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

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549



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


                                    FORM 10-Q



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

            FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002

                                       OR

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

            FOR THE TRANSITION PERIOD FROM _______________ TO _______________



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


                        Commission File Number 000-23597




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


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


               5777 NORTH MEEKER AVENUE, BOISE, ID         83713
            ----------------------------------------    ----------
            (Address of principal executive offices)    (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
September 30, 2002, was 14,208,568.

================================================================================
<PAGE>
                          EXTENDED SYSTEMS INCORPORATED

                                    FORM 10-Q

                  FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002

                                TABLE OF CONTENTS


                                                                           PAGE
                                                                           ----
PART I.     FINANCIAL INFORMATION

Item 1.     Financial Statements
            --------------------

            Condensed Consolidated Balance Sheets as of September
            30, 2002 and June 30, 2002 ..................................    3

            Condensed Consolidated Statements of Operations for
            the Three Months Ended September 30, 2002 and 2001 ..........    4

            Condensed Consolidated Statements of Comprehensive
            Loss for the Three Months Ended September 30, 2002
            and 2001 ....................................................    4

            Condensed Consolidated Statements of Cash Flows for
            the Three Months Ended September 30, 2002 and 2001 ..........    5

            Notes to Condensed Consolidated Financial Statements ........    6


Item 2.     Management's Discussion and Analysis of Financial
            -------------------------------------------------
            Condition and Results of Operations .........................   13
            -----------------------------------

Item 3.     Quantitative and Qualitative Disclosures about Market Risk ..   31
            ----------------------------------------------------------

Item 4.     Controls and Procedures .....................................   31
            -----------------------



PART II.    OTHER INFORMATION

Item 1.     Legal Proceedings ...........................................   32
            -----------------

Item 4.     Submission of Matters to a Vote of Security Holders .........   32
            ---------------------------------------------------

Item 6.     Exhibits and Reports on Form 8-K ............................   32
            --------------------------------

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


            SIGNATURES ..................................................   33


            CERTIFICATIONS ..............................................   34






                                        2
<PAGE>
                          PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS
         --------------------
EXTENDED SYSTEMS INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUE)
(UNAUDITED)
<TABLE><CAPTION>
                                                                             SEPTEMBER 30,    JUNE 30,
                                                                                2002           2002
                                                                             ----------     ----------
<S>                                                                          <C>            <C>
ASSETS
Current:
   Cash and cash equivalents............................................     $    5,945     $    5,439
   Receivables, net.....................................................          4,542          4,284
   Prepaids and other...................................................          1,197          1,719
                                                                             ----------     ----------
      Total current assets..............................................         11,684         11,442
Property and equipment, net.............................................          6,085          5,786
Intangibles, net........................................................         14,813          3,143
                                                                             ----------     ----------
      Total assets......................................................     $   32,582     $   20,371
                                                                             ==========     ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current:
   Accounts payable.....................................................     $    3,021     $    2,377
   Accrued expenses.....................................................          4,329          2,739
   Deferred revenue.....................................................          2,310          2,167
   Current portion of long-term debt....................................            304             --
   Current portion of capital leases....................................             26             --
                                                                             ----------     ----------
      Total current liabilities.........................................          9,990          7,283

Non-current:
   Long-term debt, less current portion.................................            785             --
   Accrued restructuring, less current portion..........................            533             --
   Capital leases, less current portion.................................             64             --
                                                                             ----------     ----------
      Total non-current liabilities.....................................          1,382             --
                                                                             ----------     ----------
      Total liabilities.................................................         11,372          7,283

Commitments and contingencies--Note 9

Stockholders' equity:
   Preferred stock; $0.001 par value per share, 5,000 shares authorized;
      no shares issued or outstanding ..................................             --             --
   Common stock; $0.001 par value per share, 75,000 shares authorized;
      14,208 and 11,208 shares issued and outstanding ..................             14             11
   Additional paid-in capital...........................................         44,096         34,053
   Accumulated deficit..................................................        (22,087)       (20,124)
   Accumulated other comprehensive loss.................................           (813)          (852)
                                                                             ----------     ----------
      Total stockholders' equity........................................         21,210         13,088
                                                                             ----------     ----------
      Total liabilities and stockholders' equity........................     $   32,582     $   20,371
                                                                             ==========     ==========
</TABLE>

                 The accompanying notes are an integral part of
                 the condensed consolidated financial statements

                                        3
<PAGE>
EXTENDED SYSTEMS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)


<TABLE><CAPTION>
                                                               THREE MONTHS ENDED
                                                                   SEPTEMBER 30,
                                                           --------------------------
                                                              2002            2001
                                                           ----------      ----------
<S>                                                        <C>             <C>
Revenue:
   License fees and royalties .........................    $    4,989      $    4,148
   Services and other .................................           920             755
                                                           ----------      ----------
      Total net revenue ...............................    $    5,909      $    4,903
Cost of net revenue:
   License fees and royalties .........................           272             364
   Services and other .................................           545             285
                                                           ----------      ----------
      Total cost of net revenue .......................           817             649
                                                           ----------      ----------
            Gross profit ..............................         5,092           4,254

Operating expenses:
   Research and development ...........................         1,953           2,625
   Acquired in-process research and development .......           430              --
   Marketing and sales ................................         3,289           3,431
   General and administrative .........................         1,124             935
   Amortization of goodwill ...........................            --             231
   Restructuring charges ..............................           136              --
                                                           ----------      ----------
      Loss from operations ............................        (1,840)         (2,968)
Other expense (income), net ...........................            26             (65)
Interest expense ......................................           130               4
                                                           ----------      ----------
      Loss before income taxes ........................        (1,996)         (2,907)
Income tax benefit ....................................            (4)            (28)
                                                           ----------      ----------
      Loss from continuing operations .................        (1,992)         (2,879)
Discontinued operations, net of tax:
      Income from discontinued operations .............            28              62
                                                           ----------      ----------
      Net loss ........................................    $   (1,964)     $   (2,817)
                                                           ==========      ==========

Basic and diluted earnings (loss) per share:
   Loss from continuing operations ....................    $    (0.16)     $    (0.27)
   Earnings from discontinued operations ..............    $     0.00      $     0.01
                                                           ----------      ----------
Net loss per share ....................................    $    (0.16)     $    (0.26)
                                                           ==========      ==========

Number of shares used in per share calculations:
   Basic and diluted ..................................        12,096          10,973
</TABLE>


CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(IN THOUSANDS)
(UNAUDITED)
<TABLE><CAPTION>
                                                               THREE MONTHS ENDED
                                                                  SEPTEMBER 30,
                                                           --------------------------
                                                              2002            2001
                                                           ----------      ----------
<S>                                                        <C>             <C>
Net loss...............................................    $   (1,964)     $   (2,817)
Change in currency translation.........................            39              40
                                                           ----------      ----------
   Comprehensive loss..................................    $   (1,925)     $   (2,777)
                                                           ==========      ==========
</TABLE>

                 The accompanying notes are an integral part of
                 the condensed consolidated financial statements

                                        4
<PAGE>
EXTENDED SYSTEMS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)



<TABLE><CAPTION>
                                                                                       THREE MONTHS ENDED
                                                                                          SEPTEMBER 30,
                                                                                   --------------------------
                                                                                      2002            2001
                                                                                   ----------      ----------
<S>                                                                                <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss ....................................................................   $   (1,964)     $   (2,817)
   Adjustments to reconcile net loss to net cash used by operating activities:
      Provision for bad debts ..................................................           60               8
      Provision for write-down of inventory ....................................           86               3
      Depreciation and amortization ............................................          451             755
      Acquired in-process research and development .............................          430              --
      Other ....................................................................          184              21
      Changes in assets and liabilities, net of effect of acquisitions:
        Receivables ............................................................          385           1,999
        Inventories ............................................................           25              35
        Prepaids and other assets ..............................................         (341)            355
        Deferred revenue .......................................................         (347)            270
        Accounts payable and accrued expenses ..................................          294          (1,951)
                                                                                   ----------      ----------
           Net cash used by operating activities ...............................         (737)         (1,322)
                                                                                   ----------      ----------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of property and equipment ..........................................           (5)            (36)
   Acquisition - ViaFone .......................................................        1,119              --
   Other investing activities ..................................................          150              39
                                                                                   ----------      ----------
           Net cash provided by investing activities ...........................        1,264               3
                                                                                   ----------      ----------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from the issuance of common stock ..................................           --               8
   Payments on long-term debt ..................................................          (60)             --
                                                                                   ----------      ----------
           Net cash provided (used) by financing activities ....................          (60)              8
   Effect of exchange rate changes on cash .....................................           39              10
                                                                                   ----------      ----------
   Net increase (decrease) in cash and cash equivalents ........................          506          (1,301)

CASH AND CASH EQUIVALENTS:
   Beginning of period .........................................................        5,439           6,585
                                                                                   ----------      ----------
   End of period ...............................................................   $    5,945      $    5,284
                                                                                   ==========      ==========
</TABLE>




                 The accompanying notes are an integral part of
                 the condensed consolidated financial statements

                                        5
<PAGE>
EXTENDED SYSTEMS INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------

NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

We have prepared these condensed consolidated financial statements without audit
pursuant to the rules and regulations of the Securities and Exchange Commission
(the "SEC"). In the opinion of management, these unaudited condensed
consolidated financial statements include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of our financial
position as of September 30, 2002, and our results of operations and cash flows
for the three months ended September 30, 2002 and September 30, 2001. The
results for these interim periods are not necessarily indicative of the expected
results for any other interim period or the year ended June 30, 2003. These
condensed consolidated financial statements should be read in conjunction with
our audited consolidated financial statements and related notes thereto included
in our Annual Report on Form 10-K as filed with the SEC on September 23, 2002.
The condensed consolidated balance sheet at June 30, 2002 was derived from
audited financial statements but does not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements.

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

As a result of discontinuing our infrared hardware business in the first quarter
of fiscal 2003, disposing of our Singapore subsidiary in the fourth quarter of
fiscal 2002, and disposing of our printing solutions business in the fourth
quarter of fiscal 2001, we have reclassified our consolidated statement of
operations and other related disclosures for all periods presented to present
the results of these businesses as discontinued operations. We have made other
reclassifications to the consolidated financial statements to conform the
presentations. These reclassifications had no impact on the net loss for the
years presented.

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

From time to time, we enter into foreign currency forward contracts, typically
against the Canadian dollar, euro and the British pound sterling to manage
fluctuations in the value of foreign currencies on transactions with our
international subsidiaries, thereby limiting our risk that would otherwise
result from changes in currency exchange rates. While these instruments are
subject to fluctuations in value, these fluctuations are generally offset by
fluctuations in the value of the underlying asset or liability being managed. We
had $4.6 million and $1.9 million in forward contracts in place, which
approximated fair value, against the Canadian dollar, euro and British pound
sterling at September 30 and June 30, 2002, respectively, which matured within
30 days. We recognized net currency exchange losses of $55,000 and $33,000 for
the three months ended September 30, 2002 and 2001, respectively.

EARNINGS OR LOSS PER SHARE. We compute basic earnings or loss per share by
dividing net income or loss by our weighted average number of common shares
outstanding during the period. We compute diluted earnings or loss per share by
dividing net income or loss by the weighted average number of common shares
outstanding increased by the additional common shares that would be outstanding
if we had issued the potential dilutive common shares. We exclude stock options
and warrants from the diluted earnings or loss per share computations to the
extent that their effect would have been antidilutive.


                                        6
<PAGE>
Our diluted earnings or loss per share computations exclude the following common
stock equivalents, as the impact of their inclusion would have been antidilutive
as of September 30:
                                             2002         2001
                                          ----------   ----------
Stock options............................    3,257        2,686
Warrants.................................       35           --


RECENTLY ISSUED ACCOUNTING STANDARDS. In August 2001, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards ("SFAS") No.
144, "Accounting for Impairment or Disposal of Long-Lived Assets," which
supersedes various existing standards on accounting for long-lived assets. This
new standard establishes a single accounting method under which long-lived
assets to be disposed of by sale are measured at the lower of book or fair value
less cost to sell. Additionally, this statement expands the reporting of
discontinued operations to include components of an entity that have been or
will be disposed of rather than limiting such discontinuance to a segment of a
business. We adopted this statement as of July 1, 2002, and the adoption of this
statement did not have a material effect on our consolidated financial
statements.

In June 2002, The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 146, Accounting for Costs Associated with
Exit or Disposal Activities, which supersedes Emerging Issues Task Force (EITF)
Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring). This new standard requires companies to recognize costs
associated with exit or disposal activities when the costs are incurred rather
than at the date of a commitment to an exit or disposal plan. Costs covered by
the standard include lease termination costs and certain employee severance
costs that are associated with a restructuring, discontinued operation, plant
closing, or other exit or disposal activity. This standard is effective for exit
or disposal activities that are initiated after December 31, 2002. We do not
believe adoption of this statement will have a material effect on the amount of
any liability to be recorded for the costs covered by this standard, however,
the time at which such liability is recorded may be impacted.

NOTE 2.  DISCONTINUED OPERATIONS

In the first quarter of fiscal 2003, we adopted a formal plan to exit our
infrared hardware business as a result of an expected decline in sales of these
products and our desire to increase our focus on our core software businesses.
As a part of that plan, we wrote down the infrared hardware inventory to its
fair market value. Additionally, in June 2002, we sold our wholly owned
subsidiary, Extended Systems Singapore Pte Limited, and in May 2001, we sold the
assets of our printing solutions segment. As a result, the results of these
operations have been accounted for as discontinued operations for all periods
presented in accordance with SFAS No. 144. Amounts in the financial statements
and related notes for all periods shown have been reclassified to reflect the
discontinued operations. Operating results for the discontinued operations are
reported, net of tax, under "Income from discontinued operations" on the
accompanying Statements of Operations.

The following summarizes the results of discontinued operations for the three
months ended September 30:
                                                            2002         2001
                                                         ----------   ----------
Net revenue............................................. $      320   $      999
Gross profit............................................         44          322
Income tax provision....................................         16           46
Income from discontinued operations, net of taxes.......         28           62
Earnings per share from discontinued operations:
  Basic and diluted.....................................         --         0.01


NOTE 3.  RESTRUCTURING CHARGES

During our first quarter ended September 30, 2002, we continued our efforts to
streamline operations and completed a restructuring plan to further reduce costs
and improve operating efficiencies. As a result, we recorded $136,000 in
workforce reduction costs during the quarter. The restructuring charge consisted
primarily of severance, benefits, and other costs related to the termination of
16 employees in research and development, marketing and sales, manufacturing,
and administration, of which 14 were located in the United States and 2 in
Europe. All of these charges were paid in the first quarter of fiscal 2003.

During the quarter we also assumed a restructuring liability in connection with
our acquisition of ViaFone. Prior to our acquisition of the company, ViaFone had
implemented a restructuring program that resulted in charges for workforce
reduction costs, costs related to closing its office in France and excess
facilities costs related to lease commitments for space no longer used in
Brisbane, California. At the time we completed the ViaFone acquisition, there
were $993,000 of future lease commitments that had been accrued but not yet
paid, $266,000 of workforce reduction liabilities and $30,000 of French office
liabilities. As of September 30, 2002, the balance of restructuring liabilities
accrued but not yet paid was $1,174,000.

                                        7
<PAGE>
A summary of the restructuring costs is outlined as follows:

                                      WORKFORCE     FACILITIES
                                      REDUCTION         AND
                                        COSTS       OTHER COSTS      TOTAL
                                     ----------     ----------     ----------
Balance at June 30, 2002 ........... $       --     $       --     $       --
Restructuring charges accrued in
  first quarter of fiscal 2003 .....        136             --            136
Restructuring accrual assumed
  with ViaFone acquisition .........        266          1,023          1,289
Cash payments ......................       (227)           (24)          (251)
                                     ----------     ----------     ----------
Balance at September 30, 2002 ...... $      175     $      999     $    1,174
                                     ==========     ==========     ==========

NOTE 4.  GOODWILL AND OTHER INTANGIBLE ASSETS

In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible
Assets," which we adopted during the three months ended September 30, 2002. This
statement requires, among other things, the discontinuance of goodwill
amortization. In addition, the standard includes provisions upon adoption for
the reclassification of certain existing recognized intangibles as goodwill,
reassessment of the useful lives of existing recognized intangibles,
reclassification of certain intangibles out of previously reported goodwill and
the testing for impairment of existing goodwill and other intangibles at least
annually.

During the quarter, we discontinued amortization of approximately $4.2 million
of goodwill. In lieu of amortization, we performed an impairment review of our
goodwill balance upon the initial adoption of SFAS No. 142. We concluded that
there was no impairment in our recorded goodwill.

In accordance with SFAS No. 142, the effect of adopting this accounting change
is reflected prospectively. The following table presents comparative financial
information showing the effects that discontinuance of goodwill amortization
would have had on the income statement for the three months ended September 30:

                                             2002             2001
                                         ------------     ------------
Net loss:
 Reported net loss....................   $     (1,964)    $     (2,817)
 Goodwill amortization (1)............             --              231
                                         ------------     ------------
   Adjusted net loss..................   $     (1,964)    $     (2,586)
                                         ============     ============

Basic and diluted loss per share:
 Reported loss per share..............   $       (.16)    $       (.26)
 Goodwill amortization (1)............             --              .02
                                         ------------     ------------
   Adjusted basic and diluted
   loss per share.....................   $       (.16)    $       (.24)
                                         ============     ============

(1)  Includes  $19,000 of amortization  for the three months ended September 30,
     2001  related to  assembled  workforce  assets  that were  reclassified  as
     goodwill effective July 1, 2002.

The changes in the carrying amount of goodwill for the three months ended
September 30, 2002 are as follows:

Balance as of June 30, 2002..........................     $      1,704
Reclassification of certain intangibles to
  goodwill in connection with SFAS 142 adoption......              375
Acquisitions during the period.......................           10,971
                                                          ------------
Balance as of September 30, 2002.....................     $     13,050
                                                          ============

                                        8
<PAGE>
Other intangible assets, excluding goodwill, consist of the following:

<TABLE><CAPTION>
                      AS OF SEPTEMBER 30, 2002             AS OF JUNE 30, 2002
                ----------------------------------  ----------------------------------
                   GROSS                               GROSS
                 CARRYING   ACCUMULATED              CARRYING   ACCUMULATED
                  AMOUNT   AMORTIZATION     NET       AMOUNT   AMORTIZATION     NET
                ----------  ----------  ----------  ----------  ----------  ----------
<S>             <C>         <C>         <C>         <C>         <C>         <C>
Purchased
Technology      $    3,691  $   (2,007) $    1,684  $    2,911  $   (1,848) $    1,063
Customer
Relationships           80          (1)         79          --          --          --
Non-compete
covenants                6          (6)         --           6          (6)         --
Other                    5          (4)          1           5          (4)          1
                ----------  ----------  ----------  ----------  ----------  ----------
Total           $    3,782  $   (2,018) $    1,764  $    2,922  $   (1,858) $    1,064
                ==========  ==========  ==========  ==========  ==========  ==========
</TABLE>

Amortization of other intangible assets, reported as a component of cost of net
revenue, was $160,000 and $146,000 for the quarters ended September 30, 2002 and
2001, respectively. Estimated future amortization expense for the remaining nine
months of fiscal year 2003 and fiscal years 2004, 2005, 2006, 2007 and 2008 is
$566,000, $621,000, $204,000, $172,000, $172,000, and $29,000, respectively.

NOTE 5.  BUSINESS COMBINATIONS

In August 2002, we completed our acquisition of ViaFone, Inc. ("ViaFone").
ViaFone was a privately held, leading provider of real-time, mobile platform and
mobile applications that connect field sales and service employees with critical
business systems, information and processes of their enterprise. As a result of
the acquisition, we expect to benefit from the licensing of ViaFone's software
technology and from the addition of an experienced professional services
organization. We also expect to benefit from the strong cross-selling
opportunities present within each company's customer base and strategic
relationships. The total purchase price of $10.7 million consisted of $9.9
million of Extended Systems common stock (2,550,000 shares issued based on the
average stock price for the five trading days surrounding May 28, 2002) and $0.8
million of direct transaction costs. In exchange for the Extended Systems common
stock issued, all outstanding shares of ViaFone common and preferred stock were
acquired. As part of the acquisition agreement, an additional 450,000 shares of
Extended Systems common stock were issued to shareholders of ViaFone and placed
in an escrow fund for a period of up to one year to be used as the exclusive
source of reimbursement to us for breeches of certain terms of the agreement,
including, among other provisions, failure of ViaFone to achieve certain revenue
and net loss targets for the nine months ended September 30, 2002. ViaFone did
not meet these revenue and net loss targets, and we have submitted a claim to
the escrow agent for reimbursement in the amount of all 450,000 shares. These
450,000 shares will be placed in Treasury when the escrow is settled and the
shares are returned to us.

The transaction was accounted for as a purchase pursuant to SFAS No. 141. The
purchase price was allocated as follows:
                                           AMORTIZATION
                                              PERIOD          AMOUNT
                                           ------------    ------------
Existing technology......................     5 yrs.       $        780
In-process research and development......      n/a                  430
Net tangible assets/liabilities..........      n/a               (1,515)
Customer relationships...................     5 yrs.                 80
Goodwill.................................      n/a               10,971
                                                           ------------
Purchase price...........................                  $     10,746
                                                           ============

                                        9
<PAGE>
The estimated fair value of tangible assets acquired and liabilities assumed as
of the purchase date are as follows:

Current assets.................................  $      4,518
Property and equipment.........................           589
Total assets acquired..........................         5,107
Current liabilities............................        (5,213)
Deferred revenue...............................          (491)
Non-current liabilities........................          (918)
                                                 ------------
Net tangible assets acquired...................  $     (1,515)
                                                 ============

Pursuant to SFAS No. 142, goodwill related to the acquisition is not amortized
and will be tested at least annually for impairment. The goodwill is not
deductible for tax purposes.

The purchased in-process research and development was charged to operations
during the quarter as it had not yet reached technological feasibility and had
no alternative future use. The in-process research and development percentage of
completion was estimated to range from 50% to 80%. The value assigned to
in-process research and development was determined by estimating the costs to
develop the purchased in-process research and development into a commercially
viable product, estimating the resulting net cash flows from the sale of the
product resulting from the completion of the in-process research and development
and discounting the net cash flows back to their present value.

The results of operations for the three months ended September 30, 2002 include
the operations of ViaFone from August 31, 2002. The following unaudited pro
forma consolidated results of continuing operations assume the ViaFone
acquisition occurred at the beginning of each period presented:

                                                     PRO FORMA (UNAUDITED)
                                               THREE MONTHS ENDED SEPTEMBER 30,
                                               -------------------------------
                                                   2002               2001
                                               ------------       ------------
Net revenue from continuing operations.......  $      6,259       $      5,821
Loss from continuing operations..............  $     (5,272)      $     (9,281)

Loss per share from continuing operations:
Basic and diluted............................  $       (.36)      $       (.69)

The pro forma information above is presented in response to applicable
accounting rules relating to business acquisitions and is not necessarily
indicative of the actual results that would have been achieved had the
acquisition occurred at the beginning of fiscal 2002, nor is it indicative of
results of operations for any future period.

NOTE 6.  RECEIVABLES
                                                   AS OF             AS OF
                                               SEPTEMBER 30,        JUNE 30,
                                                   2002               2002
                                               ------------       ------------
Accounts receivable..........................  $      5,422       $      5,109
Other receivables............................            62                 67
Allowance for doubtful accounts..............          (942)              (892)
                                               ------------       ------------
                                               $      4,542       $      4,284
                                               ============       ============


                                       10
<PAGE>
NOTE 7.  PROPERTY AND EQUIPMENT
                                                  AS OF              AS OF
                                               SEPTEMBER 30,        JUNE 30,
                                                   2002               2002
                                               ------------       ------------
Land and land improvements...................  $        897       $        897
Buildings....................................         5,903              5,864
Computer equipment...........................         5,936              5,443
Furniture and fixtures.......................         2,334              2,302
                                               ------------       ------------
                                                     15,070             14,506
Less accumulated depreciation................        (8,985)            (8,720)
                                               ------------       ------------
                                               $      6,085       $      5,786
                                               ============       ============


NOTE 8.  ACCRUED EXPENSES
                                                   AS OF             AS OF
                                               SEPTEMBER 30,        JUNE 30,
                                                   2002               2002
                                               ------------       ------------
Accrued payroll and related benefits...........$      1,876       $      1,211
Accrued restructuring charges, current portion.         641                 --
Other .........................................       1,812              1,528
                                               ------------       ------------
                                               $      4,329       $      2,739
                                               ============       ============

NOTE 9.  COMMITMENTS AND CONTINGENCIES

COMMITMENTS. We currently lease certain office space and equipment under
non-cancelable operating and capital leases. Lease expense under operating lease
agreements was $156,000 and $120,000 for the three months ended September 30,
2002 and 2001, respectively.

In connection with our acquisition of ViaFone, we assumed operating lease
obligations for office space located in Brisbane, California; Toronto, Canada;
and Atlanta, Georgia. We also assumed capital lease obligations for various
pieces of office equipment.

Upon completion of our acquisition of ViaFone on August 30, 2002, we assumed
$1.1 million of term debt with Silicon Valley Bank ("SVB"). We have restructured
that debt into a term loan due in 30 equal monthly installments bearing interest
at 8%. The term loan is collateralized by certain of our assets, requires us to
maintain certain financial ratios and is scheduled to be paid in full by March
2005.

Our minimum future contractual commitments associated with our operational
restructuring, indebtedness and lease obligations are as follows (in thousands):
<TABLE><CAPTION>
                                                 YEAR ENDING JUNE 30,
                                     ------------------------------------------
                                      2003     2004     2005     2006     2007  THEREAFTER  TOTAL
                                     ------   ------   ------   ------   ------   ------   ------
<S>                                  <C>      <C>      <C>      <C>      <C>      <C>      <C>
Restructuring-related commitments:
   Operating leases (2) ...........  $  436   $  533   $   --   $   --   $   --   $   --   $  969
Other commitments:
   SVB debt principal (1) .........     270      432      387       --       --       --    1,089
   SVB debt interest ..............      52       50       14       --       --       --      116
   Capital leases (1) .............      27       20       20        3       --       --       70
   Operating leases ...............     525      590      192      151      142      260    1,860
                                     ------   ------   ------   ------   ------   ------   ------
Total other commitments ...........     874    1,092      613      154      142      260    3,135
                                     ------   ------   ------   ------   ------   ------   ------
Total commitments .................  $1,310   $1,625   $  613   $  154   $  142   $  260   $4,104
                                     ======   ======   ======   ======   ======   ======   ======
</TABLE>
(1)  The term debt and capital leases are reported on the balance sheet as
     current and non-current liabilities, depending on the timing of when
     payments are due.
(2)  The restructuring accrual related to the Brisbane lease obligation is
     reported as an accrued expense in the current liabilities section and in
     the non-current liabilities section of the balance sheet, depending on the
     timing of when payments are due.

                                       11
<PAGE>
Non-current capital lease obligations are as follows (in thousands):

                                                       AS OF SEPTEMBER 30, 2002
                                                       ------------------------
Gross capital lease obligations......................  $                     70
Less imputed interest................................                       (10)
                                                       ------------------------

Present value of net minimum lease payments..........                        60
Less current portion.................................                       (27)
                                                       ------------------------
Non-current capital lease obligations................  $                     33
                                                       ========================


LINE OF CREDIT. On January 15, 2002, we entered into a loan and security
agreement with Silicon Valley Bank, under which we can currently access up to
$5.0 million of financing in the form of a demand line of credit, subject to
current accounts receivable balances and current payments due on our long-term
debt. Certain of our assets collateralize the line of credit. Interest on any
borrowings will be paid at prime plus one percent but not less than 5.5%. The
line of credit agreement requires us to maintain certain financial ratios and
expires on January 15, 2004. To date we have had no borrowings on this line of
credit.

LITIGATION. On April 22, 2002, Pumatech, Inc. filed a patent infringement action
against us in the U.S. District Court in Northern California. An amended
complaint was filed on May 28, 2002. The action alleges that our XTNDConnect
server and desktop synchronization products infringe on seven of Pumatech's
synchronization-related patents, that our alleged use of the trademark
"Satellite Forms" constitutes trademark infringement, and that other alleged
actions constitute unfair competition and interference with contract. The action
seeks an injunction against further sales of our server and desktop
synchronization products and use of the allegedly infringing trademark, as well
as unspecified damages and attorneys' fees. We believe that Pumatech's claims
are without merit, and we intend to defend the suit vigorously. On June 25,
2002, we filed an answer and counterclaim in response to Pumatech's complaint in
which we deny Pumatech's charges, raise a number of affirmative defenses and
request a declaration from the court that Pumatech synchronization software
patents are invalid and not infringed by our products. However, litigation is
inherently uncertain, and we may not prevail in our defenses or counterclaims
against the claims. In addition, litigation is frequently expensive and
time-consuming, and management may be required to spend significant time in the
defense of the suit; such costs and the diversion of management time could have
a material adverse effect on our business. The ultimate outcome of any
litigation is uncertain. We cannot estimate the costs of any potential
settlement. Were an unfavorable outcome to occur, the impact could be material
to our financial position or results of operations.

We are also, from time-to-time, party to legal disputes and proceedings arising
in the ordinary course of general business activities. After taking into
consideration legal counsel's evaluation of such disputes, we do not believe
their outcome will have a material effect on our financial position or results
of operations.

NOTE 10.  INCOME TAXES

For the three months ended September 30, 2002, we recorded $12,000 of income tax
expense related primarily to foreign withholding taxes and we recorded no income
tax benefit for our loss from operations. We allocated $16,000 of income tax
expense to income from discontinued operations, which resulted in our allocating
a tax benefit of the same amount to continuing operations for a net tax benefit
from continuing operations of $4,000. During the quarter, in connection with our
acquisition of ViaFone, we recorded approximately $25 million of deferred tax
assets and a corresponding valuation allowance. ViaFone's deferred tax assets
consisted mainly of historical net operating loss carryforwards, which may not
be available to us in the future due to the loss carryforward limitations of
Internal Revenue Code Section 382.

NOTE 11.  BUSINESS SEGMENT, GEOGRAPHIC AREA DATA AND MAJOR CUSTOMERS

We determine our reportable segments by evaluating our management and internal
reporting structure based primarily on the nature of the products offered to
customers and type or class of customers.

At September 30, 2002, we had one operating segment. Our mobile information
management segment provides the expertise, strategy and solutions to help
enterprise organizations realize their business goals through mobile technology.
Our software and services portfolio includes data synchronization and device
management solutions; mobile applications for sales, service and pharmaceutical
professionals; mobile application development tools and services; embedded
client/server database management systems; and Bluetooth and IrDA wireless
connectivity software. We sell our mobile information management solutions
primarily to enterprises, application developers, resellers and original
equipment manufacturers.
                                       12
<PAGE>
In the three months ended September 30, 2002, revenue from IBM (including Lotus
Development Corporation, a subsidiary of IBM), an original equipment
manufacturer customer of our XTNDConnect products, accounted for 11% of our net
revenue from continuing operations. No customer accounted for more than 10% of
our net revenue from continuing operations in the three months ended September
30, 2001.

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         -----------------------------------------------------------------------
         OF OPERATIONS
         -------------
In addition to historical information, this Quarterly Report on
Form 10-Q contains forward-looking statements. The words "expects,"
"anticipates," "believes," "intends," "will" and similar expressions identify
forward-looking statements that are based upon information currently available
to us, speak only as of the date hereof and are subject to certain risks and
uncertainties. These forward-looking statements include, but are not limited to,
statements regarding:

o    levels of software product license fees and royalties;
o    levels of international sales;
o    levels of service revenue;
o    levels of original equipment manufacturer sales;
o    anticipated gross margin;
o    staffing and expense levels;
o    future profitability;
o    future results of operations;
o    future operating cash flows;
o    levels of accounts receivable;
o    levels of capital expenditures;
o    anticipated costs of research and development;
o    sufficiency of working capital and borrowing capacity;
o    anticipated cash funding needs;
o    claims made by Pumatech, Inc.;
o    expected benefits from our acquisition of ViaFone; and
o    future acquisitions; and
o    effects of fluctuations in exchange rates.

We assume no obligation to update any forward-looking statements and 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 under "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 also carefully review the risk factors
described in other documents that we file from time to time with the Securities
and Exchange Commission, including our 2002 Annual Report on Form 10-K and other
Quarterly Reports on Form 10-Q that we will file in fiscal 2003. All period
references are to our first fiscal quarters ended September 30, 2002, and 2001,
and our fiscal years ended June 30, 2002 and 2001, unless otherwise indicated.
All tabular amounts are in thousands, except percentages.

SIGNIFICANT EVENTS
------------------
On August 30, 2002, we completed our acquisition of ViaFone, Inc., a privately
held, leading provider of real-time, mobile platform and mobile applications
that connect field sales and service employees with critical business systems,
information and processes of their enterprise. ViaFone merged with and into a
subsidiary of Extended Systems, and all outstanding shares of ViaFone common and
preferred stock were exchanged for approximately 3,000,000 newly issued shares
of Extended Systems common stock in a tax-free transaction. As part of the
acquisition agreement, 450,000 of these shares were placed in an escrow fund for
a period of up to one year to be used as the exclusive source of reimbursement
to us for breeches of certain terms of the agreement, including, among other
provisions, failure of ViaFone to achieve certain revenue and loss targets for
the nine months ended September 30, 2002. ViaFone did not meet these revenue and
net loss targets, and we have submitted a claim to the escrow agent for
reimbursement in the amount of all 450,000 shares. These 450,000 shares will be
placed in Treasury when the escrow is settled and the shares are returned to us.
We accounted for this transaction using the purchase method of accounting
pursuant to Statement of Financial Accounting Standards No. 141, "Business
Combinations." Accordingly, the results of operations of ViaFone are included in
our consolidated statement of operations from the completion date of the
acquisition.

                                       13
<PAGE>
OVERVIEW
--------
We classify our product offerings into one operating segment, our mobile
information management segment, which provides the expertise, strategy and
solutions to help enterprise organizations realize their business goals through
mobile technology. Our software and services portfolio includes data
synchronization and device management solutions; mobile applications for sales,
service and pharmaceutical professionals; mobile application development tools
and services; embedded client/server database management systems; and Bluetooth
and IrDA wireless connectivity software.

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

o    software license fees and royalties;
o    support and maintenance fees; and
o    professional services, including non-recurring development fees that we
     generate when we adapt products to customers' specifications and consulting
     services.

Our future results of operations will be highly dependent upon the success of
our software products, specifically our XTNDConnect data synchronization and
management software; our Mobile Solutions Platform, formerly ViaFone OneBridge
Mobility Platform; our Business Solutions mobile applications; our Advantage
embedded client/server database software and our XTNDAccess infrared and
Bluetooth wireless connectivity software. We expect the license fees and
royalties generated by these products to continue to constitute a significant
majority of our revenue.

We derive a significant amount of our revenue from sales to customers outside of
the United States, principally from our international sales subsidiaries,
overseas original equipment manufacturers and from a limited number of
international distributors. Based on the region in which the customer resides,
net revenue from continuing operations may be analyzed as follows for the three
months ended September 30:

NET REVENUE PERCENTAGES BY REGION                               2002      2001
                                                               ---------------
Domestic....................................................     54%       51%
International:
   Europe...................................................     35        35
   Asia.....................................................      7        11
   Other regions............................................      4         3
                                                               ---------------
      Total international...................................     46        49
                                                               ---------------
           Net revenue from continuing operations...........    100%      100%
                                                               ===============

The increase in domestic revenue as a percentage of our total revenue in the
first quarter of fiscal 2003 from the same period in fiscal 2002 is primarily
due to an increase in sales of our XTNDConnect data synchronization and
management software products to domestic customers. We also saw an increase in
domestic sales of our Advantage Database Server products in the first quarter of
fiscal 2003 in both absolute dollars and as a percentage of our total Advantage
Database Server revenue.

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

Revenue generated from sales to original equipment manufacturers and to
companies that license our software to include in their own software offering
has fluctuated in the past. We expect it will also fluctuate in future quarters,
as such revenue is dependent upon the timing of customer projects and the
effectiveness of their marketing efforts.

We sell our products directly to end-user customers and also market and sell
many of our products through multiple indirect channels, primarily distributors
and resellers. For the three months ended September 30, 2002, revenue from IBM
(including Lotus Development Corporation, a subsidiary of IBM), an original
equipment manufacturer customer of our XTNDConnect products, accounted for 11%
of our net revenue from continuing operations primarily as the result of the
recognition of $518,000 of deferred revenue that was recognized upon our
fulfillment of contractual obligations to IBM. For the three months ended
September 30, 2001, no customer accounted for greater than 10% of net revenue
from continuing operations. In future quarters, we expect revenue from IBM to be
less than 10% of our net revenue from continuing operations.

                                       14
<PAGE>
CRITICAL ACCOUNTING POLICIES
----------------------------

In preparing our consolidated financial statements in conformity with accounting
principles generally accepted in the United States, we make estimates,
assumptions and judgments that can have a material impact on our net revenue,
operating income and net income (loss), as well as on the value of certain
assets on our consolidated balance sheet. We believe that the estimates,
assumptions and judgments involved in the accounting policies described below
have the greatest potential impact on our consolidated financial statements, so
we consider these to be our critical accounting policies. The policies described
below are not intended to be a comprehensive list of all our accounting
policies. In many cases, the accounting treatment of a particular transaction is
specifically dictated by generally accepted accounting principles, with no need
for management's judgment in their application. There are also areas in which
management's judgment in selecting any available alternative would not produce a
materially different result. Our audited consolidated financial statements and
notes thereto contain our significant accounting policies and other disclosures
required by generally accepted accounting principles. The accounting policies
that we consider critical to an understanding of the consolidated financial
statements are highlighted below.

REVENUE RECOGNITION

To recognize software revenue we apply the provisions of Statement of Position
97-2, SOFTWARE REVENUE RECOGNITION (SOP 97-2), as amended by SOP 98-9, and
generally recognize revenue when all of the following criteria are met: (1)
persuasive evidence of an arrangement exists, (2) delivery has occurred, (3) the
fee is fixed or determinable and (4) collection of the resulting receivable is
reasonably assured.

At the time of the transaction, we assess whether the fee associated with our
revenue transactions is fixed or determinable, based on the payment terms
associated with the transaction. If a significant portion of a fee is due after
the shorter of our normal payment terms or 90 days, we account for the fee as
not being fixed or determinable. In these cases, we recognize revenue as the
fees become due and payable. If we assessed the fixed or determinable criterion
differently, the timing and amount of our revenue recognition may have differed
materially from that reported.

At the time of the transaction we also assess whether or not collection is
reasonably assured based on a number of factors, including past transaction
history with the customer and credit-worthiness of the customer. We do not
request collateral from our customers. If we determine that collection of a fee
is not reasonably assured, we defer recognition of the fee as revenue, and
recognize revenue at the time collection becomes reasonably assured, which is
generally upon receipt of cash. If we assessed collectibility differently, the
timing and amount of our revenue recognition may have differed materially from
that reported.

For arrangements with multiple obligations (for instance, undelivered
maintenance and support), we allocate revenue to each component of the
arrangement using the residual value method. This means that we defer revenue
from the total fees associated with the arrangement equivalent to the
vendor-specific objective evidence of fair value of the elements of the
arrangement that have not yet been delivered. The vendor-specific objective
evidence of fair value of any undelivered element is established by using
historical evidence specific to Extended Systems. For example, the
vendor-specific objective evidence of fair value for maintenance and support is
based upon separate sales of renewals to other customers or upon the renewal
rates quoted in the contracts, and the fair value of services, such as training
or consulting, is based upon separate sales by us of these services to other
customers. If we allocated the respective fair values of the elements
differently, the timing of our revenue recognition may have differed materially
from that reported. For certain of our products, we do not sell maintenance
separately but do provide minimal support and bug fixes and, from time to time,
minor enhancements to ensure that the products comply with their warranty
provisions. Accordingly, we allow for warranty costs at the time the product
revenue is recognized.

When we license our software to original equipment manufacturers or to companies
that include our software in their software offering, royalty revenue is
generally recognized when customers report to us the sale of software to their
end user customer. In cases where the arrangement with our customer provides for
a prepaid nonrefundable royalty, we generally recognize revenue when persuasive
evidence of an arrangement exits, delivery has occurred, the fee is fixed or
determinable and collection of the resulting receivable is reasonably assured.

We recognize revenue for support and maintenance services ratably over the
contract term, which is usually 12 months, and we generally recognize revenue
from training services as these services are performed. For professional
services that involve significant implementation, customization, or modification
of our software that is essential to the functionality of the software, we
recognize revenue over the period of the engagement, generally using the
percentage-of-completion method. In cases where our professional services
involve customizations for which the amount of customization effort cannot be
reasonably estimated, where significant uncertainty about the project completion
exists, or where an arrangement provides for customer acceptance, we defer the
contract revenue under the completed contract method of accounting until the
uncertainty is sufficiently resolved or the contract is complete. If we were to

                                       15
<PAGE>
make different judgments or utilize different estimates of the total amount of
work we expect to be required to complete an engagement, the timing of our
revenue recognition from period to period, as well as the related margins, might
differ materially from that previously reported.

VALUATION OF LONG-LIVED AND INTANGIBLE ASSETS

We assess the impairment of identifiable intangibles, fixed assets and goodwill
whenever events or changes in circumstances indicate that the carrying value may
not be recoverable. Factors we consider important that could trigger an
impairment review include, but are not limited to: (1) significant
underperformance relative to historical or projected future operating results,
(2) significant changes in the manner of our use of the acquired assets or the
strategy for our overall business, (3) significant negative industry or economic
trends, (4) a significant decline in our stock price for a sustained period, and
(5) our market capitalization equal to or below our net book value. When we
determine that the carrying value of long-lived assets may not be recoverable
based upon the existence of one or more of the above indicators of impairment,
we measure any impairment based on a market capitalization approach when the
information is readily available. When the information is not readily available,
we use a projected discounted cash flow method using a discount rate
commensurate with the risk inherent in our current business model to measure any
impairment. If we made different judgments or utilized different estimates our
measurement of any impairment may have differed materially from that reported.

INCOME TAXES

On a quarterly basis we evaluate our deferred tax asset balance for
realizability. To the extent we believe it is more likely than not that some or
all of our deferred tax assets will not be realized, we establish a valuation
allowance against the deferred tax assets. As of September 30, 2002, we had
recorded a valuation allowance against 100 percent of our net deferred tax
assets due to uncertainties related to our ability to utilize our deferred tax
assets, primarily consisting of certain net operating losses carried forward and
foreign tax credits, before they expire. This valuation allowance was recorded
based on our estimates of future U.S. and foreign jurisdiction taxable income
and our judgments regarding the periods over which our deferred tax assets will
be recoverable. If we made different judgments or utilized different estimates,
the amount or timing of the valuation allowance recorded may have differed
materially from that reported. In the event that actual results differ from
these estimates or we adjust these estimates in future periods, we may need to
reduce the valuation allowance, potentially resulting in an income tax benefit
in the period of reduction, which could materially impact our financial position
and results of operations.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

We maintain an allowance for doubtful accounts based on our continuous review of
customer accounts, payment patterns and specific collection issues. Where
specific collection issues are identified, we record a specific allowance based
on the amount that we believe will be collected. For accounts where specific
collection issues are not identified, we record a reserve based on the age of
the receivable and historical collection patterns. If we made different
judgments or utilized different estimates, the timing and amount of our reserve
may have differed materially from that reported.

NET REVENUE                                    THREE MONTHS ENDED SEPTEMBER 30,
-----------                                    --------------------------------
                                                  2002     % CHANGE     2001
                                               ----------  --------  ----------
Revenue:
   License fees and royalties................  $    4,989      20%   $    4,148
   Services and other........................         920      22           755
                                               ----------            ----------
      Total net revenue......................  $    5,909      21%   $    4,903
                                               ----------            ----------

LICENSE FEES AND ROYALTIES. License and royalty revenue consists of fees for
licenses of our software products. The increase in license fees and royalties in
the first quarter of fiscal 2003 from the same period in fiscal 2002 was due
primarily to our fulfillment of contract obligations to IBM that allowed us to
recognize $518,000 of previously deferred revenue and an increase in the number
of licenses sold of our XTNDConnect data synchronization and management products
and an increase in the number of Advantage Database Server software licenses
sold.

We expect revenue from license fees and royalties to continue to increase in
fiscal 2003. This increase is expected to come primarily from increased
licensing of our XTNDConnect data synchronization and management products,
licensing of our products acquired in our acquisition of ViaFone, and increased

                                       16
<PAGE>
licensing of our Advantage Database Server software. We do not currently
anticipate that Bluetooth royalty revenue will be a material component of our
net revenue in fiscal 2003.

SERVICES AND OTHER. Services and other revenue consists primarily of support and
maintenance contracts sold to our customers and of fees from professional
services. Our professional services typically consist of standard product
installations, training, significant customization of our standard license
product, or non-recurring engineering. Our service revenue increased in the
first quarter of fiscal 2003 from the same period in fiscal 2002 primarily due
to an increase in support and maintenance revenue generated from contracts on
new licenses sold and contract renewals and due to an increase in professional
services. The increase was partially offset by a decrease in revenue from
non-recurring engineering, which fluctuates as a result of the timing of
customer projects.

We expect services revenue to continue to increase in fiscal 2003, although we
expect it may fluctuate from quarter to quarter based on the timing of
professional services and non-recurring engineering fees earned. We are
expecting an increase in revenue primarily as a result of our increased
strategic focus on professional services and solutions, as evidenced by the
addition of a dedicated professional services group in the first quarter of
fiscal 2003. We also expect that service revenue will increase in fiscal 2003
due to an increase in the number of support and maintenance contracts sold on
new licenses and contract renewals.

Deferred revenue was $2.3 million at September 30, 2002 compared to $2.2 million
at June 30, 2002. There was an increase in deferred revenue of $491,000 added
with our acquisition of ViaFone and an increase in deferred revenue from support
and maintenance contracts added during the quarter. These increases were offset
partially by a decrease in deferred revenue attributable to our fulfillment of
contractual obligations to IBM, which resulted in the recognition of $518,000 of
deferred revenue.

GROSS MARGIN
------------
                                             THREE MONTHS ENDED SEPTEMBER 30,
Gross Profit:                               2002        % CHANGE         2001
                                         ---------------------------------------
   License fees and royalties .........  $    4,717         25%       $    3,784
   Services and other..................         375       (20)%              470
                                         ----------                   ----------
   Total gross profit..................  $    5,092         20%       $    4,254


                                             THREE MONTHS ENDED SEPTEMBER 30,
                                                       CHANGE IN
Gross margin:                               2002         MARGIN          2001
                                         ---------------------------------------
   License fees and royalties..........      95%             4%           91%
   Services and other..................      41%           (21%)          62%
   Total gross margin..................      86%           ( 1%)          87%


Our cost of net revenue consists primarily of costs associated with:
o    post-sales support;
o    personnel providing professional services;
o    amortization of purchased technology;
o    royalties for the use of third-party software; and
o    other production-related activities.

In general, the costs of license fees and royalties represent a far smaller
percentage of license fees and royalties net revenue than service costs, which
have a much higher cost structure as a percentage of services revenue.
Additionally, costs of license fees and royalties, such as royalties for the use
of third-party software, are variable, based on license revenue volume. Services
costs tend to be fixed within certain services revenue ranges. We would expect
that an increase in service revenue as a percentage of our total net revenue
would generate a lower overall gross margin as a percentage of total net
revenue. Also, given the high level of fixed costs associated with the
professional services group, our inability to generate sufficient services
revenue to absorb these fixed costs could lead to negative services gross
margins.

LICENSE FEES AND ROYALTIES. The increase in gross profit for the first quarter
of fiscal 2003 from the same period of fiscal 2002 was primarily due to an
increase in net revenue from license fees and royalties and a decrease in
operations-related overhead. In the first quarter of fiscal 2003, the gross
margin from license fees and royalties increased from the same period in fiscal
2002 due primarily to a decrease in operations-related overhead resulting from
our restructurings and cost containment efforts, partially offset by an increase
in amortization of purchased technology from our acquisition of ViaFone. 17
<PAGE>
SERVICES AND OTHER. The decline in gross profit and gross margin from services
and other net revenue in the first quarter of fiscal 2003 as compared to the
same period in fiscal 2002 was attributable to an increase in the number of
employees dedicated to our professional services organization and an increase in
post sales support resulting primarily from an increase in the number of
employees in our support group.

We expect our gross profit to increase as our revenue increases. We expect our
gross margin to range between 82% to 85% through the remainder of fiscal 2003.
This range is primarily driven by an expected increase in license fees and
royalties net revenue and an expected increase in services net revenue, as well
as the expected mix between license fees and services. In addition, amortization
of purchased technology will increase from the prior year as a result of our
acquisition of ViaFone.

OPERATING EXPENSES
------------------

Our operating expenses for the first quarter of fiscal 2003 were $6.9 million
compared to $7.2 million in the first quarter of last year. The decrease in
operating expenses from the first quarter of last year is primarily attributable
to cost reductions implemented in this quarter and in prior quarters, as well as
the elimination of goodwill amortization in accordance with our adoption of SFAS
No. 142, offset in part by the $430,000 acquired in-process research and
development charge in the first quarter of fiscal 2003 related to the
acquisition of ViaFone.


RESEARCH AND DEVELOPMENT EXPENSES           THREE MONTHS ENDED SEPTEMBER 30,
---------------------------------          2002         % CHANGE        2001
                                         ------------------------------------
Research and development...............  $ 1,953          (26)%       $ 2,625
   as a % of net revenue...............      33%                          54%

Research and development expenses generally consist of salaries and other
personnel costs of our research and development teams, consulting costs and
facility expenses. The decrease in research and development expenses in the
first quarter of fiscal 2003 from the same period in fiscal 2002 was primarily
the result of a reduction in personnel subsequent to our restructurings, offset
in part by an increase in engineering personnel in connection with the
completion of the ViaFone acquisition. At September 30, 2002 we had 92 full-time
equivalent research and development personnel and contractors, including 14
added with the ViaFone acquisition, a decrease from the 104 full-time equivalent
personnel at the same time last year.

We expect our research and development costs in the quarter ending December 31,
2002 to increase slightly from those in the first quarter as a result of having
the former ViaFone engineers on board for the full quarter. For the second half
of fiscal 2003, we expect our research and development costs to remain
consistent with the quarter ending December 31, 2002 based on our plans to
maintain our research and development headcount at current levels.


MARKETING AND SALES EXPENSES               THREE MONTHS ENDED SEPTEMBER 30,
----------------------------               2002         % CHANGE        2001
                                         ------------------------------------
Marketing and Sales....................  $ 3,289           (4)%       $ 3,431
  as a % of net revenue................      56%                          70%

Marketing and sales expenses consist primarily of salaries, commissions and
other personnel costs of our marketing and sales staff, promotional expenses and
pre-sales support costs. The slight decrease in marketing and sales expenses in
the first quarter of fiscal 2003 from the same period in fiscal 2002 was
primarily due to a reduction in promotional expenses of approximately $103,000.
At September 30, 2002, we had 113 full-time equivalent marketing, sales, and
support personnel and contractors, including 11 added with the ViaFone
acquisition, as compared to 112 full-time equivalent personnel and contractors
at the same time last year.

We expect marketing and sales expenses to increase moderately in fiscal 2003 as
our revenue increases and as a result of increased sales staffing, although we
expect these expenses to decrease as a percentage of net revenue.

                                       18
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES
-----------------------------------
                                            THREE MONTHS ENDED SEPTEMBER 30,
                                           2002         % CHANGE        2001
                                         ------------------------------------
General and administrative.............  $ 1,124           30%        $   935
  as a % of net revenue................      19%                          19%


General and administrative expenses primarily consist of salaries and other
personnel costs for our finance, management information systems, human resources
and other administrative groups, as well as professional service fees and
directors' and officers' insurance costs. The increase in general and
administrative expenses in the first quarter of fiscal 2003 from the same period
in fiscal 2002 was primarily attributable to an increase in legal fees of
$134,000 related primarily to the Pumatech lawsuit, a $60,000 increase in bad
debt expense, and a $48,000 increase in directors' and officers' insurance. This
increase was partially offset by a decrease in personnel costs resulting from
our recent restructuring in August 2002 and prior quarters.

We expect general and administrative expenses to continue to increase in fiscal
2003 as a result of an increase in legal fees associated with the Pumatech
lawsuit and an increase in directors' and officers' insurance. We expect the
increases will be partially offset by decreased personnel costs resulting from
our recent restructuring in August 2002. At September 30, 2002, we had 30
full-time equivalent employees in administration, as compared to 40 full-time
equivalent personnel at the same time last year. No general and administrative
personnel were added with our acquisition of ViaFone.

RESTRUCTURING CHARGES
---------------------

During our first quarter ended September 30, 2002, we continued our efforts to
streamline operations and completed a restructuring plan to further reduce costs
and improve operating efficiencies. As a result, we recorded $136,000 in
workforce reduction costs during the quarter. The restructuring charge consisted
primarily of severance, benefits, and other costs related to the termination of
16 employees in research and development, marketing and sales, manufacturing,
and administration, of which 14 were located in the United States and 2 in
Europe. All of these charges were paid in the first quarter of fiscal 2003.

During the quarter we also assumed a restructuring liability in connection with
our acquisition of ViaFone. Prior to our acquisition of the company, ViaFone had
implemented a restructuring program that resulted in charges for workforce
reduction costs, costs related to closing its office in France and excess
facilities costs related to lease commitments for space no longer used in
Brisbane, California. At the time we completed the ViaFone acquisition, there
were $993,000 of future lease payments that had been accrued but not yet paid,
$266,000 of workforce reduction liabilities and $30,000 of French office
liabilities. As of September 30, 2002, the balance of restructuring liabilities
accrued but not yet paid was $1,174,000.

A summary of the restructuring costs is outlined as follows:

                                        WORKFORCE     FACILITIES
                                        REDUCTION         AND
                                          COSTS       OTHER COSTS     TOTAL
                                         -------        -------      -------
Balance at June 30, 2002...............       --             --           --
Restructuring charges accrued in
  first quarter of fiscal 2003.........      136             --          136
Restructuring accrual assumed
  with ViaFone acquisition.............      266          1,023        1,289
Cash payments..........................     (227)           (24)        (251)
                                         -------        -------      -------
Balance at September 30, 2002..........  $   175        $   999      $ 1,174
                                         =======        =======      =======

AMORTIZATION OF INTANGIBLES
---------------------------

We report amortization of non-goodwill intangibles, primarily consisting of
purchased technology, as a component of our cost of net revenue. Amortization of
non-goodwill intangibles was $160,000 and $146,000 for the quarters ended
September 30, 2002 and 2001, respectively. The net increase in amortization of
non-goodwill intangibles is a result of the addition of non-goodwill intangibles
from our acquisition of ViaFone. This increase was partially offset by a

                                       19
<PAGE>
decrease in amortization resulting from our adoption of SFAS No. 141, which
resulted in $375,000 of intangible assets, comprised of assembled workforce
intangibles, being reclassified as goodwill.

 As a result of our adoption of SFAS No. 141, which requires that goodwill no
longer be amortized, we did not record amortization of goodwill for the quarter
ended September 30, 2002. Amortization of goodwill was $231,000 for the quarter
ended September 30, 2001. This amount was reported as an operating expense.

INCOME TAX PROVISION (BENEFIT)             THREE MONTHS ENDED SEPTEMBER 30,
------------------------------             2002         % CHANGE       2001
                                         ------------------------------------
Income tax provision (benefit)...........$   (4)          (86)%      $   (28)
   as a % of income (loss) before taxes..     0%                           1%

During the first quarters of fiscal 2003 and 2002, income tax expense was
recorded for foreign withholding taxes and no income tax benefit was recorded
for our loss from operations. In both periods we allocated income tax expense to
income from discontinued operations, which resulted in our allocating a tax
benefit to continuing operations. The change in the income tax benefit from
continuing operations for the first quarter of fiscal 2003 from the same period
in fiscal 2002 was primarily the result of a decrease in income tax expense from
discontinued operations caused by a decrease in income from discontinued
operations. During the quarter, in connection with our acquisition of ViaFone,
we recorded an additional $25 million of deferred tax assets and a corresponding
valuation allowance. ViaFone's deferred tax assets consisted mainly of
historical net operating loss carryforwards, which may not be available to us in
the future due to the loss carryforward limitations of Internal Revenue Code
Section 382.

BUSINESS COMBINATIONS
---------------------

In August 2002, we completed our acquisition of ViaFone, Inc. ("ViaFone").
ViaFone was a privately held, leading provider of real-time, mobile platform and
mobile applications that connect field sales and service employees with critical
business systems, information and processes of their enterprise. As a result of
the acquisition, we expect to benefit from the licensing of ViaFone's software
technology and from the addition of an experienced team of engineers to our
newly formed professional services organization. We also expect to benefit from
the strong cross-selling opportunities present within each company's customer
base and strategic relationships. The total purchase price of $10.7 million
consisted of $9.9 million of Extended Systems common stock (2,550,000 shares
issued based on the average stock price for the five trading days surrounding
May 28, 2002) and $0.8 million of direct transaction costs. In exchange for the
Extended Systems common stock issued, all outstanding shares of ViaFone common
and preferred stock were acquired. As part of the acquisition agreement, an
additional 450,000 shares of Extended Systems common stock were issued to
shareholders of ViaFone and placed in an escrow fund for a period of up to one
year to be used as the exclusive source of reimbursement to us for breeches of
certain terms of the agreement, including, among other provisions, failure of
ViaFone to achieve certain revenue and net loss targets for the nine months
ended September 30, 2002. ViaFone did not meet these revenue and net loss
targets, and we have submitted a claim to the escrow agent for reimbursement in
the amount of all 450,000 shares. These 450,000 shares will be placed in
Treasury when the escrow is settled and the shares are returned to us.

The transaction was accounted for as a purchase pursuant to Statement of
Financial Accounting Standards (SFAS) No. 141. The purchase price was allocated
as follows:
                                           AMORTIZATION
                                              PERIOD            AMOUNT
                                           ------------       ----------
Existing technology....................       5 yrs.          $      780
In-process research and development....         n/a                  430
Net tangible assets/liabilities........         n/a               (1,515)
Customer relationships.................       5 yrs.                  80
Goodwill...............................         n/a               10,971
                                                              ----------
Purchase price.........................                       $   10,746
                                                              ==========

                                       20
<PAGE>
The estimated fair value of tangible assets acquired and liabilities assumed as
of the purchase date are as follows:

Current assets................................   $    4,518
Property and equipment........................          589
Total assets acquired.........................        5,107
Current liabilities...........................       (5,213)
Deferred revenue..............................         (491)
Non-current liabilities.......................         (918)
                                                 ----------
Net tangible assets acquired..................   $   (1,515)
                                                 ==========

Pursuant to SFAS No. 142, goodwill related to the acquisition is not amortized
and will be tested at least annually for impairment. The goodwill is not
deductible for tax purposes.

The purchased in-process research and development was charged to operations
during the quarter as it had not yet reached technological feasibility and had
no alternative future use. The in-process research and development percentage of
completion was estimated to range from 50% to 80%. The value assigned to
in-process research and development was determined by estimating the costs to
develop the purchased in-process research and development into a commercially
viable product, estimating the resulting net cash flows from the sale of the
product resulting from the completion of the in-process research and development
and discounting the net cash flows back to their present value.

The results of operations for the three months ended September 30, 2002 include
the operations of ViaFone from August 31, 2002. The following unaudited pro
forma consolidated results of continuing operations assume the ViaFone
acquisition occurred at the beginning of each period presented:

                                                  PRO FORMA (UNAUDITED)
                                             THREE MONTHS ENDED SEPTEMBER 30,
                                                ------------------------
                                                   2002          2001
                                                ----------    ----------
Net revenue from continuing operations........  $    6,259    $    5,821
Loss from continuing operations...............  $   (5,272)   $   (9,281)

Loss per share from continuing operations:
Basic and diluted.............................  $     (.36)   $     (.69)

The pro forma information above is presented in response to applicable
accounting rules relating to business acquisitions and is not necessarily
indicative of the actual results that would have been achieved had the
acquisition occurred at the beginning of fiscal 2002, nor is it indicative of
results of operations for any future period.

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

In the first quarter of fiscal 2003, we adopted a formal plan to exit our
infrared hardware business as a result of an expected decline in sales of these
products and our desire to increase our focus on our core software businesses.
As a part of that plan, we wrote down the infrared hardware inventory to its
fair market value. Additionally, and in June 2002, we sold our wholly owned
subsidiary, Extended Systems Singapore Pte Limited and in May 2001, we sold the
assets of our printing solutions segment. As a result, the results of these
operations have been accounted for as discontinued operations for all periods
presented in accordance with SFAS No. 144 . Amounts in the financial statements
and related notes for all periods shown have been reclassified to reflect the
discontinued operations. Operating results for the discontinued operations are
reported, net of tax, under "Income from discontinued operations" on the
accompanying Statements of Operations.

The following summarizes the results of discontinued operations:

                                           THREE MONTHS ENDED SEPTEMBER 30,
                                            2002       % CHANGE       2001
                                         ------------------------------------
Net revenue..............................$    320         (68)%     $     999
Income from discontinued operations,
  net of taxes...........................      28         (55)             62


                                       21
<PAGE>
In the first quarter of fiscal 2003, our revenue from discontinued operations
consisted primarily of revenue from our discontinued infrared hardware business.
The decrease in net revenue from discontinued operations for the first quarter
of fiscal 2003 from the same period of fiscal 2002 was primarily a result of
there being no material revenue from our discontinued printing solutions segment
and no revenue from our former Singapore subsidiary in the first quarter of
fiscal 2003.

Income from our discontinued operations decreased in the first quarter of fiscal
2003 from the same period of fiscal 2002 primarily as a result of lower revenue
from our discontinued print server and infrared hardware operations, a decrease
in income generated by our Singapore subsidiary, and a decrease in gross profit
in our infrared hardware business resulting from an inventory write down.

We expect revenue from discontinued operations to continue to decrease in future
quarters. We expect to continue to generate revenue from our discontinued
infrared hardware business for the next two quarters as we fulfill last-time
orders from our customers.

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

NET CASH USED BY OPERATING ACTIVITIES
                                                THREE MONTHS ENDED SEPTEMBER 30,
                                                --------------------------------
                                                     2002              2001
                                                --------------    --------------
Net cash used by operating activities...........   $ (836)           $(1,322)

Net cash used by operating activities in the first quarter of fiscal 2003 was
primarily the result of our net loss and the result of a decrease in deferred
revenue and an increase in prepaid assets, adjusted for such non-cash items as
depreciation, amortization and acquired in-process research and development.
These cash uses were partially offset by a decrease in receivables and an
increase in accounts payable. Net cash used by operating activities in the first
quarter of fiscal 2002 was primarily a result of our net loss and the result of
a decrease in accounts payable and accrued expenses, adjusted for such non-cash
items as depreciation and amortization. This cash use was partially offset by a
decrease in receivables and an increase in deferred revenue.

Accounts receivable, net of allowance, were $4.5 million and $6.5 million at
September 30, 2002 and 2001, respectively. The decrease in accounts receivable
from the first quarter in fiscal 2002 to the same period in fiscal 2003 is due
primarily to a decrease in DSOs (days sales outstanding) and a decrease in net
revenue from original equipment manufacturers. We expect that our accounts
receivable will increase in fiscal 2003 as a result of an expected increase in
net revenues. Accounts receivable may also increase in the future if net revenue
from original equipment manufacturers and international customers becomes a
higher percentage of our net revenue because these customers generally have
longer payment cycles.

NET CASH PROVIDED BY INVESTING ACTIVITIES
                                                THREE MONTHS ENDED SEPTEMBER 30,
                                                --------------------------------
                                                     2002              2001
                                                --------------    --------------
Net cash provided by investing activities.......    $1,264              $3

Net cash provided by investing activities in the first quarter of fiscal 2003
was primarily the result of completing the acquisition of ViaFone and proceeds
from payments of employees' notes receivable. These proceeds were partially
offset by purchases of property and equipment. As part of our effort to control
cash and expenses, we did not make a significant investment in property and
equipment in the first quarter of fiscal 2003. Net cash provided by investing
activities in the first quarter of fiscal 2002 was primarily the result of
payments of employees' notes receivables. These proceeds were offset, in part,
by purchases of property and equipment.

We plan to incur aggregate capital expenditures of approximately $250,000 during
fiscal 2003, primarily for software, system improvements and personal computers.

                                       22
<PAGE>
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES

                                                THREE MONTHS ENDED SEPTEMBER 30,
                                                --------------------------------
                                                     2002              2001
                                                --------------    --------------
Net cash provided (used) by financing activities    $(60)               $8


Net cash used by financing activities in the first quarter of fiscal 2003
resulted from payments on term debt assumed as part of our acquisition of
ViaFone. Net cash provided by financing activities in the first quarter of
fiscal 2002 consisted primarily of proceeds from the issuance of common stock
under our stock plans.

On January 15, 2002, we entered into a loan and security agreement with Silicon
Valley Bank, under which we can currently access up to $5.0 million of financing
in the form of a demand line of credit, subject to current accounts receivable
balances and current payments due on our long-term debt. Certain of our assets
collateralize the line of credit. Interest on any borrowings will be paid at
prime plus one percent but not less than 5.5%. The line of credit agreement
requires us to maintain certain financial ratios and expires on January 15,
2004. To date we have no draws on this line of credit.

Upon completion of our acquisition of ViaFone on August 30, 2002, we assumed
$1.1 million of term debt with Silicon Valley Bank. We have restructured that
debt into a term loan due in 30 equal monthly installments bearing interest at
8%. The term loan is collateralized by certain of our assets, requires us to
maintain certain financial ratios and is scheduled to be paid in full by March
2005.

We believe that our existing working capital and borrowing capacity, the funds
we expect to generate from our operations, and the cash we acquired in the
ViaFone merger will be sufficient to fund our anticipated working capital and
capital expenditure requirements through fiscal 2003. We cannot be certain,
however, that our underlying assumed levels of revenues and expenses will be
accurate. If our operating results were to fail to meet our expectations or if
accounts receivable or other assets were to require a greater use of cash than
is currently anticipated, we could be required to seek additional sources of
liquidity. These sources of liquidity could include borrowing against our line
of credit or offering additional equity securities, which could result in
dilution to our stockholders, or additional debt financing. In such event,
adequate funds may not be available when needed or may not be available on
favorable terms, which could have a negative effect on our business and results
of operations.

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

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

We derive a substantial portion of our net revenue from international sales,
principally through our international subsidiaries and through a limited number
of independent distributors and overseas original equipment manufacturers. Sales
made by our international subsidiaries are generally denominated in each
country's respective currency. Fluctuations in exchange rates could cause our
results to fluctuate when we translate revenue and expenses denominated in other
currencies into United States dollars. Fluctuations in exchange rates also may
make our products more expensive to original equipment manufacturers and
independent distributors who purchase our products in United States dollars.

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

We do not hold or issue financial instruments for speculative purposes. From
time to time, we enter into foreign currency forward contracts, typically
against the Canadian dollar, euro and British pound sterling, to manage
fluctuations in the value of foreign currencies on transactions with our
international subsidiaries. While these instruments are subject to fluctuations
in value, these fluctuations are generally offset by fluctuations in the value
of the underlying asset or liability being managed, resulting in minimal net
exposure for us. The success of these currency activities depends upon
estimation of intercompany balances denominated in various foreign currencies.

                                       23
<PAGE>
To the extent that these forecasts are overstated or understated during periods
of currency volatility, we could experience unanticipated currency gains or
losses. We had $4.6 million and $1.9 million in forward contracts in place,
which approximated fair value, against the Canadian dollar, euro and British
pound sterling at September 30 and June 30, 2002, respectively, which matured
within 30 days. We recognized net currency exchange losses of $55,000 and
$33,000 for the periods ended September 30, 2002 and 2001 respectively.

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

In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144, "Accounting for Impairment or Disposal
of Long-Lived Assets," which supersedes various existing standards on accounting
for long-lived assets. This new standard establishes a single accounting method
under which long-lived assets to be disposed of by sale are measured at the
lower of book or fair value less cost to sell. Additionally, this statement
expands the reporting of discontinued operations to include components of an
entity that have been or will be disposed of rather than limiting such
discontinuance to a segment of a business. We adopted this statement as of July
1, 2002, and the adoption of this statement did not have a material effect on
our consolidated financial statements.

In June 2002, The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 146, Accounting for Costs Associated with
Exit or Disposal Activities, which supercedes Emerging Issues Task Force (EITF)
Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring). This new standard requires companies to recognize costs
associated with exit or disposal activities when the costs are incurred rather
than at the date of a commitment to an exit or disposal plan. Costs covered by
the standard include lease termination costs and certain employee severance
costs that are associated with a restructuring, discontinued operation, plant
closing, or other exit or disposal activity. This standard is effective for exit
or disposal activities that are initiated after December 31, 2002. We do not
believe adoption of this statement will have a material effect on the amount of
any liability to be recorded for the costs covered by this standard, however,
the time at which the liability will be recognized may be affected.

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

WE HAVE A RECENT HISTORY OF LOSSES AND MAY CONTINUE TO GENERATE LOSSES IN FISCAL
2003.

Since the third quarter of our fiscal 1999, we have devoted significant
financial resources to the research and development of, and marketing and sales
for, our mobile information management software products and, as a result, we
have generated operating losses. We intend to continue to devote significant
financial resources to product development and marketing and sales. We currently
believe that we will be at break-even from operations in the second quarter of
fiscal 2003. Our ability to reach break-even from operations and our ability to
reach profitability and positive cash flow from operations in subsequent
periods, will depend on a number of factors, including:

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

                                       24
<PAGE>
OUR BUSINESS RELIES ON ENTERPRISES IMPLEMENTING MOBILE APPLICATIONS AND DEVICES
AND MAY BE HARMED BY DECLINES IN INFORMATION TECHNOLOGY SPENDING.

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

While we believe we have adequately factored these conditions into our current
revenue forecasts, if these conditions worsen or continue longer than expected,
demand for our products may be reduced as a result of enterprises reducing
information technology spending on our products and original equipment
manufacturers reducing their use of our products in their own products. As a
result, our revenue may fail to grow or decline, which would harm our operating
results. If the current economic slowdown persists or worsens, we also may be
forced to reduce our operating expenses, which could result in additional
charges incurred in connection with restructuring or other cost-cutting measures
we may implement. For example, on April 10, 2002, we announced a restructuring
plan to reduce costs and improve operating efficiencies and, as a result,
incurred approximately $213,000 in restructuring costs in our fourth quarter of
fiscal 2002, primarily for severance payments to terminated employees. In
addition, in August of 2002, we continued our efforts to streamline operations
and implemented an additional restructuring program. As a result, we recorded a
restructuring charge of approximately $136,000 in our first quarter of fiscal
2003 consisting primarily of severance payments and related costs for terminated
employees.

WE MAY NOT REALIZE THE BENEFITS OF OUR RECENT ACQUISITION OF VIAFONE, INC.

Whether we realize the benefits of our acquisition of ViaFone will depend on our
ability to integrate the people, operations, technology and products of ViaFone
in a timely, efficient and effective manner. Integrating ViaFone will be a
complex, time-consuming and expensive process and may result in revenue
disruption, operational difficulties and diversion of management resources.
Successful integration of ViaFone will be affected by the following:

o    we may be unable to combine our product offerings and product lines with
     those of ViaFone quickly and smoothly, resulting in our having to spend
     additional time or money on integration of products and technology;
o    we may be unable to successfully demonstrate the benefits of the combined
     company's product line to our customers, resulting in delay or deferral of
     purchasing decisions by our customers;
o    our management may spend too much time on integration issues, resulting in
     the diversion of our management's attention from other business concerns,
     including product development, marketing and operations;
o    we may be unable to retain and motivate key employees, resulting in delays
     and disruptions in integrating ViaFone's operations, products and
     technology and additional costs associated with recruiting and training
     replacement employees;
o    we may be unable to retain key alliances, resulting in an impairment of our
     ability to achieve our product development and marketing objectives;
o    we may be unable to integrate our business culture with that of ViaFone,
     resulting in additional costs and delays in integrating ViaFone's
     operations and employees; and
o    we may discover unknown liabilities associated with the acquired business
     and technology of ViaFone, resulting in unforeseen business expenses and
     delays in product development.

If we do not successfully integrate ViaFone in a timely, efficient and effective
manner, our business, financial condition and results of operations could be
adversely affected.

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

Our operating results have fluctuated in the past and may continue to do so in
the future. Our revenue and operating results will vary from quarter to quarter
for many reasons beyond our control, including those described in this section.
If our operating results fall below the expectations of securities analysts or
investors, the price of our stock may fall. In addition, quarter-to-quarter
variations in our revenue and operating results could create uncertainty about
the direction or progress of our business, which could result in a decline in
the price of our stock.
                                       25
<PAGE>
WE FORECAST MANY OF OUR OPERATING EXPENSES BASED ON FORECASTED REVENUE AND GROSS
PROFIT, WHICH IS DIFFICULT TO PREDICT. IF WE FAIL TO ACCURATELY PREDICT REVENUE
AND GROSS PROFIT IN A PARTICULAR PERIOD, WE MAY BE UNABLE TO ADJUST OUR
EXPENDITURES IN THAT PERIOD AND OUR OPERATING RESULTS WOULD BE HARMED.

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

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

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

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

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

Our existing key business relationships do not, and any future key business
relationships may not, provide us any exclusive rights. Many of the companies
with which we have established and intend to establish key business
relationships have multiple strategic relationships, and these companies may not
regard their relationships with us as significant. In most of these
relationships, either party may terminate the relationship with little notice.
In addition, these companies may attempt to develop or acquire products that
compete with our products. They may do so on their own or in collaboration with
others, including our competitors. Further, our existing business relationships
may interfere with our ability to enter into other business relationships.

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

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

We compete with:

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

                                       26
<PAGE>
As the markets for mobile information management products grow, we expect
competition from existing competitors to intensify. We also expect new
competitors, including original equipment manufacturers to which we sell our
products, to introduce products that compete with ours.

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

The markets for our products are characterized by:
o    rapidly changing technologies;
o    evolving industry standards;
o    frequent new product introductions; and
o    short product life cycles.

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

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

We have designed a number of our current and upcoming products to conform to
industry standards and protocols, such as:
o    Bluetooth, a short-range radio communication protocol;
o    SyncML, a data synchronization protocol; and
o    IrDA, a wireless communication protocol created by the Infrared Data
     Association.

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

IF OUR CUSTOMERS DO NOT ADOPT WIRELESS TECHNOLOGIES, DEMAND FOR OUR PRODUCTS
WOULD BE REDUCED AND OUR BUSINESS WOULD BE HARMED.

Our products support the exchange of data with mobile devices via wired and
wireless connections. Our future growth will depend, in part, on the adoption of
wireless solutions by our customers. The adoption of wireless solutions is
dependent upon the development of 2.5 generation or 3rd generation ("2.5G" or
"3G") networks that are intended to support more complex applications and to
provide end users with a more satisfying user experience than today's networks.
If communication service providers delay their deployment of 2.5G or 3G networks
or fail to roll such networks out successfully, our customers may not adopt
wireless technologies, there could be less demand for our products and services
and our business could be harmed. In addition, if communication service
providers fail to continue to make investments in their networks or invest at a
slower pace in the future, there may be less demand for our products and
services and our business could suffer.

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 might 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.
                                       27
<PAGE>
Companies in the software industry frequently resort to litigation over
intellectual property rights. If a court finds that we infringe on the
intellectual property rights of any third party, we could be subject to
liabilities, which could harm our business. As a result, we might be required to
seek licenses from other companies or to refrain from using, manufacturing or
selling specific products or using specific processes. Holders of patents and
other intellectual property rights may not offer licenses to use their patents
or other intellectual property rights on acceptable terms, or at all. Failure to
obtain these licenses on commercially reasonable terms or at all could harm our
business.

For instance, on April 22, 2002, Pumatech, Inc. filed a patent infringement
action against us in the U.S. District Court in Northern California. An amended
complaint was filed on May 28, 2002. The action alleges that our XTNDConnect
server and desktop synchronization products infringe on seven of Pumatech's
synchronization-related patents, that our alleged use of the trademark
"Satellite Forms" constitutes trademark infringement, and that other alleged
actions constitute unfair competition and interference with contract. The action
seeks an injunction against further sales of our server and desktop
synchronization products and use of the allegedly infringing trademark, as well
as unspecified damages and attorneys' fees. We believe that Pumatech's claims
are without merit, and we intend to defend the suit vigorously. On June 25,
2002, we filed an answer and counterclaim in response to Pumatech's complaint in
which we deny Pumatech's charges, raise a number of affirmative defenses and
request a declaration from the court that Pumatech's synchronization software
patents are invalid and not infringed by our product. However, litigation is
inherently uncertain, and we may not prevail in our defenses or counterclaims.
In addition, litigation is frequently expensive and time-consuming, and
management may be required to spend significant time in the defense of the suit;
such costs and the diversion of management time could have a material adverse
effect on our business. The ultimate outcome of any litigation is uncertain. We
cannot estimate the costs of any potential settlement. Were an unfavorable
outcome to occur, the impact could be material to our financial position or
results of operations.

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

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

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

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

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

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

In the first quarter of fiscal year 2003, based on the region where the customer
resides, 46% of our revenue was generated from international sales. We expect
that international sales will continue to represent a substantial portion of our
revenue for the foreseeable future. International sales are subject to a number
of risks, including:

                                       28
<PAGE>
o    changes in government regulations;
o    export license requirements;
o    tariffs, taxes and trade barriers;
o    fluctuations in currency exchange rates, which could cause our products to
     become relatively more expensive to customers in a particular country and
     lead to a reduction in sales in that country; longer collection and payment
     cycles than those in the United States;
o    difficulty in staffing and managing international operations; and
o    political and economic instability, including military and terrorist
     actions.

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

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

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

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

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

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

The complex software products we offer may contain undetected errors when first
introduced or as new versions are released. These errors could result in
dissatisfied customers, product liability claims and the loss of or delay in
market acceptance of new or enhanced products, any of which could harm our
business. Testing of our products is particularly challenging because it is
difficult to simulate the wide variety of computing environments in which our
customers may deploy our products. For example, our mobile information
management products are used in a wide variety of telecommunications
environments. Changes in technology standards or an increase in the number of
telecommunications technologies used in the marketplace may create compatibility
issues with our products and our customers' environments. Accordingly, despite
testing by us and by current and potential customers, errors could be found
after commencement of commercial shipment. A successful product liability claim
brought against us could result in our payment of significant legal fees and
damages, which would harm our business.





                                       29
<PAGE>
OUR STOCK PRICE MAY BE VOLATILE AND COULD DROP SIGNIFICANTLY, RESULTING IN THE
PARTIAL OR TOTAL LOSS OF A STOCKHOLDER'S INVESTMENT.

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

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

SUBSTANTIAL AMOUNTS OF OUR COMMON STOCK MAY BE SOLD CAUSING OUR STOCK PRICE TO
DECLINE SIGNIFICANTLY WHEN THE SHARES OF STOCK ISSUED IN CONNECTION WITH THE
VIAFONE ACQUISITION ARE RELEASED FROM THEIR LOCK-UP AGREEMENTS.

A substantially large number of shares of our common stock may be sold into the
public market within short time periods at various dates following the close of
the merger on August 30, 2002. As a result, our stock price could fall. Of the
approximately 3,000,000 shares of Extended Systems common stock issued in
connection with this merger, approximately 439,612 shares were immediately
available for resale by the former stockholders of ViaFone and 2,482,809 shares
of Extended Systems common stock are subject to "lock-up" agreements that
restrict the timing of the resale of these shares. Under the lock-up agreements,
827,603 shares will be released and available for sale in the public market on
February 28, 2003, six months after the closing date of the merger, an
additional 827,603 shares will be released and available for sale in the public
market on May 31, 2003, nine months after the closing date of the merger and an
additional 455,191 shares will be available for sale in the public market on
August 31, 2003, 12 months after the closing date of the merger and at anytime
thereafter. In comparison, the average daily trading volume of our common stock
for the five-day period ending on November 8, 2002 was 21,039 shares. While Rule
145 under the Securities Act may impose some limitations on the amount of shares
certain ViaFone stockholders may sell, sales of a large number of newly released
shares of Extended Systems common stock could occur that could result in a sharp
decline in our stock price.

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

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

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

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

Our success depends upon the continuing contributions of our key management,
engineering, sales and marketing, and administrative personnel and our ability
to attract and retain key personnel. We do not maintain any key-person life
insurance policies. The loss of key personnel could harm our business.

In our first quarter of fiscal 2002, we completed a restructuring plan and
reduced our workforce by approximately 40 employees. In the fourth quarter of
fiscal 2002, we completed an additional restructuring plan and reduced our
workforce by approximately 25 additional employees. In our first quarter of
fiscal 2003, we completed a further restructuring program, which resulted in the
elimination of an additional 16 employees. Despite this reduction in workforce,
we will continue to recruit personnel with the specific technical skills that
are critical to our business. For

                                       30
<PAGE>
example, throughout fiscal 2003 we expect to hire additional sales personnel in
order to capitalize on market opportunities.

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.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
         ----------------------------------------------------------

Substantially all of our liquid investments are at fixed interest rates and,
therefore, the fair value of these instruments is affected by changes in market
interest rates. All of our liquid investments mature within 90 days or less of
September 30, 2002, therefore, we believe that the market risk arising from our
holdings of liquid investments is minimal.

Sales made by our international subsidiaries are generally denominated in the
foreign country's currency. Fluctuations in exchange rates between the United
States dollar and other currencies could materially harm our business. From time
to time, we enter into foreign currency forward contracts, typically against the
Canadian dollar, euro and British pound sterling, to manage fluctuations in the
value of foreign currencies on transactions with our international subsidiaries,
thereby limiting our risk that would otherwise result from changes in exchange
rates. While these instruments are subject to fluctuations in value, these
fluctuations are generally offset by fluctuations in the value of the underlying
asset or liability being managed, resulting in minimal net exposure for us. The
success of these hedging activities depends upon estimation of intercompany
balances denominated in various foreign currencies. To the extent that these
forecasts are overstated or understated during periods of currency volatility,
we could experience unanticipated currency gains or losses. We had $4.6 million
and $1.9 million in forward contracts in place, which approximated fair value,
against the Canadian dollar, euro, and British pound sterling at September 30
and June 30, 2002, respectively, which matured within 30 days.

ITEM 4.  CONTROLS AND PROCEDURES
         -----------------------

(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. Based on an evaluation of
the Company's disclosure controls and procedures (as defined in Rules 13a-14(c)
and 15d-14(c) under the Securities Exchange Act of 1934 (the "Exchange Act"))
performed by the Company's principal executive officer and principal financial
officer as of a date within 90 days of the filing date of this Quarterly Report
on Form 10-Q, such officers have concluded that the company's disclosure
controls and procedures are effective to ensure that information required to be
disclosed by the Company in reports that it files or submits under the Exchange
Act is recorded, processed, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms.

(b) CHANGES IN INTERNAL CONTROLS. There were no significant changes in the
Company's internal controls or in other factors that could significantly affect
these controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

                                       31
<PAGE>
                           PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS
         -----------------

On April 22, 2002, Pumatech, Inc. filed a patent infringement action against us
in the U.S. District Court in Northern California. An amended complaint was
filed on May 28, 2002. The action alleges that our XTNDConnect server and
desktop synchronization products infringe on seven of Pumatech's
synchronization-related patents, that our alleged use of the trademark
"Satellite Forms" constitutes trademark infringement, and that other alleged
actions constitute unfair competition and interference with contract. The action
seeks an injunction against further sales of our server and desktop
synchronization products and use of the allegedly infringing trademark, as well
as unspecified damages and attorneys' fees. We believe that Pumatech's claims
are without merit, and we intend to defend the suit vigorously. On June 25,
2002, we filed an answer and counterclaim in response to Pumatech's complaint in
which we deny Pumatech's charges, raise a number of affirmative defenses and
request a declaration from the court that Pumatech synchronization software
patents are invalid and not infringed by our products. However, litigation is
inherently uncertain, and we may not prevail in our defenses or counterclaims
against the claims. In addition, litigation is frequently expensive and
time-consuming, and management may be required to spend significant time in the
defense of the suit; such costs and the diversion of management time could have
a material adverse effect on our business. The ultimate outcome of any
litigation is uncertain. We cannot estimate the costs of any potential
settlement. Were an unfavorable outcome to occur, the impact could be material
to our financial position or results of operations.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
         ---------------------------------------------------

We held a Special Meeting of Stockholders on August 29, 2002, in Boise, Idaho.
At the special meeting, the stockholders of Extended Systems approved the
issuance of up to 3,000,000 shares of common stock in connection with the merger
of Venus Acquisition Corporation, a wholly owned subsidiary of Extended Systems,
with and into ViaFone, Inc. ("the Proposal"). Represented in person or by proxy
at the special meeting were over 53% of all shares of Extended Systems common
stock entitled to vote on the Proposal. There were 5,866,320 votes cast in favor
of the Proposal, 83,957 votes cast against the Proposal and 26,123 shares that
abstained.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K
         --------------------------------
         (A)   EXHIBITS

               EXHIBIT
               NUMBER      DESCRIPTION
               -------     -----------
                21.1       List of Subsidiaries of Registrant

                99.1       Certification of Executive Officers pursuant to 18
                           U.S.C. Section 1350, as adopted pursuant to
                           Section 906 of the Sarbanes-Oxley Act of 2002


         (B)   REPORTS ON FORM 8-K

               The Company filed a Form 8-K on September 16, 2002 to announce
               the closing on August 30, 2002 of the acquisition of ViaFone,
               Inc. pursuant to the Agreement and Plan of Merger and
               Reorganization by and among Extended Systems Incorporated; Venus
               Acquisition Corporation, a wholly-owned subsidiary of Extended
               Systems; ViaFone, Inc., U.S. Bank N.A., as the Escrow Agent; and
               Josh Stein, as the Company Representative, pursuant to which
               Venus Acquisition Corporation was merged with and into ViaFone,
               and ViaFone became a wholly-owned subsidiary of Extended Systems.


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


                                       32
<PAGE>


                                   SIGNATURES


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






                                EXTENDED SYSTEMS INCORPORATED



Dated: November 14, 2002        By: /s/ KARLA K. ROSA
                                    ------------------------------------------
                                    KARLA K. ROSA
                                    VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
                                    (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)

























                                       33
<PAGE>
                                 CERTIFICATIONS


I, Steven D. Simpson, President and Chief Executive Officer of Extended Systems
Incorporated, certify that:

1.   I have reviewed this quarterly report on Form 10-Q of Extended Systems
     Incorporated;

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

3.   Based on my knowledge, the financial statements, and other financial
     information included in this quarterly report, fairly present in all
     material respects the financial condition, results of operations and cash
     flows of the registrant as of, and for, the periods presented in this
     quarterly report;

4.   The registrant's other certifying officers and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a)   designed such disclosure controls and procedures to ensure that
          material information relating to the registrant, including its
          consolidated subsidiaries, is made known to us by others within those
          entities, particularly during the period in which this quarterly
          report is being prepared;

     b)   evaluated the effectiveness of the registrant's disclosure controls
          and procedures as of a date within 90 days prior to the filing of this
          quarterly report (the "Evaluation Date"); and

     c)   presented in this quarterly report our conclusions about the
          effectiveness of the disclosure controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's other certifying officers and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of registrant's board of directors (or persons performing the
     equivalent functions):

     a)   all significant deficiencies in the design or operation of internal
          controls which could adversely affect the registrant's ability to
          record, process, summarize and report financial data and have
          identified for the registrant's auditors any material weaknesses in
          internal controls; and

     b)   any fraud, whether or not material, that involves management or other
          employees who have a significant role in the registrant's internal
          controls; and

6.   The registrant's other certifying officers and I have indicated in this
     quarterly report whether or not there were significant changes in internal
     controls or in other factors that could significantly affect internal
     controls subsequent to the date of our most recent evaluation, including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.


Date:  November 14, 2002              By:  /s/  STEVEN D. SIMPSON
                                           ----------------------
                                           Steven D. Simpson
                                           President and Chief Executive Officer



                                       34
<PAGE>
                                 CERTIFICATIONS


I, Karla K. Rosa, Vice President and Chief Financial Officer of Extended Systems
Incorporated, certify that:

1.   I have reviewed this quarterly report on Form 10-Q of Extended Systems
     Incorporated;

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

3.   Based on my knowledge, the financial statements, and other financial
     information included in this quarterly report, fairly present in all
     material respects the financial condition, results of operations and cash
     flows of the registrant as of, and for, the periods presented in this
     quarterly report;

4.   The registrant's other certifying officers and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a)   designed such disclosure controls and procedures to ensure that
          material information relating to the registrant, including its
          consolidated subsidiaries, is made known to us by others within those
          entities, particularly during the period in which this quarterly
          report is being prepared;

     b)   evaluated the effectiveness of the registrant's disclosure controls
          and procedures as of a date within 90 days prior to the filing of this
          quarterly report (the "Evaluation Date"); and

     c)   presented in this quarterly report our conclusions about the
          effectiveness of the disclosure controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's other certifying officers and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of registrant's board of directors (or persons performing the
     equivalent functions):

     a)   all significant deficiencies in the design or operation of internal
          controls which could adversely affect the registrant's ability to
          record, process, summarize and report financial data and have
          identified for the registrant's auditors any material weaknesses in
          internal controls; and

     b)   any fraud, whether or not material, that involves management or other
          employees who have a significant role in the registrant's internal
          controls; and

6.   The registrant's other certifying officers and I have indicated in this
     quarterly report whether or not there were significant changes in internal
     controls or in other factors that could significantly affect internal
     controls subsequent to the date of our most recent evaluation, including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.


Date:  November 14, 2002                            By: /s/  KARLA K. ROSA
                                                        -----------------------
                                                        Karla K. Rosa
                                                        Vice President and
                                                        Chief Financial Officer

                                       35