<PAGE>

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

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

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

                                    FORM 10-Q

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

                  FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000

                                       OR

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

                  FOR THE TRANSITION PERIOD FROM _____ TO _____

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

                        Commission File Number 000-23597


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


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


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

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

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

The number of shares outstanding of the registrant's Common Stock as of March
31, 2000 was 10,053,160.

===============================================================================
<PAGE>

                          EXTENDED SYSTEMS INCORPORATED

                                    FORM 10-Q

               FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2000

                                      INDEX

<TABLE>
<CAPTION>

PART I.  FINANCIAL INFORMATION                                                                           PAGE
                                                                                                         ----
<S>                                                                                                      <C>
         Item 1.  Financial Statements

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

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

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

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

                  Notes to Consolidated Financial Statements                                               4

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

         Item 3.  Quantitative and Qualitative Disclosures about Market Risk                              27


PART II.  OTHER INFORMATION

         Item 1.  Legal Proceedings                                                                       27

         Item 6.  Exhibits and Reports on Form 8-K                                                        27


SIGNATURE                                                                                                 28

</TABLE>

<PAGE>

                          PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

EXTENDED SYSTEMS INCORPORATED

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

<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED             NINE MONTHS ENDED
                                                                   MARCH 31,                     MARCH 31,
                                                          ----------------------------  ----------------------------
                                                              2000           1999           2000           1999
                                                          -------------  -------------  -------------  -------------
<S>                                                           <C>            <C>            <C>            <C>
Net revenue                                                   $ 14,896       $ 13,388       $ 43,257       $ 36,190
Cost of net revenue                                              7,150          5,920         22,170         17,466
                                                          -------------  -------------  -------------  -------------
Gross profit                                                     7,746          7,468         21,087         18,724
Operating expenses:
   Research and development                                      2,434          1,722          6,882          4,988
   Acquired in-process research and development                      -              -          2,352            758
   Marketing and sales                                           4,621          4,131         13,139         11,852
   General and administrative                                      985            904          3,153          2,861
   Amortization of intangibles                                     241             25            648             41
                                                          -------------  -------------  -------------  -------------
      Income (loss) from operations                               (535)           686         (5,087)        (1,776)
Other expense (income), net                                        (32)           (76)            72           (437)
Interest expense                                                    20            182            255            553
                                                          -------------  -------------  -------------  -------------
Income (loss) before income taxes                                 (523)           580         (5,414)        (1,892)
Income tax provision (benefit)                                    (199)           203         (1,561)          (377)
                                                          -------------  -------------  -------------  -------------
      Net income (loss)                                       $   (324)      $    377       $ (3,853)      $ (1,515)
                                                          =============  =============  =============  =============

Earnings (loss) per share:
      Basic                                                   $  (0.03)      $   0.04       $  (0.41)      $  (0.18)
      Diluted                                                 $  (0.03)      $   0.04       $  (0.41)      $  (0.18)
Number of shares used in
   per share calculation:
      Basic                                                      9,812          8,477          9,374          8,362
      Diluted                                                    9,812          8,622          9,374          8,362

</TABLE>

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

<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED             NINE MONTHS ENDED
                                                                    MARCH 31,                    MARCH 31,
                                                          ----------------------------------------------------------
                                                              2000           1999           2000           1999
                                                          -------------  -------------  -------------  -------------
<S>                                                           <C>            <C>            <C>            <C>
Net income (loss)                                             $   (324)      $    377       $ (3,853)      $ (1,515)
Change in currency translation                                     (36)          (383)          (152)           (29)
                                                          -------------  -------------  -------------  -------------
Comprehensive loss                                            $   (360)      $     (6)      $ (4,005)      $ (1,544)
                                                          =============  =============  =============  =============
</TABLE>

The accompanying notes are an integral part of the financial statements

                                       1
<PAGE>

EXTENDED SYSTEMS INCORPORATED

CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
                                                                 MARCH 31,             JUNE 30,
                                                                    2000                 1999
                                                             -------------------   -----------------
<S>                                                              <C>                   <C>
ASSETS
Current:
    Cash and cash equivalents                                    $        5,097        $      9,668
    Short-term investments                                                    -               3,001
    Accounts receivable, net                                              8,982               9,778
    Income taxes receivable                                               3,051                 664
    Other receivables                                                     1,592               1,147
    Inventories:
      Purchased parts                                                     2,033               2,060
      Work in process                                                       387                 860
      Finished goods                                                      2,113               2,097
    Prepaids and other                                                      774                 945
    Deferred income taxes                                                   332                 584
                                                             -------------------   -----------------
      Total current assets                                               24,361              30,804
Property and equipment, net                                               8,011               8,300
Intangibles, net                                                          6,643               1,402
Deferred income taxes                                                       159                   -
Other assets                                                                293                 293
                                                             -------------------   -----------------
      Total assets                                               $       39,467        $     40,799
                                                             ===================   =================

LIABILITIES AND STOCKHOLDERS' EQUITY
Current:
    Accounts payable and accrued expenses                        $        5,177        $      4,609
    Accrued payroll and related benefits                                  1,304               1,297
    Current debt                                                            131               8,206
                                                             -------------------   -----------------
      Total current liabilities                                           6,612              14,112
Long-term liabilities                                                         -                  92
                                                             -------------------   -----------------
      Total liabilities                                                   6,612              14,204
                                                             -------------------   -----------------

Contingency

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

The accompanying notes are an integral part of the financial statements

                                       2
<PAGE>

EXTENDED SYSTEMS INCORPORATED

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

<TABLE>
<CAPTION>
                                                                                 FOR THE NINE MONTHS ENDED
                                                                                         MARCH 31,
                                                                                2000                    1999
                                                                         -------------------     -------------------
<S>                                                                             <C>                     <C>
NET CASH USED BY OPERATING ACTIVITIES                                           $       (67)            $    (1,459)

CASH FLOWS FROM INVESTING ACTIVITIES:
    Acquisitions:
       Oval (1415) Limited, net of cash acquired                                     (5,273)                      -
       Rand Software Corporation, net of cash acquired                                    -                    (682)
       Parallax Research Pte                                                              -                    (346)
    Maturities of available-for-sale securities                                       3,001                     750
    Purchase of available-for-sale securities                                             -                  (5,752)
    Purchase of property and equipment                                                 (788)                   (843)
    Other investing activities                                                         (163)                   (271)
                                                                         -------------------     -------------------
             Net cash used by investing activities                                   (3,223)                 (7,144)
                                                                         -------------------     -------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Payments on long-term debt                                                       (8,478)                   (206)
    Proceeds from the issuance of common stock                                        6,257                     577
    Tax benefit from employee stock transactions                                        976                      18
                                                                         -------------------     -------------------
             Net cash provided by (used by) financing activities                     (1,245)                    389

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


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
    Issuance of common stock in acquisitions                                    $     2,993             $       735

</TABLE>

The accompanying notes are an integral part of the financial statements

                                       3
<PAGE>

EXTENDED SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

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

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

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

REVENUE on hardware products is recognized when products are shipped to
customers, including when products are shipped to distributors and resellers,
net of an allowance for estimated product returns. As a result of the exit from
the mechanical port replicator business in December 1998, our net revenue for
the nine months ended March 31, 1999 includes port replicator returns and a
provision for port replicator returns totaling $1.0 million.

We recognize revenue earned under software license agreements when persuasive
evidence of a contract exists, software has been delivered and accepted, the fee
is fixed or determinable and collectibility is probable. For contracts with
multiple elements we allocate revenue to each element based on vendor specific
objective evidence of its fair value, which is based on the price when each
element is sold separately, or when not yet sold separately, the price
established by our management. We defer revenue for maintenance and support,
which is amortized over the support period, generally 12 months.

EARNINGS OR LOSS PER SHARE. Diluted earnings or loss per share computations
exlcude certain options and shares to the extent that their effect would have
been antidilutive. For the three and nine months ended March 31, 2000, our
diluted loss per share computations exclude 2.4 million stock options. For
the three and nine months ended March 31, 1999, our diluted earnings or loss
per share computations exclude 2.3 million and 2.8 million stock options,
respectively, and 557,787 shares of Common Stock reserved for issuance upon
conversion of notes that matured in September 1999.

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

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

                                       4
<PAGE>

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

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

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

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

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

</TABLE>

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

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

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

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

We used a portion of the acquired in-process research and development to further
enhance Advance Systems' existing server-based synchronization technology by
implementing a plug-in architecture. This type of design allows users and third
party software providers to develop small software components that plug into our
XTNDConnect product and extend the range of applications supported by
XTNDConnect. In September

                                       5
<PAGE>

1999, we implemented the first phase of this architecture with the release of
XTNDConnect Version 2.2, which supports IBM's DB2 Everywhere 1.1 (DB2E) handheld
relational database and Microsoft's ActiveX Data Object (ADO) interface, and
provides other enhanced management tools. The acquired in-process research and
development assigned to this project was valued at $951,000 as of the date of
the acquisition. We incurred an estimated $69,000 to complete Version 2.2.

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

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

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

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

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

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

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

                                       6
<PAGE>

Segment information is as follows:

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

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

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

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

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

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

The Securities and Exchange Commission issued Staff Accounting Bulletin 101,
"Revenue Recognition in Financial Statement" in December 1999. This bulletin
summarizes the Securities and Exchange Commission's view in applying generally
accepted accounting principles to revenue recognition in financial statements.
Under current operations, we do not expect adoption of this bulletin to have a
material impact on our results of operations and financial position. We are
required to adopt this bulletin by our first fiscal quarter of 2001.

                                       7
<PAGE>

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

FORWARD-LOOKING STATEMENTS

IN ADDITION TO HISTORICAL INFORMATION, THIS FORM 10-Q CONTAINS FORWARD-LOOKING
STATEMENTS. IN THIS FORM 10-Q, THE WORDS "EXPECTS," "ANTICIPATES," "BELIEVES,"
"INTENDS," "WILL" AND SIMILAR EXPRESSIONS IDENTIFY FORWARD-LOOKING STATEMENTS,
WHICH ARE BASED UPON INFORMATION CURRENTLY AVAILABLE US, SPEAK ONLY AS OF THE
DATE HEREOF AND ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES. THESE
FORWARD-LOOKING STATEMENTS INCLUDE, BUT ARE NOT LIMITED TO, STATEMENTS REGARDING
FUTURE LEVELS OF INTERNATIONAL SALES, FUTURE ORIGINAL EQUIPMENT MANUFACTURER
SALES, FUTURE GROSS MARGIN PERCENTAGES, UNIT SALES AND AVERAGE SELLING PRICES OF
PRODUCTS, FUTURE PRODUCT MIX, FUTURE EXPENSE LEVELS, FUTURE ACQUISITIONS, THE
EXPECTED BENEFITS AND RESULTS OF COMPLETED ACQUISITIONS AND PENDING LITIGATION.
WE ASSUME NO OBLIGATION TO UPDATE ANY FORWARD-LOOKING STATEMENTS. OUR ACTUAL
RESULTS MAY DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN SUCH FORWARD-LOOKING
STATEMENTS. FACTORS THAT MAY CAUSE A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO,
THOSE DISCUSSED IN THIS SECTION ENTITLED "FACTORS THAT MAY AFFECT OUR FUTURE
RESULTS AND THE MARKET PRICE OF OUR COMMON STOCK." YOU SHOULD CAREFULLY REVIEW
THE RISK FACTORS DESCRIBED IN OTHER DOCUMENTS THAT WE FILE FROM TIME TO TIME
WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING OUR 1999 ANNUAL REPORT ON
FORM 10-K AND OUR QUARTERLY REPORTS ON FORM 10-Q THAT WE HAVE FILED IN FISCAL
2000. ALL PERIOD REFERENCES ARE TO OUR FISCAL YEARS ENDED JUNE 30, 2000, 1999
AND 1998, UNLESS OTHERWISE INDICATED. ALL TABULAR DOLLAR AMOUNTS ARE PRESENTED
IN THOUSANDS.

RESULTS OF OPERATIONS

We classify our product offerings into three segments:

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

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

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

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

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

                                       8
<PAGE>

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

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

We derive a substantial portion of our net revenue from international sales,
principally from our international sales subsidiaries, a limited number of
distributors and from original equipment manufacturers. In the nine months ended
March 31, 2000 and in fiscal year 1999, sales outside of North America
represented 71% and 63% of our net revenue, respectively. We expect that
international sales will continue to represent a substantial portion of net
revenue in the foreseeable future. In the nine months ended March 31, 2000 and
in fiscal year 1999, sales from customers in Asia represented 30% and 21% of net
revenue, respectively. Increasing revenue from these customers was primarily
related to original equipment manufacturer sales to large multi-national
companies that incorporate our products into their products and sell their
products worldwide.

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

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

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

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

                                       9
<PAGE>

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

The increases in net revenue in the three and nine months ended March 31, 2000
from net revenue in the same periods of the prior year were due primarily to
increases in revenue from our mobile information management products of 57% and
93%, respectively. The increases were offset, in part, by decreases in net
revenue from our printing solutions products of 31% and 32%, respectively.

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

Our cost of net revenue consists primarily of costs associated with components,
out-sourced manufacturing of particular subassemblies, and in-house labor
associated with assembly, testing, shipping and quality assurance and royalties
for the use of third-party software. The decreases in gross margin for the three
and nine months ended March 31, 2000 from gross margin in the same periods of
the prior year were the result of higher shipments of lower margin mobile
information management hardware products to original equipment manufacturers and
a shift in product mix within the printing solutions segment to lower margin
products.

We expect that the gross margin in our printing solutions segment may continue
to decline as a result of a continued shift in product mix toward lower priced
products. We also expect that gross margin from our mobile information
management segment will fluctuate due to shifts in mix between hardware and
software products and the timing of sales to original equipment manufacturers.

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

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

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

We expect research and development expenses to continue to increase in the
future, primarily in our mobile information management segment, although these
expenses may vary as a percentage of net revenue.

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

Marketing and sales expenses consist primarily of salaries, commissions and
other personnel costs of our marketing, sales and support personnel and
promotional expenses. The increases in marketing and sales expenses for the
three and nine months ended March 31, 2000 from the same periods of the prior
year were

                                       10
<PAGE>

primarily due to increased personnel costs and promotional activities for the
mobile information management segment both domestically and at our European
subsidiaries. The increases were partially offset by decreased promotional
activities within our printing solutions segment and our other products segment.

We expect marketing and sales expenses to continue to increase in the future,
primarily in our mobile information management segment, although these expenses
may vary as a percentage of net revenue.

                                       11
<PAGE>

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

General and administrative expenses generally consist of salaries and other
personnel costs of our finance, management information systems, human resources
and other administrative employees and professional services expenses. The
increase in general and administrative expenses in the three months ended March
31, 2000 from the same period last year was primarily attributable to increased
personnel costs subsequent to the acquisition of Advance Systems. The increase
in general and administrative expenses in the nine months ended March 31,
2000 from the same period of the prior year was primarily the result of
increased administrative expenses in our mobile information management
segment subsequent to the acquisitions of Advance Systems and Parallax
Research.

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

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

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

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

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

                                       12
<PAGE>

RESULTS OF OPERATIONS BY SEGMENT

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

MOBILE INFORMATION MANAGEMENT SEGMENT

Our mobile information management segment includes both mobile data management
and universal mobile connectivity products that enable users to access, collect,
disseminate, synchronize and print information on demand. Our products in our
mobile information management segment include data synchronization and
management software, wireless connectivity products, enterprise Internet
solutions and client/server database management systems with remote access
capabilities.

<TABLE>
<CAPTION>
                                              THREE MONTHS ENDED MARCH 31,                NINE MONTHS ENDED MARCH 31,
                                         ----------------------------------------   -----------------------------------------
                                             2000       % CHANGE       1999             2000       % CHANGE        1999
                                         ----------------------------------------   -----------------------------------------
<S>                                          <C>        <C>            <C>              <C>        <C>             <C>
Net revenue                                  $ 10,577        56.5%       $ 6,757        $ 29,133          92.6%     $ 15,123
Loss from operations                             (216)     (263.6)%          132          (4,631)     (1,186.4)%        (360)
</TABLE>

Net revenue from mobile information management products grew to 71% of our net
revenue for the three months ended March 31, 2000, up from 51% in the same
period of the prior year. For the nine months ended March 31, 2000, net revenue
from mobile information management products grew to 67% of our net revenue up
from 42% in the same period last year.

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

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

The loss from operations for the mobile information management segment in the
three months ended March 31, 2000 from the same period of the prior year was
primarily the result of increases in our spending for mobile information
management research and development projects for both mobile data management and
universal mobile connectivity products, increased spending in marketing and
sales both domestically and internationally and increased amortization expense
related to our acquisition of Advance Systems in the first quarter of fiscal
2000.

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

                                       13
<PAGE>

PRINTING SOLUTIONS SEGMENT

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

<TABLE>
<CAPTION>
                                              THREE MONTHS ENDED MARCH 31,                NINE MONTHS ENDED MARCH 31,
                                         ----------------------------------------   -----------------------------------------
                                             2000       % CHANGE       1999             2000       % CHANGE        1999
                                         ----------------------------------------   -----------------------------------------
<S>                                          <C>        <C>            <C>              <C>        <C>             <C>
Net revenue                                   $ 4,348        (31.2)%     $ 6,319        $ 14,110         (31.7)%    $ 20,649
Income from operations                           (280)      (156.5)%         496            (385)       (117.5)%       2,204
</TABLE>

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

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

OTHER PRODUCTS SEGMENT

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

<TABLE>
<CAPTION>
                                              THREE MONTHS ENDED MARCH 31,                NINE MONTHS ENDED MARCH 31,
                                         ----------------------------------------   -----------------------------------------
                                             2000       % CHANGE       1999             2000       % CHANGE        1999
                                         ----------------------------------------   -----------------------------------------
<S>                                          <C>        <C>            <C>              <C>        <C>             <C>
Net revenue                                     $ (29)      (109.3)%       $ 312            $ 14         (96.7)%       $ 418
Income (loss) from operations                     (39)      (167.2)%          58             (71)        (98.0)%      (3,620)
</TABLE>

BUSINESS COMBINATION

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

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

                                       14
<PAGE>

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


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

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

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

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

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

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

We used a portion of the acquired in-process research and development to further
enhance Advance Systems' existing server-based synchronization technology by
implementing a plug-in architecture. This type of design allows users and third
party software providers to develop small software components that plug into our
XTNDConnect product and extend the range of applications supported by
XTNDConnect. In September 1999, we implemented the first phase of this
architecture with the release of XTNDConnect Version 2.2, which supports IBM's
DB2 Everywhere 1.1 (DB2E) handheld relational database and Microsoft's ActiveX
Data Object (ADO) interface, and provides other enhanced management tools. The
acquired in-process research and development assigned to this project was valued
at $951,000 as of the date of the acquisition. We incurred an estimated $69,000
to complete Version 2.2.

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

We will use the remaining acquired in-process research and development to
provide further enhancements to the architecture of our XTNDConnect product
line, which at the time of the acquisition were only approximately 10-15%
complete. The acquired in-process research and development assigned to this
project was valued at $186,000 as of the date of the acquisition. We expect to
incur an additional $123,000, from the date of the acquisition, to develop the
in-process technology into a commercially viable product with the

                                       15
<PAGE>

nature of the efforts principally relating to development and testing that is
required to establish that the product can be produced to meet its design
specifications, including functions, features and technical performance
requirements. The primary risk with the completion of this project is the
overall scope and complexity. We expect to complete this project by October
2000.

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


                                       16
<PAGE>

LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION

Net cash used by operating activities for the nine months ended March 31, 2000
was $67,000, a 95.4% decrease from net cash used by operating activities of $1.5
million in the same period of the prior year. Net cash used in the current
period was primarily a result of the net loss incurred and an increase in
receivables, offset in part by an increase in payables and a decrease in
prepaids and other assets. The net cash used by operating activities for the
nine months ended March 31, 1999 was primarily due to the net loss incurred,
an increase in receivables, a decrease in payables and an increase in
prepaids and other assets.

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

Net cash used by investing activities in nine months ended March 31, 2000 was
$3.2 million, a 55% decrease from net cash used by investing activities of $7.1
million in the same period of the prior year. This amount consisted largely of
cash payments for the acquisition of Oval, the parent company of Advance Systems
and Zebedee Software. The net cash used by investing activities in the nine
months ended March 31, 1999 reflects the purchase of available-for-sale
securities, the purchase of property and equipment and the net cash paid in
our acquisitions of Rand Software and Parallax Research.

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

Net cash used by financing activities in the nine months ended March 31, 2000
was $1.2 million, a 420% decrease from net cash provided by financing activities
of $389,000 in the same period of the prior year. This amount consisted
primarily of payments on our long-term debt, offset by proceeds from the
issuance of common stock under our stock plans. The net cash provided by
financing activities in the nine months ended March 31, 1999 resulted
primarily from the issuance of common stock under our stock plans.

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

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

In addition to our acquisitions of Rand Software and Parallax Research in fiscal
1999 and our acquisition of Advance Systems in the first fiscal quarter of 2000,
we intend to continue to pursue strategic acquisitions of, or strategic
investments in, companies with complementary products, technologies or
distribution networks in order to broaden our product offerings and to provide a
more complete mobile information management product offering. We have no
additional commitments or agreements regarding any transaction of this kind;
however, we may acquire businesses, products or technologies in the future. We
may require additional financing in the future and, if we were required to
obtain additional financing in the future, sources of capital may not be
available on terms favorable to us, if at all.

                                       17
<PAGE>

EFFECTS OF FOREIGN CURRENCY EXCHANGE RATES

We derive a substantial portion of our net revenue from international sales,
principally through our international subsidiaries and through a limited number
of independent distributors. Sales made by our international subsidiaries,
excluding our Singapore subsidiary, are generally denominated in foreign
currency. Fluctuations in exchange rates between the U.S. dollar and other
currencies could harm our business.

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

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

RECENTLY ISSUED ACCOUNTING STANDARDS

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

The Securities and Exchange Commission issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statement" in December 1999. The staff
accounting bulletin summarized the Securities and Exchange Commission's view in
applying generally accepted accounting principles to revenue recognition in
financial statements. Under current operations, we do not expect adoption of
this bulletin to have a material impact on our results of operations and
financial position. We are required to adopt this bulletin by our first
fiscal quarter of 2001.

YEAR 2000 COMPLIANCE

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

                                       18
<PAGE>

FACTORS THAT MAY AFFECT OUR FUTURE RESULTS AND THE MARKET PRICE OF OUR COMMON
STOCK

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

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

Our operating results have fluctuated significantly in the past and we expect
that they will continue to do so in the future. If our operating results fall
below the expectations of securities analysts and investors, the price of our
stock may fall. Some of the factors that may cause fluctuations in our operating
results include, but are not limited to:

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

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

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

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

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

An important element of our strategy involves entering into key business
relationships with other companies that relate to product development, joint
marketing and the development of protocols for mobile communications. If we fail
to maintain our current relationships or are unable to develop new
relationships, our business would suffer. Some of these relationships impose
substantial product support obligations on us, which may not be

                                       19
<PAGE>

offset by significant revenue. The benefits to us may not outweigh or justify
our obligations in these relationships.

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

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

We have designed a number of our current and upcoming products to conform to
industry-standard infrared, short-range radio and networking standards and
protocols, such as the short-range radio communication protocol known as
Bluetooth, the Wireless Application Protocol (WAP), and the communication
protocol created by the Infrared Data Association, known as IrDA. If these
standards and protocols do not achieve acceptance, our business would be harmed.
Even if accepted, these industry-wide specifications may not be widely adopted,
or competing specifications may emerge. In addition, technologies based on these
standards and specifications may not be adopted as the standard or preferred
technologies for wireless connectivity, thereby discouraging manufacturers of
personal computers and mobile devices from bundling or integrating these
technologies in their products.

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

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

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

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

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

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

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<PAGE>

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

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

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

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

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

Our quarterly net revenue and operating results depend in large part on the
volume and timing of orders received within the quarter, which are difficult to
forecast. We typically operate with a relatively small order backlog and
significant portions of our expenses are fixed in advance, based in large part
on our forecast of future net revenue. In addition, a majority of our net
revenue results from the sale of products to a limited number of original
equipment manufacturers and distributors, which are difficult to predict. None
of our distributors or original equipment manufacturers are obligated to
purchase our products except pursuant to current purchase orders. If net revenue
is below expectations in any given quarter, the adverse impact of the shortfall
on our operating results may be magnified by our inability to adjust spending to
compensate for the shortfall. Therefore, a shortfall in actual net revenue as
compared to estimated net revenue could harm our operating results.

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

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

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

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

                                       21
<PAGE>

We compete with:

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

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

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

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

-    changes in government regulations;
-    export license requirements;
-    changes in tariffs, trade barriers or taxes, such as potential changes in
     tax laws regarding U.S. export sales;
-    fluctuations in currency exchange rates, which could cause our products to
     become relatively more expensive to customers in a particular country and
     lead to a reduction in sales in that country;
-    longer collection and payment cycles than those in the United States;
-    difficulty in staffing and managing international operations; and
-    political and economic instability, including instability caused by the
     European monetary union and military actions.

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

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

The transactions made through our subsidiaries in France, Germany, Italy, the
Netherlands and the United Kingdom are primarily denominated in local
currencies. Accordingly, these international operations expose us to currency
exchange rate fluctuations which in turn could cause our operating results to
fluctuate. From time to time we enter into foreign currency forward contracts,
typically against the Euro and British Pound, to hedge our exposure to exchange
rate fluctuations resulting from intercompany transactions with our
international subsidiaries. The success of these hedging activities depends upon
estimates of intercompany balances denominated in various foreign currencies. To
the extent that these estimates are overstated or understated during periods of
currency volatility, we could experience unanticipated currency gains or losses.

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

We maintain a limited in-house manufacturing capability for performing materials
procurement, final assembly, testing, quality assurance and shipping. We rely
primarily on independent subcontractors to manufacture our products and we
intend to continue our reliance upon third-party manufacturers in the future.
Some of our products are manufactured in their entirety by third parties. Our
reliance on third-party manufacturers involves a

                                       22
<PAGE>

number of risks, including the potential inability to obtain an adequate supply
of existing and new products and reduced control over delivery schedules,
product quality and product cost. For example, in December 1998, we announced
our decision to exit the port replicator business due in part to quality
problems associated with the third-party manufacturer of this product. Our
decision to exit the port replicator business was the primary cause of the
decline in our net revenue in the quarter ended December 31, 1998.

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

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

SALES TO HEWLETT-PACKARD ARE CURRENTLY A SIGNIFICANT PORTION OF OUR NET
REVENUE, AND IF HEWLETT-PACKARD DECIDES TO DECREASE OR DISCONTINUE PURCHASING
OUR PRODUCTS, OUR NET REVENUE MAY DECLINE.

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

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

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

We provide most of our distributors and resellers with limited product return
rights for stock rotation and with some price protection rights. We may
experience significant returns in the future and we may not make adequate
allowances to offset these returns. Price protection rights require that we
grant retroactive price adjustments for inventories of our products held by
distributors or resellers if we lower our prices for these products. The short
life cycles of our products and the difficulty in predicting future sales
increase the risk that new product introductions, price reductions by us or our
competitors or other factors affecting the markets in which we compete could
result in significant product returns. For example, in the quarter ended
December 31, 1998, we discontinued our mechanical port replicator products and,
as a result, recorded an allowance for product returns of $1.0 million. Our
distributors maintain inventory of the products they purchase from us. Changes
in inventory management policies at any of our key distributors could harm our
business.

                                       23
<PAGE>

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 necessary technology
for use with our products, could result in the loss of or delays in the
inclusion of important features of our products or result in substantial
increases in royalty payments that we would have to pay pursuant to alternative
third-party licenses, any of which could harm our business. In addition, the
effective implementation of our products depends upon the successful operation
of licensed software in conjunction with our products. Any undetected errors in
products resulting from this licensed software may prevent the implementation or
impair the functionality of our products, delay new product introductions and
injure our reputation.

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

The markets for our products are characterized by rapidly changing technologies,
evolving industry standards, frequent new product introductions and short
product life cycles. Any delays in the introduction or shipment of new or
enhanced products, the inability of our products to achieve market acceptance or
problems associated with new product transitions could harm our business. The
product development process involves a number of risks. The development of new,
technologically advanced products is a complex and uncertain process requiring
high levels of innovation, as well as the accurate anticipation of technological
and market trends. The introduction of new or enhanced products also requires us
to manage the transition from older products in order to minimize disruption in
customer ordering patterns, avoid excessive levels of older product inventories
and ensure that adequate supplies of new products can be delivered to meet
customer demand.

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

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

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

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

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

Any growth we experience is likely to place a significant strain on our
administrative, operational and financial resources and to increase demands on
our systems and controls, which could harm our business. Growth may also result
in an increase in the scope of responsibility for management personnel. We
anticipate that growth

                                       24
<PAGE>

and expansion will require us to recruit, hire, train and retain a substantial
number of new engineering, executive, sales and marketing personnel. In the
current employment environment we have experienced difficulty in recruiting
qualified personnel, and continued difficulty in this regard could limit our
ability to grow. In addition, in order to manage our growth successfully, we
will need to continue to expand and improve our operational, management and
financial systems and controls. The failure to do so could harm our business.




                                       25
<PAGE>

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

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

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

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

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

Our success depends upon the continuing contributions of our key management,
engineering, sales and marketing personnel. The loss of key management or
technical personnel could harm our business. We do not maintain any key-person
life insurance policies. We believe that our success will also depend upon our
ability to attract and retain highly skilled management, engineering, sales and
marketing personnel. In particular, we are currently attempting to recruit new
engineering personnel; however, we may not be successful at hiring or retaining
these personnel.

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

Provisions in our restated certificate of incorporation and our bylaws may have
the effect of deterring hostile takeovers or delaying or preventing changes in
control or management of us, including transactions in which stockholders might
otherwise receive a premium for their shares over then current market prices.
For example, our restated certificate of incorporation divides the board of
directors into three classes, each serving a staggered three-year term, and does
not permit action by written consent of the stockholders or cumulative voting.
In addition, our board of directors has the authority to issue up to 5,000,000
shares of preferred stock and to determine the price, rights, preferences and
privileges of those shares without any further vote or action by our
stockholders. The rights of the holders of common stock will be subject to, and
may be adversely affected by, the rights of the holders of any preferred stock
that may be issued in the future. While we have no present intention to issue
shares of preferred stock, the issuance of preferred stock, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire a majority of our outstanding voting stock. Further, we
are subject to the anti-takeover provisions of Section 203 of the Delaware
General Corporation Law, which prohibits us from engaging in a business
combination with an interested stockholder for three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. The application of
Section 203 could have the effect of delaying or preventing a change of control.
We will have broad discretion to allocate a large percentage proceeds of this
offering.

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<PAGE>

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our long-term debt consists of a capital lease that is at a fixed imputed
interest rate. Therefore, the fair value of this instrument is affected by
changes in market interest rates. Because our capital lease is due in September
2000, we believe that the market risk arising from our long-term debt is
minimal.

We derive a substantial portion of our revenue from international sales,
principally through our international subsidiaries in France, Germany, Italy,
Singapore, the United Kingdom and the Netherlands, and through a limited number
of original equipment manufacturers and independent distributors. Therefore, we
face exposure to adverse movements in foreign currency exchange rates. Sales
made by our international subsidiaries are generally denominated in the
country's local currency with the exception of our subsidiary in Singapore.
Fluctuations in exchange rates between the U.S. dollar and other foreign
currencies could harm our business.

We do not hold or issue financial instruments for speculative purposes. From
time to time, we enter into foreign currency forward contracts, typically
against the Euro and British Pound to hedge payments and receipts of foreign
currencies related to the purchase and sale of goods to international
subsidiaries. At March 31, 2000, we had contracts in place totaling $4.2 million
that matured within 30 days. While these hedging instruments are subject to
fluctuations in value, these fluctuations are generally offset by the value of
the underlying exposures being hedged. 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. Business

                           PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

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

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)  EXHIBITS

27.1  Financial Data Schedule

(b)  REPORTS ON FORM 8-K

The Company filed no reports on Form 8-K during the three months ended March 31,
2000.

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

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<PAGE>

                                    SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1923, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                              Extended Systems Incorporated



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

                                   (Principal Financial and Accounting Officer
                                   and Duly Authorized Officer)

                                       28