valuation of the intangible assets acquired from Advance Systems, including
acquired in-process research and development, developed technology and goodwill
was determined by independent appraisers. We, based upon such independent
appraisals, estimated that, in aggregate, the fair value of acquired in-process
research and development that had not yet reached technological feasibility and
had no alternative future use


                                       17
<PAGE>

was $2.4 million. We expensed the amount allocated to acquired in-process
research and development as a charge to operations in the first quarter of
fiscal 2000.

The appraisers determined the value assigned to acquired in-process research and
development by projecting net cash flows related to future products expected to
result from commercialization of the acquired in-process research and
development. The net cash flows from such projects were based on our estimates
and excluded amounts expected to result from existing products and technologies.
Projected net revenue included the expected evolution of the technology and the
reliance of future technologies on the in-process technologies over time, but
excluded amounts expected to result from existing products and technologies. We
based the estimated cost of net revenue and estimated operating expenses on our
cost structure and that of comparable companies.

The net cash flows were adjusted for the stage of completion of the projects and
discounted to their present values based on risk adjusted discount rates of 50%
to 65%. The discount rates were based on various factors such as:

-        the stage of completion at the acquisition date;
-        the complexity of the work completed as of the acquisition date;
-        costs incurred as of the valuation date;
-        difficulties of completing the remaining development in a reasonable
         time;
-        technical uncertainties of the remaining tasks; and
-        the costs remaining to complete the projects.

We used a portion of the acquired in-process research and development to further
enhance Advance Systems' existing server-based synchronization technology by
implementing a plug-in architecture. This type of design allows users and third
party software providers to develop small software components that plug into our
XTNDConnect product and extend the range of applications supported by
XTNDConnect. In September 1999, we implemented the first phase of this
architecture with the release of XTNDConnect Version 2.2, which supports IBM's
DB2 Everywhere 1.1 (DB2E) handheld relational database and Microsoft's ActiveX
Data Object (ADO) interface, and provides other enhanced management tools. The
acquired in-process research and development assigned to this project was valued
at $943,000 as of the date of the acquisition. We incurred an estimated $69,000
to complete Version 2.2.

In November and December 1999, we released versions of XTNDConnect that support
encryption, Lotus Notes/Domino R5 and Symbian's EPOC operating system. The
acquired in-process research and development assigned to this project was valued
at $1.2 million at the date of the acquisition. This project was approximately
60% complete at the time of the acquisition and required an estimated $41,000 to
complete.

We will use the remaining acquired in-process research and development to
provide further enhancements to the architecture of its XTNDConnect product
line, which at the time of the acquisition were only approximately 10-15%
complete. The acquired in-process research and development assigned to this
project was valued at $186,000 as of the date of the acquisition. We expect to
incur an additional $123,000, from the date of the acquisition, to develop the
in-process technology into a commercially viable product with the nature of the
efforts principally relating to development and testing that is required to
establish that the product can be produced to meet its design specifications,
including functions, features and technical performance requirements. The
primary risk with the completion of this project is the overall scope and
complexity. We expect to complete this project by October 2000.

These products may not be successfully developed. If these products are not
successfully developed, or are not developed on a timely basis, our competitive
position, business and results of operations may be adversely affected in future
periods.

LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION


                                       18
<PAGE>


Net cash used by operating activities for the nine months ended March 31, 2000
was $3.7 million and was primarily a result of the payment of a discount on
long-term debt and an increase in receivables, partially offset by the net loss
incurred adjusted for non-cash charges such as the acquired in-process research
and development charge related to the acquisition of Advance Systems and
depreciation and amortization. The net cash used by operating activities for the
nine months ended March 31, 1999 was $1.5 million and resulted primarily from an
increase in receivables, a decrease in payables and an increase in prepaids and
other assets, partially offset by the net loss incurred adjusted for non-cash
charges such as depreciation and amortization and the provision for write-down
on inventory.

Accounts receivable decreased to $9.0 million at March 31, 2000 from $9.8
million at June 30, 1999. Days sales outstanding in receivables were 42 days at
March 31, 2000 and 61 days at June 30, 1999. We expect that accounts receivable
may increase in the event that net revenue increases and as net revenue from
original equipment manufacturers and international customers represents a higher
percentage of our net revenue.

Net cash used by investing activities in nine months ended March 31, 2000 was
$3.2 million and consisted primarily of net cash payments for the acquisition of
Oval. The net cash used by investing activities in the nine months ended March
31, 1999 was $7.1 million, which reflects the purchase of available-for-sale
securities, the purchase of property and equipment and the net cash paid in our
acquisitions of Rand Software and Parallax Research.

We currently plan to incur aggregate capital expenditures of approximately $1.5
million during fiscal 2000, primarily for system improvements, leasehold
improvements, software and personal computers.

Net cash provided by financing activities in the nine months ended March 31,
2000 was $2.4 million, which consisted primarily of proceeds from the issuance
of common stock under our stock plans, partially offset by payments on our
long-term debt. The net cash provided by financing activities in the nine months
ended March 31, 1999 was $389,000, which resulted primarily from the issuance of
common stock under our stock plans.

We have an uncollateralized bank revolving line of credit of $10.0 million that
expires on October 31, 2000. Interest on borrowings is at the lender's prime
rate minus 1%. There were no borrowings under this line at March 31, 2000 or
June 30, 1999. The line of credit agreement and a lease agreement have
restrictive covenants that require us to maintain particular financial ratios.

We believe that our existing working capital and borrowing capacity, coupled
with the funds generated from our operations, will be sufficient to fund our
anticipated working capital, capital expenditures and debt payment requirements
through fiscal 2000 and fiscal 2001. In the longer term, we may require
additional sources of liquidity to fund future growth. These sources of
liquidity may include additional equity offerings, which could result in
dilution to our stockholders, or additional debt financing.

In addition to our acquisitions of Rand Software and Parallax Research in fiscal
1999 and our acquisition of Oval in the first fiscal quarter of 2000, 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 product offerings and to provide a more complete mobile
information management product offering. We have no additional commitments or
agreements regarding any transaction of this kind; however, we may acquire
businesses, products or technologies in the future. 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. Sales made by our international subsidiaries,
excluding our Singapore subsidiary, are generally denominated in foreign
currency. Fluctuations in exchange rates between the U.S. dollar and other
currencies could harm our business.


                                       19
<PAGE>

We have not experienced significant costs as a result of the introduction of a
European single currency, known as the Euro, introduced on January 1, 1999. At
an appropriate point before the end of the transition period, December 31, 2001,
product prices in participating countries will be denominated in the Euro and
converted to local denominations. During the transition period, our financial
systems located in the participating countries will be converted from local
denominations to the Euro. We do not presently expect that the transition to the
Euro will significantly affect our foreign currency exchange and hedging
activities. Further, we do not expect that the transition to the Euro will
result in any significant increase in costs to us and all costs associated with
the transition to the Euro will be expensed to operations as incurred. While we
will continue to evaluate the impact of the transition of the Euro, based on
currently available information, we do not believe that the introduction of the
Euro will harm our business.

From time to time, we enter into foreign currency forward contracts, typically
against the Euro and British Pound, to hedge payments and receipts of foreign
currencies related to transactions with international subsidiaries. While these
hedging instruments are subject to fluctuations in value, these fluctuations are
generally offset by the value of the underlying exposures being hedged. Gains
and losses on these foreign currency receivables would generally be offset by
corresponding losses and gains on the related hedging instruments, resulting in
minimal net exposure for us. We do not hold or issue financial instruments for
speculative purposes. If we implement hedging activities in the future for
foreign currency transactions, we may not be successful in these hedging
activities.

RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which establishes accounting and reporting standards
for derivative instruments, including particular derivative instruments embedded
in other contracts and for hedging activities. The statement requires an entity
to recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. Under current
operations, adoption of Statement of Financial Accounting Standard No. 133 is
not expected to harm our business. Statement of Financial Accounting Standard
No. 133 is effective for our fiscal ending June 30, 2001.

The Securities and Exchange Commission issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statement" in December 1999. The staff
accounting bulletin summarized the Securities and Exchange Commission's view in
applying generally accepted accounting principles to revenue recognition in
financial statements. Adoption is required by our first fiscal quarter of 2001.
We are currently evaluating the effect, if any, of the staff accounting bulletin
on our revenue recognition practices and results of operations. IMPACT OF YEAR
2000 We did not experience significant problems with the date change from
December 31, 1999 to January 1, 2000. We cannot, however, conclude that any
failure of third parties to achieve Year 2000 compliance will not negatively
affect us.

YEAR 2000 COMPLIANCE

The Company did not experience significant problems with the date change from
December 31, 1999 to January 1, 2000. The Company cannot, however, conclude that
any failure of third parties to achieve Year 2000 compliance will not adversely
affect the Company.

FACTORS THAT MAY AFFECT FUTURE RESULTS AND MARKET PRICE OF STOCK

IN ADDITION TO THE RISK FACTORS DISCUSSED ELSEWHERE IN THIS FORM 10-Q, THE
FOLLOWING ARE IMPORTANT FACTORS, WHICH COULD CAUSE ACTUAL RESULTS OR EVENTS TO
DIFFER MATERIALLY FROM THOSE CONTAINED IN ANY FORWARD LOOKING STATEMENTS THAT WE
MAKE.

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

Our operating results have fluctuated significantly in the past and we expect
that they will continue to do so in the future. If our operating results fall
below the expectations of securities analysts and investors, the price of


                                       20
<PAGE>

our stock may fall. Some of the factors that may cause fluctuations in our
operating results include, but are not limited to:

-        changes in the buying patterns of our original equipment manufacturer
         customers;
-        changes in customer demand for our products;
-        announcements or introductions of new products or services by our
         competitors;
-        delays in developing and introducing new products and services;
-        changes in our pricing policies as a result of increased competition;
-        the mix of distribution channels through which we sell our products;
-        the market acceptance of our new and enhanced products and the products
         of our original equipment manufacturers;
-        the emergence of new technologies or industry standards;
-        the timing of customer orders, which can be influenced by fiscal year
         end buying pressure and seasonal trends;
-        a shift in the mix of products sold, resulting in increased sales of
         lower-margin products; o the discontinuation of any of our product
         offerings, which could result in product returns and inventory
         writeoffs; and
-        changes in accounting standards, including standards relating to
         revenue recognition, business combinations and stock-based
         compensation.





                                       21

<PAGE>


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

The trading price of our common stock may significantly fluctuate, which may
cause your investment to decrease in value. For example, during the 52-week
period ending April 28, 2000, the price of our common stock ranged from $4.25 to
$150.00 per share. The following factors may have a significant impact on the
market price of our common stock:

-        quarter-to-quarter variations in operating results;
-        announcements of technological innovations or new products by us or our
         competitors;
-        general conditions in the computer and mobile device industry;
-        price and trading volume volatility in the public stock markets
         generally; and
-        changes in securities analysts' earnings estimates or recommendations
         regarding our competitors, customers or us.

For additional information regarding the historical trading prices of our common
stock, see "Price range of common stock."

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 involves entering into key business
relationships with other companies that relate to product development, joint
marketing and the development of protocols for mobile communications. 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.

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. Most of these relationships
may be terminated by either party with little notice. In addition, these
companies may attempt to develop or acquire products that compete with our
products either 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 relationships.

IF SPECIFIC INDUSTRY-WIDE STANDARDS AND PROTOCOLS, SUCH AS BLUETOOTH, WAP 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-standard infrared, short-range radio and networking standards and
protocols, such as the short-range radio communication protocol known as
Bluetooth, the Wireless Application Protocol (WAP), and the communication
protocol created by the Infrared Data Association, known as IrDA. 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 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.

THE MOBILE DATA MANAGEMENT AND UNIVERSAL MOBILE CONNECTIVITY MARKETS ARE NEW AND
EVOLVING AND MAY NOT CONTINUE TO GROW, WHICH WOULD REDUCE DEMAND FOR OUR
PRODUCTS AND HARM OUR BUSINESS.

The mobile data management and universal mobile connectivity markets are still
emerging and may not continue to grow. Even if the markets grow, our products
that address these markets may not be successful. The success of these products
will rely to a large degree on the increased use of mobile devices, including
personal digital assistants, mobile phones, pagers, laptop and handheld
computers and digital cameras.


                                       22
<PAGE>

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, could harm our business. The emergence of these markets will be
affected by a number of factors beyond our control.

IF ORIGINAL EQUIPMENT MANUFACTURERS REDUCE THEIR PURCHASES OF OUR PRODUCTS, OUR
OPERATING RESULTS AND FUTURE GROWTH COULD BE HARMED.

A significant portion of our net revenue in any quarter is typically derived
from sales to a limited number of original equipment manufacturers. Sales to
original equipment manufacturers involve a number of potential risks, including
potential competition from original equipment manufacturers and the
ineffectiveness of the marketing efforts of original equipment manufacturers for
their own products. The original equipment manufacturers to which we sell our
products may in the future incorporate competing products into their systems or
internally develop competing products and technology. In the event that these or
other original equipment manufacturers reduce their purchases of our products,
our operating results and future growth could be harmed. In addition, any
significant deferral of purchases of our products by original equipment
manufacturers could harm our quarterly operating results.

Sales to original equipment manufacturers frequently involve lengthy sales
cycles, typically six to 12 months, and may be subject to a number of
significant risks over which we have little or no control, including:

-        customers' budgetary constraints and internal acceptance review
         procedures;
-        the timing of our customers' budget cycles; and
-        the timing of customers' competitive product evaluation processes.

WE INTEND TO PURSUE ADDITIONAL ACQUISITIONS, AND ANY ACQUISITIONS COULD PROVE
DIFFICULT TO INTEGRATE, 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:

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

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

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

Our quarterly net revenue and operating results depend in large part on the
volume and timing of orders received within the quarter, which are difficult to
forecast. We typically operate with a relatively small order backlog and
significant portions of our expenses are fixed in advance, based in large part
on our forecast of future net revenue. In addition, a majority of our net
revenue results from the sale of products to a limited number of original
equipment manufacturers and distributors, which are difficult to predict. None
of our


                                       23
<PAGE>

distributors or original equipment manufacturers are obligated to purchase our
products except pursuant to current purchase orders. If net revenue is below
expectations in any given quarter, the adverse impact of the shortfall on our
operating results may be magnified by our inability to adjust spending to
compensate for the shortfall. Therefore, a shortfall in actual net revenue as
compared to estimated net revenue could harm our operating results.

WE HAVE EXPERIENCED SEASONALITY IN OUR NET REVENUE, WHICH MAY CAUSE OUR
OPERATING RESULTS TO FAIL TO MEET THE EXPECTATIONS OF SECURITIES ANALYSTS OR
INVESTORS, WHICH COULD CAUSE OUR STOCK PRICE TO DECLINE.

We have experienced some seasonality in our net revenue and we expect to
continue to experience seasonality in the future. Seasonal fluctuations in our
net revenue may cause our operating results to fail to meet the expectations of
securities analysts or investors, which may cause our stock price to decline.
Net revenue in our first fiscal quarter is typically lower than net revenue in
the prior fourth fiscal quarter, reflecting lower sales in Europe and other
regions in the summer months when business activities are reduced. Our net
revenue may also experience some fluctuation in the first and third fiscal
quarters as a result of fiscal year-end buying by the U.S. and Canadian
governments.

OUR MARKET IS 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:

-        mobile data management companies, including Puma Technology, fusionOne,
         Aether Software, a subsidiary of Aether Systems and formerly known as
         Riverbed Technologies, and Starfish Software, a subsidiary of Motorola;
-        mobile connectivity companies, including Widcomm, CALIBRE Systems,
         ClariNet Communications and Digianswer, a subsidiary of Motorola;
-        internet solutions providers, including eSoft, Cobalt Networks, IBM and
         Ramp Networks;
-        print server manufacturers, including Hewlett-Packard, Intel and
         Lexmark; and
-        internal research and development departments of original equipment
         manufacturers, many of whom are our current customers.

As the markets for mobile data management and universal mobile connectivity
products grow, we expect competition from existing competitors to intensify and
new competitors, including original equipment manufacturers to whom we sell our
products, to introduce products that compete with ours.

IF OUR THIRD-PARTY MANUFACTURERS FAIL TO PROVIDE US WITH QUALITY, COST-EFFECTIVE
PRODUCTS IN A TIMELY MANNER OR IN SUFFICIENT VOLUMES TO MEET CUSTOMER DEMAND,
OUR BUSINESS AND OPERATING RESULTS MAY BE HARMED.

We maintain a limited in-house manufacturing capability for performing materials
procurement, final assembly, testing, quality assurance and shipping. We rely
primarily on independent subcontractors to manufacture our products and we
intend to continue our reliance upon third-party manufacturers in the future.
Some of our products are manufactured in their entirety by third parties. Our
reliance on third-party manufacturers involves a number of risks, including the
potential inability to obtain an adequate supply of existing and new products
and reduced control over delivery schedules, product quality and product cost.
For example, in December 1998, we announced our decision to exit the port
replicator business due in part to quality problems associated with the


                                       24
<PAGE>

third-party manufacturer of this product. Our decision to exit the port
replicator business was the primary cause of the decline in our net revenue in
the quarter ended December 31, 1998.

IF OUR THIRD-PARTY SUPPLIERS FAIL TO MAKE DELIVERIES THAT MEET OUR MANUFACTURING
SCHEDULES, OUR BUSINESS MAY BE HARMED.

We rely on third-party suppliers for components used in our products. Because
the manufacturing of our products can involve long lead times, in the event of
unanticipated increases in demand for our products, we could be unable to obtain
product components quickly enough to manufacture particular products in a
quantity sufficient to meet customer demand. As a result, our business may be
harmed. Some of the components used in our products, including particular
semiconductor components and infrared transmission components, are currently
available from a limited number of suppliers. From time to time, we have
experienced difficulty in obtaining components from suppliers due to increased
industry demand and a lack of available supply. We are currently experiencing
some difficulty in obtaining an adequate supply of flash memory for our printing
solutions products and some components commonly used in the manufacture of
mobile phones, such as resistors and capacitors, for our wireless connectivity
products. Any inability to obtain adequate deliveries, increased costs or other
circumstances that would require us to seek alternative suppliers could impair
our ability to ship our products on a timely basis. This could damage
relationships with current and prospective customers and increase the
manufacturing cost of our products, either of which would harm our business.

WE RELY HEAVILY UPON SALES TO HEWLETT-PACKARD, AND IF HEWLETT-PACKARD DECIDES TO
DECREASE OR DISCONTINUE THE BUNDLING OF OUR PRODUCTS, OUR NET REVENUE MAY
DECLINE.

For the nine months ended March 31, 2000, sales to Hewlett-Packard represented
24% of our net revenue, the substantial majority of which was generated by the
bundling of our XTNDAccess IrDA Printer Adapter with Hewlett-Packard mid-range
printers. In April 2000, Hewlett-Packard notified us that it would no longer
bundle this product with its printers sold in North America. As a result, we
expect our net revenue from Hewlett-Packard to decline. If Hewlett-Packard
decides to further decrease its purchases, our net revenue may further decline.
Hewlett-Packard is not obligated to purchase any minimum quantities of our
product in any given period of time. The markets for printers are characterized
by high price competition and relatively low gross margins. These factors could
cause Hewlett-Packard to reduce production of or eliminate the printers for
which our product is purchased or seek price concessions from us. Any of these
events could cause our net revenue to decline.

WE RELY UPON THIRD-PARTY DISTRIBUTORS AND RESELLERS, WHO MAY NOT DEVOTE
RESOURCES TO ADEQUATELY SUPPORT OUR PRODUCTS.

We sell some of our products, mainly our printing solutions products, primarily
through distributors and resellers. Our success depends on the continued sales
efforts of our network of distributors and resellers. Some of our existing
distributors currently distribute, or may in the future distribute, the products
of our competitors. These third-party distributors may not recommend our
products or may not devote sufficient resources to market or adequately support
our products.

We provide most of our distributors and resellers with limited product return
rights for stock rotation and with some price protection rights. We may
experience significant returns in the future and we may not make adequate
allowances to offset these returns. Price protection rights require that we
grant retroactive price adjustments for inventories of our products held by
distributors or resellers if we lower our prices for these products. The short
life cycles of our products and the difficulty in predicting future sales
increase the risk that new product introductions, price reductions by us or our
competitors or other factors affecting the markets in which we compete could
result in significant product returns. For example, in the quarter ended
December 31, 1998, we discontinued our mechanical port replicator products. As a
result, we recorded $1.4 million in after-tax charges for product returns, an
allowance for product returns and an increase in the inventory valuation
allowance for port replicators. Our distributors maintain inventory of the
products they purchase from us. Changes in inventory management policies at any
of our key distributors could harm our business.

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


                                       25
<PAGE>

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 necessary technology
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.

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

The markets for our products are characterized by rapidly changing technologies,
evolving industry standards, frequent new product introductions and 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. The 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 in order to minimize disruption in
customer ordering patterns, avoid excessive levels of older product inventories
and ensure that adequate supplies of new products can be delivered to meet
customer demand.

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

We derive a substantial portion of our net revenue from international sales. For
the nine months ended March 31, 2000, net revenue from international sales
accounted for approximately 71% of our net revenue. We expect that international
sales will continue to represent a substantial portion of our net revenue for
the foreseeable future. International sales are subject to a number of risks,
including:

-        changes in government regulations;
-        export license requirements;
-        tariffs, taxes and trade barriers;
-        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;
-        difficulty in staffing and managing international operations; and
-        political and economic instability, including instability caused by the
         European monetary union and military actions.

In addition, if any significant international original equipment manufacturer or
distributor were to cease purchasing products or were to significantly reduce
its orders for any reason, our business could be harmed.

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. From time to time we enter into foreign currency forward contracts,
typically against the Euro and British Pound, to hedge our exposure to exchange
rate fluctuations resulting from intercompany transactions with our
international subsidiaries. The success of these hedging activities depends upon
estimates of intercompany balances denominated in various foreign currencies. To
the extent that these estimates are overstated or understated during periods of
currency volatility, we could experience unanticipated currency gains or losses.


                                       26
<PAGE>

IF ENTERPRISES AND INDIVIDUALS ARE RELUCTANT TO USE THE INTERNET TO MANAGE
INFORMATION, IT WILL HARM SALES OF SOME OF OUR PRODUCTS.

Sales of some of our products, including our mobile data management and our
enterprise Internet products in particular, largely depend upon on the increased
use of the Internet by enterprises as replacements for, or enhancements to,
their private networks. However, enterprises may be reluctant to use Internet
services or applications for functions that are important for their operations.
If enterprises determine that our mobile data management and enterprise Internet
products do not provide adequate security for dissemination of information over
the Internet, or if for any other reason customers fail to accept our
applications and services for use over the Internet, our business could be
harmed.

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

Software and computer hardware products as complex as those 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 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/or
damages, which would harm our business.

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

Any growth we experience is likely to place a significant strain on our
administrative, operational and financial resources and to 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 growth and expansion will require us to recruit, hire, train and
retain a substantial number of new engineering, executive, sales and marketing
personnel. In the current employment environment we have experienced difficulty
in recruiting qualified personnel, and continued difficulty in this regard 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.

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.

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.

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


                                       27
<PAGE>

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.

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 personnel. The loss of key management or
technical personnel could harm our business. We do not maintain any key-person
life insurance policies. We believe that our success will also depend upon our
ability to attract and retain highly skilled management, engineering, sales and
marketing personnel. In particular, we are currently attempting to recruit new
engineering personnel; however, we may not be successful at hiring or retaining
these personnel. 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 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. We will have broad
discretion to allocate a large percentage proceeds of this offering.


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<PAGE>


                                    SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1923, 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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