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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549


                                    FORM 10-K

                |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                     FOR THE FISCAL YEAR ENDED JUNE 30, 2003

                                       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

        Securities registered pursuant to Section 12(b) of the Act: NONE

           Securities registered pursuant to Section 12(g) of the Act:
                    COMMON STOCK, PAR VALUE $0.001 PER SHARE
                    ----------------------------------------
                                (Title of class)

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 |_|

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |_|

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X|

The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing price of such stock on December 31, 2002 as
reported on the Nasdaq National Market, was approximately $19 million. Shares of
common stock held by each officer and director and by each person who own 5% or
more of the outstanding shares of common stock have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.

As of September 19, 2003, there were 14,037,622 shares outstanding of the
Registrant's common stock.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's definitive Proxy Statement for the Annual Meeting
of Stockholders, to be filed subsequently, are incorporated by reference in Part
III of this Form 10-K to the extent stated herein.
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<PAGE>

                          EXTENDED SYSTEMS INCORPORATED

                    FISCAL YEAR 2003 FORM 10-K ANNUAL REPORT

                                TABLE OF CONTENTS

                                                                            PAGE
                                                                            ----

PART I.

Item 1.       Business                                                        4

Item 2.       Properties                                                     15

Item 3.       Legal Proceedings                                              15

Item 4.       Submission of Matters to a Vote of Security Holders            16

PART II.

Item 5.       Market for Registrant's Common Equity and Related
              Stockholder Matters                                            16

Item 6.       Selected Financial Data                                        17

Item 7.       Management's Discussion and Analysis of Financial
              Condition and Results of Operations                            19

Item 7A.      Quantitative and Qualitative Disclosures about Market Risk     39

Item 8.       Financial Statements and Supplementary Data                    40

Item 9.       Changes in and Disagreements with Accountants on
              Accounting and Financial Disclosure                            40

Item 9A.      Controls and Procedures                                        40

PART III.

Item 10.      Directors and Executive Officers of the Registrant             40

Item 11.      Executive Compensation                                         40

Item 12.      Security Ownership of Certain Beneficial Owners
              and Management                                                 41

Item 13.      Certain Relationships and Related Transactions                 42

Item 14.      Principal Accountant Fees and Services                         42

Item 15.      Controls and Procedures                                        42

PART IV.

Item 16.      Exhibits, Financial Statement Schedules and
              Reports on Form 8-K                                            42

              Signatures                                                     69


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FORWARD-LOOKING STATEMENTS

IN ADDITION TO HISTORICAL INFORMATION, THIS FORM 10-K CONTAINS FORWARD-LOOKING
STATEMENTS. IN THIS FORM 10-K, THE WORDS "EXPECTS," "ANTICIPATES," "BELIEVES,"
"INTENDS," "WILL" AND SIMILAR EXPRESSIONS IDENTIFY FORWARD-LOOKING STATEMENTS,
WHICH ARE BASED UPON INFORMATION CURRENTLY AVAILABLE TO US, SPEAK ONLY AS OF THE
DATE HEREOF AND ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES. 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 SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE
DISCUSSED IN THE SECTION ENTITLED "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--FACTORS THAT MAY AFFECT FUTURE
RESULTS AND MARKET PRICE OF STOCK." YOU SHOULD CAREFULLY REVIEW THE RISK FACTORS
DESCRIBED IN OTHER DOCUMENTS THAT WE FILE FROM TIME TO TIME WITH THE SECURITIES
AND EXCHANGE COMMISSION, INCLUDING OUR QUARTERLY REPORTS ON FORM 10-Q TO BE
FILED IN FISCAL 2004. ALL PERIOD REFERENCES ARE TO OUR FISCAL YEARS ENDED JUNE
30, 2004, 2003, 2002 AND 2001, UNLESS OTHERWISE INDICATED.


                                     PART I

ITEM 1. BUSINESS

OVERVIEW
--------

Founded in 1984, we are a corporation incorporated under the laws of the state
of Delaware with our headquarters located in Boise, Idaho. Our Internet website
address is HTTP://WWW.EXTENDEDSYSTEMS.COM. On the "Investor Relations" section
of our website, we post links to the following filings as soon as reasonably
practicable after they are electronically filed with or furnished to the United
States Securities and Exchange Commission (SEC): our Annual Report on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments
to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended. All such filings are available free
of charge. Information on our website does not constitute a part of this Annual
Report on Form 10-K.

We provide mobile information management products designed to enhance enterprise
productivity and increase enterprise competitiveness. Enterprise organizations
and their employees are increasingly relying on mobile devices to access
time-sensitive and critical information and enable personal information
management, enterprise automation and mobile workforce management. Our mobile
information management products empower users to access, collect, synchronize,
and push information on demand from various locations and from a variety of
devices. These devices include mobile phones, pagers and personal digital
assistants, which operate using the Palm OS, Windows CE, PocketPC, Symbian OS,
and RIM-based device platforms.

Our mobile information management products feature:

o    software that enables data synchronization, device management, real-time
     access to data and pro-active "push" of data to a mobile device;
o    mobile application development platforms and tools for building custom
     mobile applications;
o    mobile application modules for sales, service and pharmaceutical
     professionals that connect to back-end enterprise applications;
o    short range wireless connectivity technology based on Bluetooth and
     Infrared Data Association standards; and
o    embedded client/server relational database management systems (RDBMS) for
     stand-alone, networked, Internet and mobile database applications.

We design our products and technologies to provide innovative, reliable and
cost-effective mobile computing to enterprises, users, manufacturers of mobile
devices, application developers and telecommunications service providers. Our
products enable:

o    users to synchronize information between mobile devices and personal
     computers or enterprise systems for offline access of enterprise data such
     as email, calendar, and mission-critical database information;
o    users to proactively push information from an enterprise system to a mobile
     device via a wireless connection;
o    users to access enterprise information from a mobile device on a real-time
     online basis;
o    users and enterprises to increase their efficiency and productivity by
     using their mobile devices for a variety of new tasks;
o    device manufacturers and application developers to design products to
     better meet the needs of enterprises and users; and
o    telecommunications service providers to enhance their revenue
     opportunities.

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<PAGE>

We have relationships with or sell our products to leading mobile communications
and computing companies and corporate enterprises, including 3Com, Avaya, Bell
Mobility, British Airways, DaimlerChrysler, EDS, Ericsson, Goldman Sachs,
Hewlett-Packard, IBM, Intel, Janssen-Cilag, Microsoft, Motorola, O2, Palm, RIM,
Sharp, Siemens T-Mobile, and UBS Warburg.

INDUSTRY BACKGROUND
-------------------

The use of mobile devices has increased tremendously as handheld computers,
mobile phones, pagers and personal digital assistants have achieved popular
acceptance and become more advanced and powerful. Improvements in mobile
technology and wireless infrastructure are facilitating greater bandwidth,
thereby enabling both data and voice transmission. IDC, a leading provider of
technology intelligence and market data, predicts that the United States
population of mobile workers will reach 104.6 million by 2006.

Meanwhile, competition and deregulation in the wireless communications industry
have resulted in downward pressure on wireless service rates. Consequently,
service providers are attempting to maximize revenue opportunities by developing
new services and encouraging usage, while simultaneously reducing the costs
associated with customer turnover and the deployment of new services. As a
result, mobile device manufacturers and application developers face pressure
from service providers to increase the usability and value of their devices and
applications. Many of these manufacturers and developers seek to utilize data
communications capabilities to do so. However, the absence of common standards
for data communications has historically prevented the widespread adoption and
promotion of data communications across the mobile communications industry. To
address this situation, industry consortia were formed to develop industry-wide
standards and protocols for wireless communication. These consortia have
developed various complementary protocols, including Bluetooth protocols for
short-range radio-frequency communication, IrDA infrared communication protocols
created by the Infrared Data Association, SyncML data synchronization protocols
and the Wireless Application Protocol (WAP). Service providers, device
manufacturers and application developers are integrating these data
communication capabilities to improve functionality and deliver an array of
mobile communications products and services.

Enterprises seek to evolve their business by investing in solutions that
leverage existing infrastructure, increase employee productivity, maintain
corporate data security and deliver a clear return on investment. As a result,
mobile devices are being used for:

o    PERSONAL INFORMATION MANAGEMENT. Users employ mobile devices in conjunction
     with their primary computers for tasks such as contact management,
     scheduling and e-mail access.
o    ENTERPRISE AUTOMATION. Enterprises deploy mobile devices for tasks within
     the enterprise such as inventory control and management, quality assurance
     and data entry and access.
o    MOBILE WORKFORCE MANAGEMENT. Enterprises deploy mobile devices for tasks
     outside the enterprise such as sales force automation, real-time
     collaboration and data access.

Unfortunately, providing flexible information access has historically been a
cumbersome and expensive proposition and typically required that users make a
wired connection to the network wherever and whenever they required access. In
addition, with the increased use of mobile devices, many users currently must
employ several devices simultaneously. Although they all may require access to
the same information, these devices often run applications on separate
platforms. For example, a mobile worker using a laptop for corporate e-mail may
also use a personal digital assistant with personal contact information, and a
mobile phone with an embedded directory, each of which functions with different
operating systems, platforms and data delivery formats. To facilitate user
productivity, this information must be pushed, synchronized, accessed and
managed across devices and applications. Thus, users require simple, secure
tools to access, collect, synchronize, and push information.

Enterprises, users, device manufacturers, application developers and service
providers require solutions that provide secure, wireless data delivery and
connectivity between disparate mobile devices and between mobile devices and the
application information which resides on personal computers or the enterprise
network. Ideally, this type of solution should:

o    provide cost-effective and seamless access to information regardless of
     location;
o    implement end-to-end security to ensure corporate data remains protected;
o    increase user productivity by connecting a variety of mobile devices to
     access and manage information;
o    enable device manufacturers and application developers to enhance the value
     and usability of their devices and applications, facilitating greater
     market acceptance and increased use; and
o    allow telecommunications service providers to take advantage of data
     communication capabilities to drive increased usage and user loyalty.

                                        5
<PAGE>

OUR SOLUTION
------------

We design, develop, sell and support mobile infrastructure software that
securely and efficiently extends enterprise applications to mobile and wireless
environments. Our software includes mobile data management and wireless
connectivity solutions. We have designed our products to:

o  ENABLE MOBILE DATA MANAGEMENT. Our mobile data management products enable
   enterprises and users to access, synchronize and manage information between
   mobile devices and personal computers or enterprise networks. We believe
   enterprises can reduce their initial capital investment in computer hardware
   and software and their network administrative costs by using our technology
   to deploy applications on mobile devices. Using our products, users can
   manage information between their mobile devices and personal computers;
   enterprise groupware applications, such as Microsoft Exchange and Lotus
   Domino; enterprise applications, such as Siebel and SAP; or enterprise
   databases via LDAP, JDBC, XML data sources, and ODBC or OLEDB-compliant
   database connectors. In addition, enterprises can securely and efficiently
   deploy and manage a variety of mobile devices and extend their applications
   and databases across a distributed network and over the Internet.
o  INCREASE PRODUCTIVITY AND USABILITY OF MOBILE DEVICES. Our mobile information
   management products improve the management of information and applications
   and provide convenient, wireless connectivity. These products enable users to
   share data and information between their mobile devices while accessing
   information from the Internet, personal computers or enterprise networks on
   demand. Enterprises can utilize devices to extend their network applications
   cost-effectively to other applications. We believe our mobile information
   management products help mobile users and enterprises increase their
   productivity by using mobile devices for a variety of new tasks, thereby
   increasing their use of these devices.
o  INCREASE VALUE AND USAGE OF MOBILE DEVICES AND COMMUNICATIONS SERVICES. Our
   platforms and technologies provide the tools to enable device manufacturers
   and application developers to design and enhance products to meet the needs
   of both enterprises and users. Because our technology enables cost-effective
   communication and the ability to easily manage many disparate devices, we
   believe device manufacturers and application developers are able to increase
   the value of the products they sell, thereby encouraging increased adoption
   of those products. In addition, we believe the increased adoption of mobile
   devices will, in turn, drive increased usage of and loyalty to providers of
   mobile communications services, thereby increasing service providers' revenue
   opportunities and minimizing their costs.
o  ENABLE WIRELESS CONNECTIVITY. Our products facilitate enterprise automation
   and effective mobile workforce management by providing wireless connectivity
   between disparate mobile devices and between mobile devices and personal
   computers or enterprise networks. Our products enable mobile workers to
   access networks or peripherals within enterprise facilities and enable
   enterprises to extend applications to users beyond the network environment
   and over the Internet, without physical connections.

OUR STRATEGY
------------

Our objective is to become the leading provider of mobile solutions for the
enterprise. In order to achieve our objective, we have adopted the following
strategies:

o    We will continue to develop and maintain a broad array of mobile
     information management products, technologies and services that demonstrate
     our technical excellence. We are committed to building and maintaining a
     full range of mobile products, technologies, and services that address the
     data management and wireless connectivity needs of enterprises and users
     across a broad range of mobile devices and communications protocols.

o    We will focus resources on building customer intimacy with top enterprise
     customers. We have invested substantial resources to develop our worldwide
     marketing, sales and support infrastructure. Although our products are
     appropriate for enterprises of all sizes, we believe large multi-national
     enterprises are the most lucrative market for our products. We intend to
     continue to focus resources to sell to large enterprises and to
     international markets that are adopting the use of mobile communications
     most rapidly.

o    We will demonstrate industry leadership by continuing to leverage alliances
     with leading mobile device manufacturers and applications developers. We
     believe it is critical to focus on continuing to demonstrate industry
     leadership through alliance validation. We maintain relationships with
     leading hardware and software vendors, including Ericsson, Hewlett-Packard,
     Motorola and Siemens. We believe that these relationships will enable us to
     develop leading-edge products and technology and influence the development
     of new platforms and protocols.

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<PAGE>

o    We will continue to acquire and integrate complementary businesses and
     technologies into our mobile strategy. In order to broaden our product
     offering and extend our distribution channels, we have in the past and
     intend in the future to pursue acquisitions of, and investments in,
     companies with complementary products, technologies or distribution
     networks.

OUR PRODUCTS
------------

Our mobile information management segment includes mobile data management and
wireless connectivity software solutions.

MOBILE DATA MANAGEMENT SOLUTIONS
--------------------------------

MOBILE GROUPWARE SOLUTIONS

Our mobile groupware solutions offer organization-wide mobility of existing
groupware and support systems.

ONEBRIDGE MOBILE GROUPWARE (formerly known as XTNDConnect Server) is a platform
independent server-based information synchronization and management solution for
the enterprise. It delivers e-mail and PIM (calendar, contacts, tasks) data to
mobile workers when and where they need it regardless of the device used, the
connection method or the groupware application. OneBridge Mobile Groupware
provides users the option to proactively "push" data to their device, access
information online in real-time, or synchronize data offline. At the same time,
OneBridge Mobile Groupware provides enterprise IT managers advanced deployment
tools, robust device management and reporting tools, and secure delivery of data
in both wired and wireless environments.

XTNDCONNECT PC is a flexible desktop-based solution that enables individual
mobile users to synchronize and manage contacts, calendars, tasks, e-mail, and
notes between their mobile device and popular personal computer applications.
Synchronization is supported between a desktop or laptop computer and Windows
CE, Pocket PC, Palm O/S, Casio Pocket Viewer mobile devices and selected mobile
phones from Sony Ericsson and Siemens.

XTNDCONNECT PC PIM SDK is a software development kit that provides enterprises
and internet service providers with an efficient way to add reliable
synchronization capabilities to their Internet portal or other application using
our XTNDConnect PC technology.

MOBILE SOLUTIONS PLATFORM AND TOOLS

Our OneBridge Mobile Solutions Platform provides the foundation upon which
enterprise applications can be extended to mobile workers. Our platform can be
deployed to most popular devices, accessed by most back-end enterprise system
and provides the ability to build mobile applications using the development
environment of choice. This comprehensive platform was designed so that
enterprises can leverage their existing security protocols and preferences,
scale the use of the platform to respond to changes within the organization, and
utilize mobile devices already deployed in the field.

Our platform architecture offers a range of tools for both sophisticated and
less technical application designers and addresses data synchronization,
cross-platform APIs, online/offline transaction support, and real-time,
browser-based solutions for continuous connectivity. It also offers advanced
connectivity into various enterprise servers such as Siebel, SAP, TIBCO, MS SQL
Server, Oracle and others allowing any existing system to be extended to a
mobile computer.

ONEBRIDGE MOBILE DATA SUITE gives developers the power to easily extend
enterprise applications to mobile workers. It provides seamless integration and
easy deployment of existing or custom database applications, synchronization of
the data between the server and mobile device and automatically addresses issues
of encryption, authenticated access, data sharing, and support. Advanced APIs
offer programmers a number of options for synchronizing data, accessing remote
objects, executing transactions, and more generally, greater flexibility to
extend business processes to mobile applications.

ONEBRIDGE PRESENTATION SERVER offers developers a complete system for developing
and deploying mobile, browser-based applications. The solutions developed with
OneBridge Presentation Server allow users to access business applications from
kiosks, hotel web portals, mobile computers, and even mobile phones. Developers
have the ability to design the application with OneBridge Designer. OneBridge
Presentation Server, then, will automatically format

                                        7
<PAGE>

the application appropriately when a device connects to ensure that the user
gets the optimum experience on whatever device or connection is used resulting
in broader device support and better user acceptance of the solution.

MOBILE BUSINESS SOLUTIONS

Extended Systems offers a suite of mobile business application modules that give
customers the ability to extend a variety of off-the-shelf and existing
mission-critical enterprise applications to mobile workers. These pre-built
application modules provide the conduit from our mobile solutions platform to an
enterprise's sales force automation (SFA), customer relationship management
(CRM) and enterprise resource planning (ERP) applications.

BUSINESS SOLUTIONS FOR SALES allows an enterprise's sales team using phones or
handheld devices to manage contacts, opportunities, sales orders, and to update
forecasting information while leveraging existing SFA, ERP, and other enterprise
solutions in the field.

BUSINESS SOLUTIONS FOR PHARMACEUTICALS is designed specifically for sales
associates within the pharmaceutical and related industries, that allows sales
associates to review and edit practitioner and institution information, plan and
report on their visits with target physicians, share clinical studies, track
samples, and even submit expense reports and timesheets during downtime between
appointments.

BUSINESS SOLUTIONS FOR FIELD SERVICE gives field technicians the ability manage
work orders, schedule appointments, prepare for service calls en route, retrieve
and update spare parts inventories, and gather customer information and
electronic signatures whenever and wherever they need it.

ADVANTAGE

ADVANTAGE DATABASE SERVER is a scalable, high performance client/server
relational database management system for networked, stand-alone, mobile and
Internet database applications. It allows developers the flexibility to combine
powerful SQL statements and relational data access methods with the performance
and control of navigational commands.

ADVANTAGE LOCAL SERVER is a non-client/server solution for accessing data
located on local drives as well as computers on the network that are not running
the Advantage Database Server. It allows both single-user and multiple-user
access to data files.

ADVANTAGE REPLICATION allows Advantage Database Server customers to maintain
identical database information at distributed locations or easily create a
briefcase mode via use of our OneBridge Mobile Groupware (formerly XTNDConnect
Server).

Advantage client solutions and development tools are native and seamless in
their integration into existing applications allowing replacement of existing
database drivers with fully compatible Advantage drivers. Advantage clients
allow for quick and easy development of new applications in a wide variety of
development environments.

WIRELESS CONNECTIVITY PRODUCT SOLUTIONS
---------------------------------------

Our wireless connectivity product solutions permit users to wirelessly connect
and exchange data using either Bluetooth short-range radio frequency or IrDA
(Infrared Data Association) infrared technology, thereby creating easy to use
wireless connections.

We have developed a complete suite of embedded software development kits (SDKs)
for use by device manufacturers including handset and PDA manufacturers,
original equipment manufacturers (OEM), original design manufacturers (ODM) and
contract electronics manufacturers (CEM). Our Bluetooth, IrDA (including IrFM
Financial Messaging), and SyncML protocols help manufacturers streamline the
development process and rapidly integrate wireless connectivity and
synchronization into mobile phones, PDAs and other mobile devices as well as
Microsoft PCs.

We have also developed stand-alone testing systems for IrDA enabled devices. Our
XTNDAccess IrDA Test Suite is the first and only qualified test tool for
infrared for financial messaging (IrFM). IrFM is a specification that defines
the exchange of financial payment and transaction information between mobile
devices and point-of-sale (POS) terminals. All IrFM products are required to
pass this test suite in order to obtain certification.

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XNTDACCESS FOR IRDA is a complete infrared software development kit that
provides an efficient way to add reliable IrDA-compliant communications to
embedded devices. The XTNDAccess IrFM SDK we have developed is an add-on to the
XTNDAccess IrDA SDK and provides the source code, tools and documentation
required to implement IrFM on a Personal Trusted Device (PTD) or a POS terminal.
It allows applications to perform a full array of financial messaging
transactions by the IrFM Point and Pay Profile.

XTNDACCESS FOR BLUETOOTH provides an efficient way to add reliable Bluetooth
radio communications to embedded devices. This software development kit is on
the Bluetooth Qualified Product List and is certified for Object Push, File
Transfer, Dial-up Networking, LAN Access, FAX and Cordless.

XTNDACCESS FOR SYNCML is a client toolkit that enables developers to implement
the SyncML synchronization protocol for a wide range of embedded devices. It is
certified compliant by the SyncML Initiative.

OUR TECHNOLOGY
--------------

We focus our technology development efforts on mobile data management software
and wireless connectivity software. Important technology features of our
products are described below.

MOBILE DATA MANAGEMENT SOFTWARE TECHNOLOGIES:

ONEBRIDGE MOBILE GROUPWARE (FORMERLY XTNDCONNECT SERVER). Our technology allows
the update and exchange of data with enterprise server applications such as
Microsoft Exchange, Lotus Notes and any databases accessible via ADO (OLE DB),
ODBC or via our custom SDK, and helps system administrators manage mobile
devices with IT application deployment, backup, restore, installation,
configuration and reporting. Technological features of OneBridge Mobile
Groupware meet the following needs of IT organizations:

o  management and configuration of users and mobile devices using our
   administration program, which supports Microsoft Management Console plug-in
   technology for remote monitoring;
o  customized synchronization using enhanced filtering technologies, which is
   particularly useful for synchronization using wireless protocols such as
   Mobitex, GSM, GPRS, CDMA, CDPD, 1XRTT, 3G, or iMode;
o  advanced security implementing elliptical curve encryption technologies that
   permit highly-secure connections, while consuming minimal bandwidth and
   battery power on the mobile device;
o  broad communications options enabling any wired, wireless or cellular
   connection, including physical or wireless TCP/IP, GSM, CDMA, iDEN, Internet,
   PPP, cradle, IrDA or Bluetooth; and
o  support for Microsoft Exchange, Lotus Notes or any database accessible via
   ADO (OLE DB), ODBC or via our custom SDK, custom plug-ins to support
   proprietary applications and our proprietary replication wizard for
   synchronization of database records.

XTNDCONNECT PC. XTNDConnect PC is a desktop synchronization solution with
technology that allows users to synchronize common data types (such as contacts,
calendar, email, and notes) between mobile devices and popular applications on
their personal computer. Our technology incorporates a single engine to
synchronize information between personal computer applications (such as
Microsoft Outlook, Lotus Notes, Lotus Organizer and ACT!) and mobile devices
(such as Palm OS, Windows CE, Pocket PC, Casio Pocket Viewer and Siemens and
Ericsson mobile phones). In addition, we have extended our synchronization
technology through our Internet alliances to online personal information
managers and provide support for devices using industry-accepted synchronization
standards (such as IrMC and SyncML). Data record translation capabilities
synchronize many disparate device formats and application data types, for
example, allowing joint synchronization with Palm OS, Microsoft Windows CE and
Pocket PC devices. Auto-Connect technology permits the automatic synchronization
of devices upon connection and can be supported on Bluetooth and IrDA, as well
as cable and cradle connections.

ONEBRIDGE MOBILE DATA SUITE. OneBridge Mobile Data Suite is an out-of-the-box
database synchronization solution that gives IT administrators the power to
easily extend custom mobile applications out to mobile device users. It supports
all popular server and device databases. Technological features include:

o    seamless connectivity to any server database accessible via ADO (OLE DB) or
     ODBC;
o    end-to-end encryption to ensure corporate data remains protected;
o    field-level synchronization reconciliation and priority;
o    GUI-based extensive field mapping including data type translation;
o    call-back functions to plug into business logic;

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o    support for authentication standards already in place at an enterprise,
     allowing IT administrators to maintain their existing security
     infrastructure; and
o    device management functionality, such as backup and restore, file rename
     and delete, registry key modification, device information gathering and
     allowing IT administrators to set up the necessary actions to automatically
     deploy and configure applications.

ONEBRIDGE PRESENTATION SERVER. OneBridge Presentation Server is a server-based,
enterprise-class platform that adheres to mainstream industry standards
including Java, XML, XSL, VoiceXML and Open API framework to extend applications
to most mobile handheld devices. The multi-tier architecture of the platform
scales easily and securely on various configurations of enterprise IT systems,
as well as to existing and emerging mobile device technology, and allows for a
distributed-network configuration with load-balancing capabilities. Secure
connections are supported through a variety of standard security protocols,
including SSL, VPN and WTLS, as well as a number of third-party security
solutions. Users can be authenticated based on a number of parameters and global
login capabilities enable authenticated users to access different enterprise
applications without having to log into each one individually. The platform
supports most wireless handheld devices, whether online or offline, with dynamic
application rendering for mobile and smart phones, Pocket PC and Palm OS
personal digital assistants (PDAs) and RIM pagers. In addition, the universal
device library maintains specific details of each device interface and tailors
the presentation behavior of any application running on the platform. A full
spectrum of alerting capabilities, including e-mail, WAP alerts, SMS, voice
outbound calls and others are supported.

MOBILE BUSINESS SOLUTIONS PRODUCTS. The underlying foundation for our Mobile
Business Solutions products is our Mobile Solutions Platform, with pre-built
connectors that seamlessly integrate with enterprise's existing systems. These
products contain a complete set of customization tools that make it easy to
tailor our applications to suit an enterprise's specific integration, user
interface, and workflow requirements.

ADVANTAGE DATABASE SERVER. We have developed algorithms for burst-mode
transmission of data records across the LAN or WAN. Advantage Database Server
has an advanced filter optimization engine, enhanced locking algorithms and
support for a wide variety of communications protocols. Its transaction
processing engine is subject to a patent that we hold.

WIRELESS CONNECTIVITY SOFTWARE TECHNOLOGIES:

XNTDACCESS FOR IRDA. We helped create the IrDA standard and continue to offer
the most complete IrDA software development kits and test tools available on the
market. The majority of IrDA devices on the market today were developed using
our development tools. More than 200 companies have used the XTNDAccess IrDA SDK
to build IrDA into mobile phones, PDAs, printers, medical and industrial
equipment, vending machines, and numerous other devices.

The XTNDAccess IrFM SDK we have developed is an add-on to the XTNDAccess IrDA
SDK and provides the source code, tools and documentation required to implement
IrFM on a Personal Trusted Device (PTD) or a POS terminal. It allows
applications to perform a full array of financial messaging transactions using
the IrFM Point and Pay Profile.

XTNDACCESS FOR BLUETOOTH. Bluetooth radio communication technology allows
multiple wireless connections over distances of up to 10 meters. It is used
primarily by mobile devices that require long battery life and the ability to
transfer data or connect to other devices or PCs. With its small memory
footprint, easy portability and complete functionality, we believe the
XTNDAccess Blue SDK is one of the market's first and best Bluetooth development
kits for mobile devices such as personal digital assistants, pagers, MP3 players
cameras and mobile phones as well as automobile hands-free, printer and medical
device implementations. The XTNDAccess Blue SDK is compatible with virtually all
embedded operating systems and can be used in systems with no operating system
at all.

XTNDACCESS FOR SYNCML. Our XTNDAccess SyncML SDK is a client toolkit that
enables developers to implement the SyncML synchronization protocol for a wide
range of embedded devices. Designed for client devices such as cell phones,
smart phones, and personal digital assistants, the kit provides a complete set
of tools including portable source code, easy-to-use APIs and comprehensive
documentation. The XTNDAccess SyncML SDK is designed to ensure immediate support
for XTNDConnect PC and OneBridge Mobile Groupware as well as other SyncML
compliant synchronization servers.
                                       10
<PAGE>
RESEARCH AND DEVELOPMENT
------------------------

As of June 30, 2003, we had 62 full-time equivalent employees devoted to our
research and development activities, primarily at our facilities in Boise,
Idaho; Bristol, England; and Toronto, Canada. We believe our success depends
upon our ability to develop and introduce new products and enhance existing
products, allowing us to offer our customers products that achieve increasing
levels of capability, performance and reliability. Our research and development
efforts are currently focused on: o mobile server platforms; o mobile
transactions via synchronization, push and real-time technologies; o mobile
device management; o mobile applications; o secure information transfer; o thick
and thin-client support for mobile devices; and o short-range wireless
technologies. During fiscal 2003, 2002 and 2001, research and development
expenses from continuing operations were $7.2 million, $10.0 million and $12.4
million, respectively, representing 26%, 45% and 46%, respectively, of our net
revenue from continuing operations. In connection with our acquisition of
ViaFone in August 2002, we incurred an in-process research and development
charge of $430,000 in fiscal 2003. We anticipate that we will continue to commit
substantial resources to research and development in the future. We will
continue to add specific development expertise, as needed, through our
recruiting and hiring efforts, as well as through continued acquisitions of
engineering-oriented technology companies.

MARKETING AND SALES
-------------------

As of June 30, 2003, we had an in-house marketing and sales staff of 80
full-time equivalent employees, who are largely responsible for generating
end-user demand for our products by soliciting prospective customers, providing
technical advice with respect to our products and working with distributors and
original equipment manufacturers to sell our products. We conduct our marketing
and sales activities primarily from our offices in Boise, Idaho and our
international offices in Canada, France, Germany, the Netherlands, and the
United Kingdom. In addition, we supplement our direct marketing and sales
organization with our indirect channel. We have distributor relationships in
Asia, Europe and South America.

SERVICE AND SUPPORT
-------------------

As of June 30, 2003, we had 20 full-time equivalent personnel in our
professional services group located primarily in Toronto, Canada; Bristol,
England and Boise, Idaho. Our professional services personnel are committed to
providing customers with the solutions and skills necessary to develop a
thorough, proven mobile strategy within their organization and they are able to
assist customers in all stages of the mobile application development life cycle,
from initial analysis through delivery. We provide business analysis, strategy
planning, design and development, testing, solutions deployment, and maintenance
and on-going management services.

At June 30, 2003 we had 31 full-time equivalent support personnel primarily at
our offices in Boise, Idaho; Bristol, England; and Herrenberg, Germany. We
believe that service and support are critical components of customer
satisfaction and the success of our business. Our commitment to service and
support enables us to interact regularly with our customers' network
administrators and to identify and respond to their needs on an ongoing basis.
We offer a wide range of customer support services under our ExtendAssist
Program. This program includes a technical support hotline to provide a range of
telephone support to our customers through a toll-free number. In addition, we
maintain a technical support group comprised of engineers and technicians,
24-hour automated support, and an on-line bulletin board, which contains
in-depth technical information. Through ExtendAssist, our engineering staff
provides technical support through e-mail. We also provide on-line services to
distribute technical advice and software updates. In addition to our internal
support, our independent distributors provide some service and support to
customers.

COMPETITION
-----------

The markets for our products are rapidly evolving and intensely competitive.
Further, the markets for our mobile data management and wireless connectivity
product solutions are relatively new and characterized by frequent product
introductions, changing protocols and rapidly developing technology. As mobile
devices continue to grow in power and usage and become a major component of
enterprise information management, we expect new competitors to enter these
markets and existing competitors to expend increasing resources to develop
mobile data management and universal wireless product solutions. As a result, we
expect competition in these markets to intensify.

                                       11
<PAGE>
MOBILE DATA MANAGEMENT SOLUTIONS
--------------------------------

MOBILE GROUPWARE SOLUTIONS

Our mobile groupware solutions compete primarily with products offered by Aether
Systems, iAnywhere (a division of Sybase), IBM, Infowave, JP Mobile, Pumatech,
RIM, and Synchrologic. We believe that the primary competitive factors for these
products are:

o    the ability to support a broad range of mobile device platforms and
     multiple modes of synchronization such as push and browse;
o    support for both Exchange and Domino; and
o    speed and security of synchronization.

MOBILE SOLUTIONS PLATFORMS AND TOOLS

Our mobile solutions platforms and tools compete primarily with products offered
by Everypath, iAnyware, Microsoft and Oracle. We believe that the primary
competitive factors for these products are:

o    the ability to support a broad range of mobile device platforms and
     multiple modes of synchronization such as push and browse;
o    our ability to combine both groupware, device management, security and
     mobile applications in a single platform;
o    our ability to quickly and easily extend enterprise platforms, such as SAP,
     Siebel, Oracle and DB2data, and applications to mobile devices; and
o    our experience in the vertical market segment.

MOBILE BUSINESS SOLUTIONS

Our mobile business solutions compete primarily with products offered by Aether
Systems, Dexterra, Telispark and other development companies. We believe that
our primary competitive factors for these products are:

o    the ability to support a broad range of mobile device platforms and
     multiple modes of synchronization such as push and browse;
o    our ability to combine both groupware, device management, security and
     mobile applications in a single platform;
o    our ability to quickly and easily extend enterprise platforms, such as SAP,
     Siebel, Oracle and DB2data, and applications to mobile devices; and
o    our experience in the vertical market segment.

ADVANTAGE

Our client/server database products compete primarily with products offered by
Microsoft, through its SQL Server product, Interbase, Pervasive Software and
Oracle, through its Oracle Lite server product. We believe that the primary
competitive factors for these products are:

o    ease of integration into developers' applications;
o    ease of use without a database administrator;
o    speed;
o    reliability; and
o    scalability, or the ability to increase the number of client users.

WIRELESS CONNECTIVITY PRODUCT SOLUTIONS
---------------------------------------

Our wireless connectivity product solutions compete primarily with in-house
development and products offered by IVT Corporation, Open Interface and Widcomm.
We believe that the primary competitive factors for these products are:

o    the ability to support a broad range of user profiles and mobile device
     platforms;
o    interoperability between mobile devices;
o    easy porting to any device platform; and
o    on going support for the latest industry specifications.

                                       12
<PAGE>
INTELLECTUAL PROPERTY
---------------------

Our success depends significantly on our proprietary technology and other
intellectual property. To protect our proprietary rights, we rely generally on
patent, copyright, trademark and trade secret laws, confidentiality agreements
with many of our employees and consultants and licensing agreements. Despite
these protections, third parties might obtain and use our technologies without
authorization or develop similar technologies independently. The steps we have
taken may not prevent misappropriation of our intellectual property,
particularly in countries other than the United States where laws or law
enforcement practices may not protect our proprietary rights as fully as in the
United States.

We have entered into source code and design document escrow agreements with a
limited number of our customers requiring release of design details in some
circumstances. These agreements generally provide that these parties will have a
limited, non-exclusive right to use the code in the event that there is a
bankruptcy proceeding by or against us, if we cease to do business or if we fail
to meet our support obligations. We also provide our source code to foreign
language translation service providers and consultants to use in limited
circumstances.

We own 26 registered trademarks. We cannot assure you that any of our current or
future trademark applications will be approved. Even if these applications are
approved, any trademarks may be successfully challenged by others or
invalidated. There may be third parties using names similar to ours of which we
are unaware. If our trademark applications are not approved or if our trademarks
are invalidated because of prior third-party registrations, our use of these
marks could be restricted unless we enter into arrangements with these third
parties, which might not be available on commercially reasonable terms, if at
all.

We have been issued 14 patents, of which one expires in 2007 and 13 expire in
2010 and beyond. We also have 16 patents pending. We cannot assure you that any
of our current or future patent applications will be granted. Any of our patents
may be challenged, invalidated or circumvented and the rights granted under any
of our patents may not provide competitive advantages to us. If a blocking
patent is issued in the future to a third party, and we are not able to
distinguish our technologies, processes or methods from those covered under the
patent, we may need to either obtain a license or develop noninfringing
technologies, processes or methods with respect to that patent. We may not be
able to obtain a license on commercially reasonable terms, if at all, or design
around the patent, which could impair our ability to sell our products. Any
proprietary rights with respect to our technologies may not be viable or of
value in the future since the validity, enforceability and scope of protection
of proprietary rights in Internet-related industries are uncertain and still
evolving.

Other persons may claim that our technologies, processes or methods infringe
their patents. These claims may cause us to incur significant expenses and, if
successfully asserted against us, may cause us to pay substantial damages and
prevent us from selling some of our products, which would substantially harm our
business.

EMPLOYEES
---------

As of June 30, 2003 we had 221 employees and 216 full-time equivalent employees.
None of our employees is represented by a labor union or is subject to a
collective bargaining agreement with respect to his or her employment with us.
We believe that our relations with our employees are good.

EXECUTIVE OFFICERS
------------------
Our executive officers as of August 31, 2003 are as follows:

NAME                      AGE    POSITION
----                      ---    --------
Charles  W. Jepson......   57    Chief Executive Officer and President
Karla K. Rosa...........   40    Vice President of Finance, Chief Financial
                                 Officer and Corporate Secretary
Kerrin Pease............   52    Vice President of Research and Development
Nigel S. Doust..........   47    Vice President of Europe, Middle East and
                                 Africa (EMEA)
Mark A. Willnerd........   38    Vice President of Business Development


CHARLES W. JEPSON was named as our Chief Executive Officer and President in
August 2003. From February 2003 to August 2003, Mr. Jepson served as Vice
President of Sales and Marketing. He served as a member of our board of
directors from September 2001 to July 2003. Prior to joining us, Mr. Jepson was
the Chairman, President and CEO of Diligent Software Systems, a provider of
e-procurement software. From June 2000 to July 2001, he was the Senior

                                       13
<PAGE>
Vice President of North American Field Operations at eGain Communications, a
provider of customer service software. From March 1998 to June 2000, Mr. Jepson
was the President and Chief Executive Officer of Inference Corporation, which
was acquired by eGain in June 2000. From June 1997 to March 1998, Mr. Jepson was
an independent consultant to small technology companies. From March 1992 to May
1997, he was the President and Chief Executive Officer of Interlink Computer
Sciences.

KARLA K. ROSA has served as Vice President of Finance since December 1997 and as
Chief Financial Officer since April 1996. She was appointed to serve as our
Corporate Secretary in April 2003. From January 1996 to April 1996, Ms. Rosa was
Assistant Controller, from April 1992 to January 1996, Ms. Rosa was Treasury
Manager and from December 1991 to April 1996, Ms. Rosa was Tax Director. Prior
to joining us, Ms. Rosa was a manager in the Los Angeles and Boise offices of
Arthur Andersen & Co. Ms. Rosa is a Certified Public Accountant. Shereceived her
B.S. in accounting from Utah State University.

KERRIN PEASE has served as Vice President of Worldwide Research and Development
since November 2001. From 1999 to 2001, Mr. Pease served as Vice President,
Consulting and Development Americas, for GEAC Computer Corporation Limited, a
global provider of enterprise requirements planning (ERP) software and services.
From 1997 to 1999, Mr. Pease was Vice President, Consulting for Johnson Brown
Associates (JBA) International, a global provider of ERP software services,
where he managed large computer software research and development teams located
in the United States, United Kingdom, Ireland, Canada and Sri Lanka. Mr. Pease
held various other positions with JBA from 1987 to 1997, including Product
Development Director, Operations Director UK/Europe and Regional Business
Manager. From 1980 to 1987, Mr. Pease served as Operations Manager for
Information Processing Services, a company that developed ERP products. Mr.
Pease holds a bachelor's degree in Computer Science from Trinity College and
University.

NIGEL S. DOUST has served as Vice President of EMEA since April 2003. Prior to
joining the company, Mr. Doust served as Vice President, International for
Diligent Software Systems, an enterprise software company specializing in
providing solutions to enhance and accelerate a company's strategic sourcing
process. From 1999 to2001, Mr. Doust served in the VP EMEA role for eGain
Communications, a world-leader in web-based enterprise software solutions,
following a time as Customer Service Director from 1998 to1999. His management
experience includes roles as Divisional Manager, Business Group Manager, and
Technical Manager during his tenure with Tangent International, a System
Integrator with vertical markets in the technology and TelCo sectors. Mr.
Doust's background also encompasses 14 years of consulting engagements and
programming positions, including stints with Shell Chemicals and AGS Computers
Inc.

MARK A. WILLNERD was appointed our Vice President of Business Development in
September 2002. Prior to his appointment, he held the position of Business
Development Director from June 2001 to August 2002. From August 1998 to May 2001
he was Alliance and Product Manager for our MIM products and from April 1995 to
August 1998 he was Future Product Manager for our mobile connectivity products.
Since joining us in July 1989, Mr. Willnerd has also held various other
marketing positions. He earned a B.S. in Electrical Engineering from the
University of Wyoming.

SIGNIFICANT EVENTS
------------------

On September 3, 2003, we entered into a definitive agreement with Hopkins
Financial Services for the sale-and-leaseback of our headquarters building and
land in Boise, Idaho. We closed the transaction on September 26, 2003. The sale
price of the building and land was $4.8 million. We received approximately $4.6
million in net cash proceeds after deducting fees related to the transaction and
entered into a 10-year master lease for the building with annual lease payments
equal to 9.2% of the sale price. We are also obligated to pay all expenses
associated with the building during our lease, including the costs of property
taxes, insurance, operating expenses and repairs. We have a 10-year option to
repurchase the building at a price of $5.1 million. Pursuant to Statement of
Financial Accounting Standards ("SFAS") No. 98, "Accounting for Leases," the
sale-and-leaseback will be recorded as a financing transaction and will be
reflected as long-term debt on our balance sheet for our quarter ending
September 30, 2003.

On September 2, 2003, we entered into a definitive agreement with Brighton
Investments, LLC for the sale of approximately 16 acres of excess land adjacent
to our headquarters building in Boise, Idaho. Upon closing, we expect to receive
approximately $1.5 million in net cash proceeds after deducting fees related to
the transaction. We expect to report a gain of approximately $1.0 million on the
sale. We expect the transaction to close in the second quarter of fiscal 2004
subject to the satisfaction of customary closing conditions.

On August 19, 2003, Steven Simpson, our former President and Chief Executive
Officer, resigned from the company. In addition, we expect to complete a
workforce reduction of approximately 10 employees in the first quarter of fiscal
2004. As a result, we expect to record a restructuring charge of approximately
$1.2 million in the first quarter of fiscal

                                       14
<PAGE>
2004, consisting primarily of severance costs related to the resignation and
workforce reduction. The restructuring charge reflects approximately $450,000 in
non-cash compensation resulting from accelerated vesting of employee stock
options. Of the remaining $750,000, $300,000 is expected to be paid prior to the
end of September and $450,000,including $350,000 of severance payable to Mr.
Simpson, will be paid over the next 14 months. The company expects an operating
expense decrease of approximately $300,000 per quarter as a result of the
restructuring that will be completed in the first quarter of fiscal 2004.

In the first quarter of fiscal 2003, we adopted a formal plan to exit our
infrared hardware business as a result of an expected decline in sales of these
products and our desire to increase our focus on our core software businesses.
Throughout the year we continued to see revenue from this business as customers
placed final orders. As of June 30, 2003, the business had been successfully
wound-down, we have stopped accepting new orders and we are shipping final
orders.

ITEM 2. PROPERTIES

We lease our corporate headquarters in Boise, Idaho, which consists of
approximately 100,000 square feet of space located on approximately eight acres
of land. We use our headquarters facility for research and development,
marketing and sales, customer support, professional services and administration.
We also lease sales, support, professional services and development offices
throughout the United States, Canada and Europe. These leases expire at varying
dates through 2013 and some include renewals at our option. We currently have
approximately 52,000 square feet of unused space at our headquarters facility,
which we sublease to third parties or have available for lease. We believe that
our existing facilities are adequate to meet our current requirements and that
suitable additional or substitute space will be available as needed to
accommodate expansion of our operations.

We entered into a definitive agreement for the sale-and-leaseback of our
headquarters facility on September 3, 2003 which closed on September 26, 2003.
We also entered into a definitive agreement for the sale of approximately 16
acres of excess land adjacent to our headquarters building on September 2, 2003.
For additional information on these agreements, please refer to the "Significant
Events" heading under Item 1 of this Form 10-K.

ITEM 3. LEGAL PROCEEDINGS

On April 22, 2002, Pumatech, Inc. filed a patent infringement action against us
in the U.S. District Court in Northern California. An amended complaint was
filed on May 28, 2002. The action alleges that our XTNDConnect server and
desktop synchronization products infringe on seven of Pumatech's
synchronization-related patents, that our alleged use of the trademark
"Satellite Forms" constitutes trademark infringement, and that other alleged
actions constitute unfair competition and interference with contract. The action
seeks an injunction against further sales of our server and desktop
synchronization products and use of the allegedly infringing trademark, as well
as unspecified damages and attorneys' fees. On June 25, 2002, we filed an answer
and counterclaim in response to Pumatech's complaint in which we deny Pumatech's
charges, raise a number of affirmative defenses and request a declaration from
the court that Pumatech synchronization software patents are invalid and not
infringed by our products. On December 11, 2002, Pumatech filed a second amended
complaint, which adds allegations that unspecified synchronization products
infringe an eighth Pumatech patent. On December 31, 2002, we filed an amended
answer and counterclaim in which we deny all of Pumatech's charges, including
this additional charge, and amend our defenses and counterclaims to include this
additional patent. On August 1, 2003 the Honorable Judge D. Lowell Jensen,
United States District Judge, issued his Claims Construction Ruling on the
interpretation, definition, and scope of the claims in the suit. We believe that
the Court's ruling has significantly narrowed claims in five of the Pumatech
patents. The Court also ruled that it could not correct an error that appears in
all asserted claims of Pumatech's '676 patent. This error must be corrected in
reissue proceedings in the Patent Office. Until the Patent Office issues
corrected claims, no synchronization software can infringe the '676 patent, and
it is unlikely that such a correction would have any retroactive effect. As a
result, if any of our products are ultimately held to be infringing this patent,
it is unlikely that Pumatech would be entitled to damages for any period prior
to the reissue date. We have petitioned the U.S. Patent Office for reexamination
of three of the Pumatech patents. The Patent Office has issued an Office Action
for each of the three patents rejecting all Pumatech patent claims over the
prior art for two of the patents and rejecting all claims on which we requested
reexamination for the other patent. As a result of the reexamination process, we
expect the patents to be significantly narrowed or rejected by the Patent Office
in their entirety. If the patents are amended and reissued, and we are
ultimately held to be infringing one of the reissued patents, it is unlikely
that Pumatech would be entitled to damages for any period preceding the reissue
date. Discovery and other pretrial proceedings are on going; trial is currently
scheduled for April 2004.

We believe that we have numerous meritorious defenses to Pumatech's claims and
we intend to continue to defend the suit vigorously. However, litigation is
inherently uncertain, and we may not prevail in our defenses or

                                       15
<PAGE>
counterclaims. If Pumatech prevails in one or more of its claims, we could be
required to pay substantial damages for past sales of infringing products, to
cease selling specific of our server or desktop synchronization products that
are held to infringe a Pumatech patent, to pay royalties on the sales of
specific products that are held to infringe a Pumatech patent, or some
combination of these results. We may also incur significant development costs to
redesign certain of our products to ensure that they are non-infringing. Any of
such outcomes could have a material adverse effect on our business and financial
position. In addition, litigation is frequently expensive and time-consuming,
and management may be required to spend significant time in the defense of the
suit; such costs and the diversion of management time could have a material
adverse effect on our business. The ultimate outcome of any litigation is
uncertain and the range of loss that could occur upon resolution of this matter
is not estimable. We cannot estimate the costs of any potential settlement. Were
an unfavorable outcome to occur, the impact could be material to our financial
position, results of operations, or cash flows.

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

None.


                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock is traded on the Nasdaq National Market under the symbol
"XTND". The following table sets forth the high and low sales prices of our
common stock, based on the last daily sale, in each of our last eight fiscal
quarters:

                                                            HIGH         LOW
                                                          ----------------------
FISCAL YEAR 2003
      Fourth Quarter, ended June 30, 2003.............    $    4.85   $    1.61
      Third Quarter, ended March 31, 2003.............         2.00        1.30
      Second Quarter, ended December 31, 2002.........         2.48        1.40
      First Quarter, ended September 30, 2002.........         3.30        1.40
FISCAL YEAR 2002
      Fourth Quarter, ended June 30, 2002.............    $    5.75   $    2.50
      Third Quarter, ended March 31, 2002.............         8.00        5.05
      Second Quarter, ended December 31, 2001.........         8.48        2.20
      First Quarter, ended September 30, 2001.........         8.05        2.34

On September 19, 2003, the last reported per share sale price of our common
stock on the Nasdaq National Market was $4.68 per share. The market for our
common stock is highly volatile. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Factors That May Affect Future
Results and Market Price of Stock."

According to our transfer agent's records, we had 312 stockholders of record as
of September 19, 2003. Because many of our shares of common stock are held by
brokers and other institutions on behalf of stockholders, we are unable to
estimate the total number of stockholders represented by these stockholders of
record.

We have not declared or paid any dividends on our common stock since September
1994. We currently anticipate that we will retain all future earnings for use in
the operation and expansion of our business and do not anticipate paying any
dividends in the foreseeable future.

The information required by this item regarding equity compensation plans is
incorporated by reference to the information set forth in Item 12 of this annual
report on Form 10-K.

                                       16
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA

You should read the following consolidated selected financial data in
conjunction with our Consolidated Financial Statements and related Notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Annual Report on Form 10-K. Amounts are
in thousands, except per share amounts. As a result of discontinuing our
infrared hardware business in the first quarter of fiscal 2003, selling our
Singapore subsidiary in fiscal 2002 and selling certain assets and liabilities
of our printing solutions segment in fiscal 2001, we accounted for the results
of these operations as discontinued operations in accordance with Accounting
Principles Bulletin No. 30 and Statement of Financial Accounting Standards No.
144. Amounts for all periods in this Annual Report on Form 10-K, including the
financial statements and related notes, have been reclassified to reflect the
discontinued operations.
<TABLE><CAPTION>
FOR THE YEARS ENDED JUNE 30,                                     2003         2002         2001         2000         1999
                                                              --------------------------------------------------------------
<S>                                                           <C>          <C>          <C>          <C>          <C>
Net revenue................................................   $  27,534    $  22,275    $  26,910    $  21,551    $  14,196
Gross profit...............................................      23,203       19,722       19,634       14,398        6,949
Research and development...................................       7,173       10,030       12,446        6,979        4,118
Acquired in-process research and development...............         430            -            -        2,352          166
Marketing and sales........................................      14,482       13,489       17,542       10,818        8,594
General and administrative.................................       4,889        4,381        7,169        4,219        3,544
Amortization of goodwill...................................           -          925          925          857           48
Restructuring charge.......................................         597          213        1,066            -            -
Loss from operations.......................................      (4,368)      (9,316)     (19,514)     (10,827)      (9,522)
Income tax provision (benefit).............................        (200)      (2,257)       7,228       (3,436)      (3,668)
Loss from continuing operations............................      (4,218)      (7,133)     (26,284)      (7,739)      (6,147)
Income (loss) from discontinued operations and gain (loss)
   from sale of discontinued operations, (net).............         458          (57)       2,810        2,754        4,685
Net income (loss)..........................................      (3,760)      (7,190)     (23,474)      (4,985)      (1,462)
Loss per share from continuing operations:
      Basic and diluted....................................       (0.31)       (0.64)       (2.48)       (0.81)       (0.73)
Earnings (loss) per share from discontinued
   operations:
      Basic and diluted....................................        0.03        (0.01)        0.26         0.29         0.56
Earnings (loss) per share:
      Basic and diluted....................................       (0.28)       (0.65)       (2.22)       (0.52)       (0.17)


AS OF JUNE 30,                                                   2003         2002         2001         2000          1999
                                                              --------------------------------------------------------------
Cash and cash equivalents..................................   $   3,502    $   5,439    $   6,585    $   6,191    $   9,668
Total assets...............................................      29,091       20,371       28,143       44,221       40,799
Long-term debt and other long-term liabilities.............         494            -            -            -           67
Total stockholders' equity.................................      19,256       13,088       18,938       37,715       26,595
</TABLE>


For fiscal 2002, our income tax benefit from continuing operations of $2.3
million was partially offset by an income tax expense of $301,000 from
discontinued operations. This net benefit of $1.8 million was primarily the
result of a $1.6 million tax refund we received due to a net operating loss
carryback resulting from a temporary increase in the carryback period as part of
the Job Creation and Worker Assistance Act of 2002. The balance of the benefit

                                       17
<PAGE>

relates primarily to a reserve that was reversed when we sold our Singapore
subsidiary. Our income tax provision and loss from continuing operations for
fiscal 2001 includes a $14.0 million valuation allowance recorded against our
deferred tax assets. Our loss from continuing operations in fiscal 2001 also
includes $1.4 million in charges associated with the terminated merger with
Palm, Inc. included in general and administrative expenses. Our loss from
continuing operations for fiscal 1999 includes charges of $2.4 million related
to our exit from our port replicator business.
























                                       18
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

This discussion and other parts of this Annual Report on Form 10-K
contain forward-looking statements that involve risks, uncertainties and
assumptions. These forward-looking statements include, but are not limited to,
statements regarding:

o    closing the transaction for the sale of our excess land;
o    expected restructuring charges and related cash payments;
o    levels of software product license fees and royalties;
o    future profitability;
o    levels of international sales;
o    future operating cash flows;
o    levels of service revenue;
o    levels of hardware and other revenue;
o    future costs of license fees and royalties, services and hardware and other
     revenue;
o    levels of original equipment manufacturer sales;
o    claims made by Pumatech, Inc. and expected expenses associated with the
     litigation;
o    anticipated cost of revenue and gross margin;
o    staffing and expense levels;
o    levels of foreign currency exchange gain or loss;
o    levels of interest income;
o    future income from discontinued operations;
o    levels of accounts receivable;
o    levels of capital expenditures;
o    anticipated cash funding needs; and
o    future acquisitions.

We assume no obligation to update any forward-looking statements and our actual
results may differ materially from the results discussed in such forward-looking
statements. Factors that may cause a difference include, but are not limited to,
those discussed under "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Factors That May Affect Future Results and
Market Price of Stock" and elsewhere in this Annual Report on Form 10-K. You
should also carefully review the risk factors described in other documents that
we file from time to time with the Securities and Exchange Commission, including
our Quarterly Reports on Form 10-Q that we will file in fiscal 2004. All yearly
references are to our fiscal years ended June 30, 2004, 2003, 2002 and 2001,
unless otherwise indicated. All tabular amounts are in thousands, except
percentages.

SIGNIFICANT EVENTS
------------------

On September 3, 2003, we entered into a definitive agreement with Hopkins
Financial Services for the sale-and-leaseback of our headquarters building and
land in Boise, Idaho. We closed the transaction on September 26, 2003. The sale
price of the building and land was $4.8 million. We received approximately $4.6
million in net cash proceeds after deducting fees related to the transaction and
will entered into a 10-year master lease for the building with annual lease
payments equal to 9.2% of the sale price. We are also obligated to pay all
expenses associated with the building during our lease, including the costs of
property taxes, insurance, operating expenses and repairs. We have a 10-year
option to repurchase the building at a price of $5.1 million. Pursuant to
Statement of Financial Accounting Standards ("SFAS") No. 98, "Accounting for
Leases," the sale-and-leaseback will be recorded as a financing transaction and
will be reflected as long-term debt on our balance sheet for our quarter ending
September 30, 2003.

On September 2, 2003, we entered into a definitive agreement with Brighton
Investments, LLC for the sale of approximately 16 acres of excess land adjacent
to our headquarters building in Boise, Idaho. Upon closing, we expect to receive
approximately $1.5 million in net cash proceeds after deducting fees related to
the transaction. We expect to report a gain of approximately $1.0 million on the
sale. We expect the transaction to close in the second quarter of fiscal 2004
subject to the satisfaction of customary closing conditions.

On August 19, 2003, Steven Simpson, our former President and Chief Executive
Officer, resigned from the company. In addition, we expect to complete a
workforce reduction of approximately 10 employees in the first quarter of fiscal
2004. As a result, we expect to record a restructuring charge of approximately
$1.2 million in the first quarter of fiscal 2004, consisting primarily of
severance costs related to the resignation and workforce reduction. The
restructuring charge reflects approximately $450,000 in non-cash compensation
resulting from accelerated vesting of employee

                                       19
<PAGE>
stock options. Of the remaining $750,000, $300,000 is expected to be paid prior
to the end of September and $450,000, including $350,000 of severance payable to
Mr. Simpson, will be paid over the next 14 months. The company expects an
operating expense decrease of approximately $300,000 per quarter as a result of
the restructuring that will be completed in the first quarter of fiscal 2004.

In the first quarter of fiscal 2003, we adopted a formal plan to exit our
infrared hardware business as a result of an expected decline in sales of these
products and our desire to increase our focus on our core software businesses.
Throughout the year we continued to see revenue from this business as customers
placed final orders. As of June 30, 2003, the business had been successfully
wound-down. We have stopped accepting new orders and we are shipping final
orders.

OVERVIEW
--------

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

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

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

Our future results of operations will be highly dependent upon the success of
our software products and services, specifically our Mobile Groupware Solutions,
our Mobile Solutions Platforms and Tools, our Mobile Business Solutions, and our
Wireless Connectivity Software. We expect the license fees and royalties
generated by these products to continue to constitute a significant majority of
our revenue.

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


NET REVENUE PERCENTAGES BY REGION                          2003    2002    2001
                                                          ----------------------
Domestic...............................................     50%     49%     42%
International:
   Europe..............................................     42      39      45
   Asia................................................      5       9      11
   Other regions.......................................      3       3       2
                                                          ----------------------
      Total international..............................     50      51      58
                                                          ----------------------
           Net revenue from continuing operations......    100%    100%    100%
                                                          ======================

The percentage of revenue from Europe as compared to other international revenue
increased in fiscal 2003 from fiscal 2002 as a result of an increase in
royalties from a European OEM customer and an increase in revenues caused by the
decrease in the strength of the US dollar as compared to the euro and British
pound sterling, which resulted in sales by our European subsidiaries being
greater in U.S. dollars than they would have been had the exchange rate remained
constant in fiscal 2003. The increase in domestic revenue as a percentage of our
total revenue from fiscal 2001 to 2002 is primarily due to a decrease in sales
of our Internet products in Europe and a decrease in sales of our XTND Access
hardware products to OEM customers located in Asia. We also saw an increase in
domestic sales of our Advantage Database Server products in fiscal 2002 in both
absolute dollars and as a percentage of our total Advantage Database Server
revenue.

We expect that international sales will continue to represent a substantial
portion of our net revenue in the foreseeable future and will comprise between
45% and 55% of our net revenue throughout fiscal 2004.

                                       20
<PAGE>
Revenue generated from sales to original equipment manufacturers and to
companies that license our software to include in their own software offering
has fluctuated in the past. We expect it will also fluctuate in future quarters,
because demand in these markets is difficult to predict, as it is dependent upon
the timing of customer projects and the effectiveness of their marketing
efforts.

We sell our products directly to end-user customers and also market and sell
many of our products through multiple indirect channels, primarily distributors
and resellers. No customers accounted for greater than 10% of revenue from
continuing operations in fiscal 2003, 2002 or 2001.

CRITICAL ACCOUNTING POLICIES
----------------------------

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

REVENUE RECOGNITION

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

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

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

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

When we license our software to original equipment manufacturers or to companies
that include our software in their software offering, royalty revenue is
generally recognized when customers report to us the sale of software to their
end user customer. In cases where the arrangement with our customer provides for
a prepaid nonrefundable royalty,

                                       21
<PAGE>
we generally recognize revenue when persuasive evidence of an arrangement exits,
delivery has occurred, the fee is fixed or determinable and collection of the
resulting receivable is reasonably assured.

We recognize revenue for support and maintenance services ratably over the
contract term, which is usually 12 months, and we generally recognize revenue
from training services as these services are performed. For professional
services that involve significant implementation, customization, or modification
of our software that is essential to the functionality of the software, we
generally recognize both the service and related software license revenue over
the period of the engagement, using the percentage-of-completion method. In
cases where our professional services involve customizations for which the
amount of customization effort cannot be reasonably estimated, where significant
uncertainty about the project completion exists, or where an arrangement
provides for customer acceptance, we defer the contract revenue under the
completed contract method of accounting until the uncertainty is sufficiently
resolved or the contract is complete. If we were to make different judgments or
utilize different estimates of the total amount of work we expect to be required
to complete an engagement, the timing of our revenue recognition from period to
period, as well as the related margins, might differ materially from that
previously reported.

VALUATION OF LONG-LIVED AND INTANGIBLE ASSETS

We assess the impairment of identifiable intangibles, fixed assets and goodwill
whenever events or changes in circumstances indicate that the carrying value may
not be recoverable. Goodwill is reviewed for impairment annually in accordance
with SFAS No. 142, " Goodwill and Other Intangible Assets." Factors we consider
important that could trigger an impairment review include, but are not limited
to: (1) significant under performance relative to historical or projected future
operating results, (2) significant changes in the manner of our use of the
acquired assets or the strategy for our overall business, (3) significant
negative industry or economic trends, (4) a significant decline in our stock
price for a sustained period, and (5) our market capitalization relative to net
book value. When we determine that the carrying value of long-lived assets may
not be recoverable based upon the existence of one or more of the above
indicators of impairment, we measure any impairment based on a market
capitalization approach when the information is readily available. When the
information is not readily available, we use a projected discounted cash flow
method using a discount rate commensurate with the risk inherent in our current
business model to measure any impairment. If we made different judgments or
utilized different estimates our measurement of any impairment may have differed
materially from that reported.

INCOME TAXES

On a quarterly basis we evaluate our deferred tax asset balance for
realizability. To the extent we believe it is more likely than not that some or
all of our deferred tax assets will not be realized, we establish a valuation
allowance against the deferred tax assets. As of June 30, 2003, we had recorded
a valuation allowance against 100 percent of our net deferred tax assets due to
uncertainties related to our ability to utilize our deferred tax assets,
primarily consisting of certain net operating losses carried forward and foreign
tax credits, before they expire. This valuation allowance was recorded based on
our estimates of future U.S. and foreign jurisdiction taxable income and our
judgments regarding the periods over which our deferred tax assets will be
recoverable. If we made different judgments or utilized different estimates, the
amount or timing of the valuation allowance recorded may have differed
materially from that reported. In the event that actual results differ from
these estimates or we adjust these estimates in future periods, we may need to
reduce the valuation allowance, potentially resulting in an income tax benefit
in the period of reduction, which could materially impact our financial position
and results of operations.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

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

                                       22
<PAGE>

RESULTS OF CONTINUING OPERATIONS

The following section sets forth our results of continuing operations for the
fiscal years ended June 30, 2003, 2002, and 2001:

Net Revenue
-----------
                                            FISCAL YEAR ENDED JUNE 30,
                                  ----------------------------------------------
                                     2003   %CHANGE     2002   %CHANGE     2001
                                  ----------------------------------------------
Revenue:
   License fees and royalties...  $ 21,733    13%    $ 19,176    (4)%   $ 19,928
   Services.....................     5,743    88        3,058    12        2,721
   Hardware and other...........        58    41           41   (99)       4,261
                                  --------           --------           --------
      Total net revenue.........  $ 27,534    24%    $ 22,275   (17)%   $ 26,910
                                  --------           --------           --------

LICENSE FEES AND ROYALTIES. License and royalty revenue consists of fees for
licenses of our software products. The growth in revenue in fiscal 2003 compared
to fiscal 2002 was primarily attributable to an increase of 19% in license and
royalty revenue from our Mobile Groupware, Mobile Solutions Platforms and Tools
and Mobile Business Solutions Products. License fees and royalties net revenue
was also positively impacted by the decrease in the strength of the U.S. dollar
relative to the euro and the British pound sterling, which resulted in sales by
our European subsidiaries being greater in U.S. dollars than they would have
been had the exchange rate remained constant in 2003. Included in this increase
was an increase of $700,000 due to adding the OneBridge Presentation Server and
Mobile Business Solutions products to our product mix with the acquisition of
ViaFone. We also saw a 10% increase in sales of Advantage software licenses. The
decrease in license fees and royalties in fiscal 2002 compared to fiscal 2001
was due primarily to a 53% decrease in license fees and royalties from our
Wireless Connectivity Software products due to the timing of original equipment
manufacturer's development. This decrease was partially offset by a 43% increase
in revenue from our Mobile Groupware Solutions Products products caused by an
increase in licenses sold.

We expect revenue from license fees and royalties to increase in fiscal 2004.
This increase is expected to come primarily from increased licensing of our
OneBridge products, including our Groupware, Mobile Solutions Platform and
Mobile Business Solutions products.

SERVICES. Services revenue consists primarily of support and maintenance
contracts sold to our customers and fees for professional services. Our
professional services typically consist of standard product installations,
training, significant customization of our software products and non-recurring
engineering ("NRE"). The primary driver of the increase in service revenue for
fiscal 2003 as compared to fiscal 2002 was the 807% increase in professional
services we saw as a result of adding a dedicated professional services group to
our solutions kit in the first quarter of fiscal 2003 in connection with the
ViaFone acquisition. The majority of our professional services for fiscal 2003
related to implementations of our Mobile Solutions Platforms and Tools and
Mobile Business Solutions products. Our service revenue increased in fiscal 2002
from fiscal 2001 primarily due to an increase in support and maintenance revenue
generated from contracts on new licenses sold and contract renewals. The
increase was partially offset by a decrease in revenue from non-recurring
engineering and other consulting projects, which fluctuates as a result of the
timing of customer projects.

We expect service revenue to increase in fiscal 2004. Although we expect an
overall increase in the amount of billable hours of our professional services
group, service revenue may fluctuate from quarter to quarter based on the amount
of revenue we may be required to defer under our revenue recognition policy and
the timing of services engagements.

HARDWARE AND OTHER. Hardware and other revenue consists primarily of sales of
our enterprise Internet products which we stopped marketing in April 2001. The
increase in revenue in fiscal 2003 from fiscal 2002 was related to an increase
in units sold. The significant decrease in revenue in fiscal 2002 as compared to
fiscal 2001 was due primarily to a decrease in unit sales of our enterprise
Internet hardware products after April 2001.

We expect hardware and other revenue to remain relatively flat and insignificant
in amount in fiscal 2004.

                                       23
<PAGE>
Cost of Revenue
---------------                              FISCAL YEAR ENDED JUNE 30,
                                 -----------------------------------------------
                                          GROSS           GROSS           GROSS
                                   2003   MARGIN   2002   MARGIN   2001   MARGIN
                                 -----------------------------------------------

  License fees and royalties...  $ 1,146    95%  $ 1,346    93%  $ 1,765    91%
  Services.....................    3,209    44%    1,198    61%    1,742    36%
  Hardware and other...........      (24)  100%        9    78%    3,769    12%

LICENSE FEES AND ROYALTIES. The cost of license and royalty revenue consists
primarily of amortization of purchased technology and royalties for the use of
third-party software. The cost of license fees and royalties decreased 15% in
fiscal 2003 compared to fiscal 2002 primarily due to a decrease in
operations-related facilities and overhead costs, including reductions in
headcount resulting from our restructurings. In fiscal 2002, the cost of license
and royalty revenue decreased 24% compared to fiscal 2001, primarily
attributable to a decrease in operations-related costs related to headcount
reductions and other cost reductions resulting from the sale of our print server
business.

We expect the cost of license fees and royalties to increase in fiscal 2004 as a
result of an expected increase in revenue from license fees and royalties. An
expected reduction in operations costs and in amortization expense of purchased
technology, resulting from a portion of our purchased technology becoming fully
amortized in the first quarter of fiscal 2004, is expected to be offset by an
increase in royalty costs as a result of an expected increase in revenue.

Gross margin on license fees and royalties revenue increased in fiscal 2003 and
in fiscal 2002 as a result of the cost reductions described above. We expect
gross margin on license fees and royalties to be in a range of 93 to 96 percent
in fiscal 2004.

SERVICES. The cost of services consists primarily of compensation and benefits
for our professional services and post-sales support personnel. The cost of
services increased 168% in fiscal 2003 compared to fiscal 2002 primarily due to
the addition of a dedicated professional services organization in the first
quarter of fiscal 2003 in conjunction with our acquisition of ViaFone. The cost
of services decreased 31% in fiscal 2002 compared to fiscal 2001. This decrease
was primarily due to a decrease in personnel costs associated with post-sales
effort in our Internet and Advantage products and a decrease in professional
services costs related to our XTNDConnect products.

Gross margin on services revenue decreased in fiscal 2003 as compared to fiscal
2002. The decline is primarily the result of a higher mix of professional
services revenue in fiscal 2003, which typically generates lower margins than
support and maintenance revenue. The increase in gross margin in fiscal 2002
from fiscal 2001 was primarily due to the reduction in cost of services
described above.

We expect the cost of services to increase in fiscal 2004 as a result of an
expected increase in professional services revenue. We expect gross margin on
services to be in the range of 45 to 55 percent. This range is driven by the mix
between professional services and support and maintenance revenue and the
utilization rate of our professional services personnel. Given the high level of
fixed costs associated with the professional services group, our inability to
generate sufficient services revenue to absorb these fixed costs could lead to
lower or negative gross margins.

HARDWARE AND OTHER.

The cost of hardware and other revenue consists primarily of out-sourced
manufacturing and in-house labor costs associated with the manufacturing of our
mobile information management hardware products. The increase in gross margin
from hardware and other revenue from fiscal 2001 to 2002 was primarily the
result of a significant decrease in unit sales of mobile information management
hardware products, including XTNDAccess IrDA Printer Adapters and our enterprise
Internet appliance products. The negative cost of hardware and other revenue in
fiscal 2003 was primarily due to a decrease in the inventory accrual for
Internet appliance products at our German subsidiary.

We expect the cost of hardware and other revenue to be insignificant in fiscal
2004.

                                       24
<PAGE>
Research and Development Expenses
---------------------------------
                                         FISCAL YEAR ENDED JUNE 30,

                                 2003    %CHANGE     2002    %CHANGE      2001
                              --------------------------------------------------
Research and development....  $ 7,173     (28)%    $10,030    (19)%    $ 12,446
  as a % of net revenue.....       26%                  45%                  46%

Research and development expenses generally consist of salaries and other
personnel costs of our research and development teams, consulting costs and
facility expenses. The decrease in research and development expenses in fiscal
2003 and fiscal 2002 as compared to the prior years was primarily the result of
a reduction in personnel costs and consulting costs subsequent to our
restructurings. We were able to reduce research and development costs in fiscal
2003 and fiscal 2002 as a result of completing the fundamental development work
for our OneBridge Mobile Groupware platform (formerly XTNDConnect Server) upon
which our current data synchronization and management product offerings are
built. At June 30, 2003 we had 62 full-time equivalent research and development
personnel, a decrease from the 79 full-time equivalent personnel at the same
time last year and 118 at June 30, 2001.

In connection with our acquisition of ViaFone in August 2002, we incurred an
in-process research and development charge of $430,000 in fiscal 2003.

In fiscal 2004, we expect our research and development costs to decrease as
compared to fiscal 2003 as a result of a reduction in personnel costs subsequent
to our restructurings.

Marketing and Sales Expenses
----------------------------
                                         FISCAL YEAR ENDED JUNE 30,

                                 2003   %CHANGE     2002     %CHANGE      2001
                              --------------------------------------------------
Marketing and sales.........  $ 14,482     7%    $ 13,489     (23)%    $ 17,542
  as a % of net revenue.....        53%                61%                  65%

Marketing and sales expenses consist primarily of salaries, commissions and
other personnel costs of our sales, marketing, and pre-sales support staff, and
promotional expenses. The increase in marketing and sales expenses in fiscal
2003 compared to fiscal 2002 was primarily due to an increase in personnel costs
of approximately $1.2 million, offset in part by a decrease in promotional
expenses of approximately $600,000. The decrease in marketing and sales expenses
for fiscal 2002 compared to fiscal 2001 was primarily due to a reduction in
personnel costs subsequent to our restructurings in fiscal 2001 and 2002 and a
reduction in promotional expenses of approximately $2.2 million. At June 30,
2003, we had 104 full-time equivalent marketing, sales, and support personnel
and contractors, as compared to 112 full-time equivalent personnel and
contractors at the same time last year and 137 at June 30, 2001.

We expect marketing and sales expenses to increase in fiscal 2004 as a result of
an expected increase in revenue, although we expect these expenses to decrease
as a percentage of net revenue. We expect that the increase in marketing and
sales expenses in fiscal 2004 will be primarily attributable to increased sales
compensation.

General and Administrative Expenses
-----------------------------------
                                          FISCAL YEAR ENDED JUNE 30,

                                  2003   %CHANGE     2002    %CHANGE     2001
                                -----------------------------------------------
General and administrative....  $ 4,889     12%    $ 4,381    (39)%    $ 7,169
  as a % of net revenue.......      18%                20%                 27%

General and administrative expenses primarily consist of salaries and other
personnel costs for our finance, management information systems, human resources
and other administrative groups, as well as professional fees and directors' and
officers' insurance costs. The increase in general and administrative expenses
in fiscal 2003 compared to fiscal 2002 was primarily attributable to an increase
in legal fees of approximately $1.1 million related to our patent litigation
with Pumatech, offset in part by a decrease of approximately $400,000 in
personnel costs resulting from our restructurings in prior quarters and a
decrease in bad debt expense of approximately $300,000. The decrease in general
and administrative expenses in fiscal 2002 compared to fiscal 2001 was primarily
attributable to $1.4 million of expenses incurred in fiscal 2001 associated with
our terminated merger with Palm, Inc., a decrease of approximately $400,000 in
bad debt expense and a decrease in personnel costs subsequent to our
restructuring

                                       25
<PAGE>

completed in fiscal 2002. These decreases were offset in part by
an increase in legal fees in fiscal 2002 of approximately $160,000 related
primarily to our patent litigation with Pumatech.

We expect general and administrative expenses to increase in fiscal 2004 as a
result of an expected increase in legal fees associated with the Pumatech
litigation as we approach our April 2004 trial date and an expected increase in
directors' and officers' insurance. We also expect to report increased non-cash
compensation expense as a result of a change in the compensation plan for our
independent board of directors. At June 30, 2003, we had 21 full-time equivalent
employees in administration, as compared to 35 full-time equivalent personnel at
the same time last year and 55 at June 30, 2001. No general and administrative
personnel were added with our acquisition of ViaFone.

Amortization of Goodwill
------------------------

As a result of our adoption of SFAS No. 142, which requires that goodwill no
longer be amortized, we did not record amortization of goodwill for fiscal year
2003. Amortization of goodwill was $925,000 for fiscal 2002 and fiscal 2001 and
was reflected in our statement of operations as an operating expense.

We report amortization of non-goodwill intangibles, primarily consisting of
purchased technology, as a component of cost of license fees and royalty
revenue. Amortization of non-goodwill intangibles was $726,000 for fiscal 2003
and $582,000 for each of the fiscal years 2002 and 2001. The net increase in
fiscal 2003 compared to 2002 and 2001 results from the addition of non-goodwill
intangibles in connection with our acquisition of ViaFone. This increase was
partially offset by a decrease in amortization resulting from our adoption of
SFAS No. 142, which resulted in $138,000 of intangible assets, comprised of
assembled workforce intangibles, being reclassified as goodwill in the first
quarter of fiscal 2003.

We expect a decrease in amortization of non-goodwill intangibles in fiscal 2004
as a result of a portion of our purchased technology becoming fully amortized in
the first quarter in fiscal 2004.

Restructuring Charge
--------------------

We recorded $597,000 in workforce reduction costs during fiscal 2003, consisting
primarily of severance, benefits, and other costs related to the termination of
31 employees in research and development, marketing and sales, manufacturing,
and administration, of which 24 were located in the United States, 3 in Canada
and 4 in Europe. As of June 30, 2003 we had paid $409,000 of these charges. The
remaining balance of $188,000 will be paid in the first two quarters of fiscal
2004.

During the first quarter of fiscal 2003 we also assumed a restructuring
liability in connection with our acquisition of ViaFone. Prior to our
acquisition of the company, ViaFone had implemented a restructuring program that
resulted in charges for workforce reduction costs, costs related to closing its
office in France and excess facilities costs related to lease commitments for
space no longer used in Brisbane, California. At the time we completed the
ViaFone acquisition, there were $993,000 of future lease commitments that had
been accrued but not yet paid, $266,000 of workforce reduction liabilities and
$30,000 of liabilities relating to the closure of ViaFone's French office. As of
June 30, 2003 the workforce reduction liabilities and liabilities related to
closing ViaFone's French office had been paid in full, and the balance of future
lease commitments assumed was $534,000. We expect to pay $145,000 in each of the
next three quarters and $99,000 in the final quarter of fiscal 2004 for these
lease commitments.

A summary of the restructuring costs is outlined as follows:
<TABLE><CAPTION>
                                                                  Workforce
                                                                  Reduction  Facilities and
                                                                    Costs      Other Costs    Total
                                                                 -----------------------------------
<S>                                                                <C>          <C>         <C>
Restructuring charges incurred in fiscal 2001..................     $1,096       $  --       $1,096
Cash payments..................................................        --           --          --
                                                                 -----------------------------------
Balance at June 30, 2001.......................................      1,096          --        1,096
Restructuring charges incurred in fiscal 2002..................        213          --          213
Cash payments..................................................     (1,309)         --       (1,309)
                                                                 -----------------------------------
Balance at June 30, 2002.......................................     $  --        $  --       $  --
Restructuring charges incurred in fiscal 2003..................        597          --          597
Restructuring accrual assumed with ViaFone acquisition.........        266        1,023       1,289
Adjustment to the accrual assumed with ViaFone acquisition.....        (14)         --          (14)
Cash payments..................................................       (661)        (489)     (1,150)
                                                                 -----------------------------------
Balance at June 30, 2003.......................................     $  188       $  534      $  722
                                                                 ===================================
</TABLE>
                                       26
<PAGE>
In the first quarter of fiscal 2004 we expect to record a restructuring charge
of approximately $1.2 million, consisting primarily of severance costs. This
charge is primarily related to severance charges resulting from the August
resignation of Steven Simpson, the company's former President and Chief
Executive Officer, in addition to a workforce reduction to be completed in the
first quarter of fiscal 2004. The restructuring charge reflects approximately
$450,000 in non-cash compensation resulting from accelerated vesting of employee
stock options. Of the remaining $750,000, $300,000 is expected to be paid prior
to the end of September and $450,000, including $350,000 of severance payable to
Mr. Simpson, will be paid over the next 14 months. The company expects an
operating expense decrease of approximately $300,000 per quarter as a result of
the restructuring that will be completed in the first quarter of fiscal 2004.

Other Expense (Income)
----------------------
<TABLE><CAPTION>
                                                             FISCAL YEAR ENDED JUNE 30,

                                               2003       %CHANGE      2002       %CHANGE        2001
                                             ----------------------------------------------------------
<S>                                          <C>            <C>      <C>            <C>       <C>
Foreign currency exchange (gain) loss.....   $   (261)      302%     $    129       128%      $      1
Interest (income).........................        (39)      (66)         (115)      (59)          (281)
Other net expense (income)................         43      (530)          (10)      (94)          (177)
                                                  --                     ---                       --
                                             --------                --------                 --------
                                             $   (257)    6,525%     $      4      (101)%     $   (457)
                                             ========                ========                 ========
</TABLE>

Other expense and income consists primarily of foreign currency exchange gains
or losses related to the mark-to-market of intercompany amounts owed to us by
our international subsidiaries and interest income earned on cash, cash
equivalents and short-term investment balances. We recognized a foreign currency
exchange gain in fiscal 2003 as a result of a decrease in the strength of the
U.S. dollar in the fourth quarter at a time when we were not entering into
foreign currency forward contracts. In fiscal 2002, we recognized an exchange
loss as a result of our intercompany balance forecasts differing from
projections in a period of currency volatility. For additional information on
our foreign currency exposure see Item 7A of this Form 10-K. Interest income
declined in fiscal 2003 and 2002 due to a decline in the amount of cash invested
and declines in short-term interest rates during fiscal 2003 and 2002.

We are not using foreign currency forward contracts to manage fluctuations in
the value of foreign currencies on transactions with our foreign subsidiaries
for the first quarter of fiscal 2004. As a result, we expect to report a foreign
exchange loss in a range of $50,000 to $100,000 in the first quarter of fiscal
2004 as a result of the U.S. dollar strengthening significantly relative to the
euro, British pound sterling and Canadian dollar in the first quarter. The
amount of any foreign currency exchange gain or loss for the remaining quarters
of fiscal 2004 will depend upon currency volatility, the amount of our
intercompany balances and whether we decide to enter into foreign currency
forward contracts in future quarters. We expect interest income to increase in
fiscal 2004 as a result of an expected increase in cash, cash equivalents and
short-term investments resulting from the sale-and-leaseback of our building in
Boise, Idaho, the expected sale of excess land and cash we expect to generate
from our operations in fiscal 2004.

Interest Expense
----------------

Interest expense consists primarily of warrant expense amortization related to
entering into our line of credit agreement with Silicon Valley Bank in January
2002 and interest paid on the Silicon Valley Bank term debt that we assumed in
connection with our acquisition of ViaFone in August 2002. Interest expense
increased to $307,000 in fiscal 2003 from $70,000 in fiscal 2002 primarily as a
result of interest expense related to our assumption of $1.1 million of term
debt in connection with the ViaFone acquisition and as a result of fiscal 2003
including a full year of warrant amortization. We had no interest expense or
debt in fiscal 2001.

We expect interest expense to increase by approximately $325,000 in fiscal 2004
as a result of entering into the sale-and-leaseback agreement for our building,
which will be accounted for as a financing transaction.

Income Tax Provision (Benefit)
------------------------------
<TABLE><CAPTION>
                                                         FISCAL YEAR ENDED JUNE 30,

                                                2003    %CHANGE      2002    %CHANGE      2001
                                             ----------------------------------------------------
<S>                                          <C>          <C>    <C>          <C>       <C>
Income tax provision (benefit)............   $  (200)      91%   $ (2,257)    (131)%    $  7,228
as a % of income (loss) before taxes......        (5)%                (24)%                   38%
</TABLE>
                                       27
<PAGE>
The income tax benefit decreased in fiscal 2003 compared to fiscal 2002
primarily as a result of recording an income tax benefit of approximately $1.6
million in the third quarter of fiscal 2002 for the refund we received as a
result of the temporary increase in the net operating loss carryback period
created by the Job Creation and Worker Assistance Act of 2002. The change in the
income tax provision or benefit in fiscal 2002 compared to fiscal 2001 was
primarily a result of recording income tax expense in the fourth quarter of
fiscal 2001 to set up a full valuation allowance for our net deferred tax assets
and recognizing the $1.6 million income tax benefit in fiscal 2002.

We expect to record an income tax provision of approximately $125,000 in fiscal
2004 related to payments of foreign taxes. We expect that any provisions we
would otherwise record will be offset by our deferred tax assets.

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

In August 2002, we completed our acquisition of ViaFone. For information on this
acquisition and the acquisition of AppReach completed in February 2002, see
"Note 7. Business Combinations" in the Notes to Consolidated Financial
Statements of this report.

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

In each of our fiscal years ended 2003, 2002, and 2001, we exited a historical
business which no longer fit into the company's strategy for becoming the global
leader in providing mobile solutions for the enterprise.

In the first quarter of fiscal 2003, we adopted a formal plan to exit our
infrared hardware business as a result of an expected decline in sales of these
products and our desire to increase our focus on our core software businesses.
Throughout the year we continued to see revenue from this business as customers
placed final orders. As of June 30, 2003, the business has been successfully
wound-down. We have stopped accepting new orders and we are shipping final
orders.

On June 12, 2002, we completed the sale of Extended Systems Singapore Pte Ltd,
our wholly owned Singapore subsidiary, to Brookhaven Asia Ltd., a holding
company co-owned by the existing management team of Extended Systems Singapore
Pte Ltd. The purchase price for all the outstanding shares of the company was
$987,000. We originally acquired Extended Systems Singapore Ltd., formerly
Parallax Research Ltd., in November 1998. The Singapore operation was
instrumental in driving our infrared hardware business, and in managing our
relationships with third party contract manufacturers in Asia. As we have
continued to focus our efforts on our mobile and wireless enterprise software
solutions, revenue from our hardware products has been a declining percentage of
our net revenue. As a result, the Singapore entity was no longer strategic to
our business.

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

As a result of the reclassification of our infrared hardware business, our
Singapore subsidiary, and our printing solutions segment as discontinued
operations, results for these operations are reported, net of tax, under "Income
from discontinued operations" on our Statements of Operations.
<TABLE><CAPTION>
                                                                     FISCAL YEAR ENDED JUNE 30,

                                                           2003    %CHANGE      2002    %CHANGE      2001
                                                         -------------------------------------------------
<S>                                                      <C>         <C>      <C>         <C>      <C>
Net revenue..........................................    $ 1,488     (45)%    $ 2,687     (87)%    $21,129
Income from discontinued operations, net of tax......        458      65          278     (90)       2,740
Gain (loss) on sale of discontinued operations,
  net of tax.........................................        --     (100)        (335)   (579)          70
</TABLE>

Our revenue from discontinued operations for fiscal 2003 consisted primarily of
revenue from our discontinued infrared hardware business. Although our infrared
hardware business was discontinued in the first quarter of fiscal 2003, we
continued to see revenue throughout the year as customers continued to place
last-time orders. The decrease in net revenue from discontinued operations in
fiscal 2003 compared to fiscal 2002 was primarily a result of there being no
revenue from our former Singapore subsidiary and no material revenue from our
discontinued printing solutions segment in fiscal 2003. The decrease in net
revenue from discontinued operations in fiscal 2002 compared to fiscal 2001 was
primarily a result of there being no material revenue from our discontinued
printing solutions segment in fiscal 2002 and a significant decrease in revenue
in our Singapore subsidiary from fiscal 2001 to fiscal 2002.

                                       28
<PAGE>
Income from discontinued operations was higher in fiscal 2003 compared to fiscal
2002 due to an increase in net income from our infrared hardware operations in
fiscal 2003, which was a result of minimizing expenses related to these
operations, and because in fiscal 2002 the Singapore business generated a net
loss. Income from our discontinued operations decreased in fiscal 2002 compared
to fiscal 2001 primarily as a result of there being no material revenue from our
discontinued printing solutions segment in fiscal 2002 and as a result of the
decrease in income generated by our Singapore subsidiary due to decreased sales
to Hewlett-Packard.

We do not expect income from discontinued operations to be significant in fiscal
2004.

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

NET CASH USED BY OPERATING ACTIVITIES

                                                  FISCAL YEAR ENDED JUNE 30,

                                                   2003      2002      2001
                                                 ----------------------------
Net cash used by operating activities.........   $(3,163)  $(2,472)  $(4,051)

Net cash used by operating activities in fiscal 2003 was primarily the result of
our net loss and the result of a decrease in accounts payable and accrued
expenses, adjusted for such non-cash items as depreciation and amortization.
These cash uses were partially offset by acquired in-process research and
development. Net cash used by operating activities in fiscal 2002 was primarily
the result of our net loss and the result of a decrease in accounts payable and
accrued expenses, adjusted for such non-cash items as depreciation and
amortization. These cash uses were partially offset by a decrease in receivables
and inventories, and an increase in deferred revenue. Net cash used by operating
activities in fiscal 2001 was primarily a result of our net loss, adjusted for
such items as the change in deferred taxes and our depreciation and
amortization, provision for bad debts and provision for write-down of inventory.
This cash use was partially offset by a decrease in receivables, an increase in
payables and a decrease in inventory.

Accounts receivable, net of allowance, were $5.6 million and $4.3 million at
June 30, 2003 and 2002, respectively. The increase in accounts receivable from
fiscal 2002 to fiscal 2003 is due primarily to an increase in total net revenue,
but is offset partially by a decrease in DSOs (days sales outstanding). We
expect that our accounts receivable will increase in fiscal 2004 as a result of
an expected increase in net revenues. Accounts receivable may also increase in
the future if net revenue from international customers becomes a higher
percentage of our net revenue. Generally, these customers have longer payment
cycles.

NET CASH PROVIDED BY INVESTING ACTIVITIES

                                                     FISCAL YEAR ENDED JUNE 30,

                                                     2003       2002       2001
                                                    ----------------------------
Net cash provided by investing activities........   $1,248     $  462     $1,219

Net cash provided by investing activities in fiscal 2003 was primarily the
result of completing the acquisition of ViaFone. As part of our continued effort
to control cash and expenses, we did not make a significant investment in
property and equipment in fiscal 2003. Net cash provided by investing activities
in fiscal 2002 was primarily the result of proceeds from the sale of our
Singapore subsidiary net of cash sold with the entity. These proceeds were
partially offset by purchases of property and equipment of $148,000. As part of
our effort to control cash and expenses, we did not make a significant
investment in property and equipment in fiscal 2002. Net cash provided by
investing activities in fiscal 2001 was primarily the result of proceeds from
the sale of our discontinued operations, which consisted of our printing
solutions segment, and proceeds from the sale of our facility in Bozeman,
Montana. These proceeds were offset, in part, by purchases of property and
equipment of $1,095,000.

We plan to incur aggregate capital expenditures of approximately $500,000 during
fiscal 2004, primarily for tenant improvements, software, system improvements,
and personal computers.

NET CASH PROVIDED BY (USED BY) FINANCING ACTIVITIES

                                                     FISCAL YEAR ENDED JUNE 30,

                                                      2003      2002      2001
                                                     --------------------------
Net cash provided by (used by)
 financing activities............................    $ (123)   $  871    $3,230

Net cash used by financing in fiscal 2003 was primarily the result of payments
on term debt assumed as part of our acquisition of ViaFone of $499,000,
partially offset by proceeds from the issuance of common stock under our stock

                                       29
<PAGE>
plans of $376,000. In fiscal 2002 and fiscal 2001, net cash provided by
financing activities was primarily the result of proceeds from the issuance of
common stock under our stock plans of $871,000 and $3,297,000, respectively.

On January 15, 2002, we entered into a loan and security agreement with Silicon
Valley Bank, under which we can currently access up to $5.0 million of financing
in the form of a demand line of credit, subject to current accounts receivable
balances. The line of credit is collateralized by certain of our assets.
Interest on any borrowings will be paid at prime plus one percent but not less
than 5.5%. The line of credit agreement requires us to maintain certain
financial ratios and expires on January 15, 2004. We are in compliance with all
covenants. There are no outstanding draws on this facility.

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

On September 26, 2003, we closed the sale-and-leaseback of our headquarters
building and approximately eight acres of land and received approximately $4.6
million in net cash proceeds after deducting transaction costs. As part of the
agreement, we entered into a 10-year master lease for the building with annual
payments equal to approximately $442,000. In fiscal 2004, we will make payments
of approximately $331.000. On September 2, 2003, we entered into a definitive
agreement with Brighton Investments, LLC for the sale of approximately 16 acres
of excess land adjacent to our headquarters building in Boise, Idaho. Upon
closing, we expect to receive approximately $1.5 million in net cash proceeds
after deducting fees related to the transaction. We expect to report a gain of
approximately $1.0 million on the sale. We expect the transaction to close in
the second quarter of fiscal 2004 subject to the satisfaction of customary
closing conditions.

We believe that our existing working capital, the funds from the
sale-and-leaseback of our Boise headquarters building, the expected funds from
the sale of our excess land, our borrowing capacity and the funds we expect to
generate from our operations will be sufficient to fund our anticipated working
capital and capital expenditure requirements for the next twelve months. We
cannot be certain, however, that our underlying assumed levels of revenues and
expenses will be accurate. If our operating results were to fail to meet our
expectations or if Pumatech litigation fees, accounts receivable, or other
assets were to require a greater use of cash than is currently anticipated, we
could be required to seek additional sources of liquidity. In addition, if the
Pumatech litigation were to have an unfavorable result for us, we could be
required to pay damages or royalties, or to discontinue sales of certain
products, any of which could result in a greater use of cash than is currently
anticipated. This could also require us to seek additional sources of liquidity.
These sources of liquidity could include raising funds through public or private
debt financing, borrowing against our line of credit or offering additional
equity securities. If additional funds are raised through the issuance of equity
securities, substantial dilution to our stockholders could result. In the event
additional funds are required, adequate funds may not be available when needed
or may not be available on favorable terms, which could have a negative effect
on our business and results of operations.

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

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

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

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

                                       30
<PAGE>
not qualify for hedge accounting under SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, and, as such, the contracts are recorded in
the consolidated balance sheet at fair value. We report a net currency gain or
loss based on changes in the fair value of forward contracts combined with
changes in fair value of the underlying asset or liability being managed. The
success of these currency activities depends upon estimation of intercompany
balances denominated in various foreign currencies. To the extent that these
forecasts are overstated or understated during periods of currency volatility,
we could experience unanticipated currency gains or losses. When determining
whether to enter into foreign currency forward contracts, we also consider the
impact that the settlement of such forward contracts may have on our cash
position. To eliminate a potential cash settlement of a forward position we may,
from time to time, decide not to use foreign currency forward contracts to
manage fluctuations in the value of foreign currencies on transactions with our
international subsidiaries. In a period where we do not enter into foreign
currency forward contracts, we could experience significant non-cash currency
gains or losses if the value of the U.S. dollar strengthens or weakens
significantly in relation to the value of the foreign currencies. We had no
forward contracts in place as of June 30, 2003. As of June 30, 2002, we had
forward contracts with a nominal value of $1.9 million in place against the euro
and British pound sterling, which matured within 30 days. We recognized a net
currency exchange gain of $261,182 for the fiscal year ended June 30, 2003 and
net currency exchange losses of $129,000 and $1,000 for the fiscal years ended
June 30, 2002 and 2001, respectively.

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

In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51."
FIN 46 requires certain variable interest entities to be consolidated by the
primary beneficiary of the entity if the equity investors in the entity do not
have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN 46 is
effective for all new variable interest entities created or acquired after
January 31, 2003. For variable interest entities created or acquired prior to
February 1, 2003, the provisions of FIN 46 must be applied for the first interim
or annual period beginning after June 15, 2003. We believe we have no investment
in or contractual relationship or other business relationship with a variable
interest entity, and therefore, the adoption of this interpretation did not have
any impact on our financial position or results of operations.

In April 2003, the FASB issued SFAS 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS 149 amends and clarifies
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities under SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS 149 is
generally effective for derivative instruments, including derivative instruments
embedded in certain contracts, entered into or modified after June 30, 2003 and
for hedging relationships designated after June 30, 2003. We do not expect
adoption of this statement to have a material impact on our financial position
or results of operations.

In May 2003, the FASB issued SFAS 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." SFAS 150
improves the accounting for certain financial instruments that, under previous
guidance, issuers could account for as equity and requires that those
instruments be classified as liabilities (or assets in certain circumstances) in
statements of financial position. SFAS 150 also requires disclosures about
alternative ways of settling the instruments and the capital structure of
entities--all of whose shares are mandatorily redeemable. SFAS 150 is generally
effective for all financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. We do not expect the adoption of this statement
to have a material impact on our financial position or results of operations.

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

WE HAVE A RECENT HISTORY OF LOSSES AND MAY CONTINUE TO GENERATE LOSSES IN FISCAL
2004.

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

o    our ability to generate sufficient revenue and control expenses;
o    buying patterns of our enterprise, application developer and original
     equipment manufacturer customers;
o    changes in customer demand for our products;

                                       31
<PAGE>
o    the timing of customer orders, which can be influenced by fiscal year-end
     buying patterns, seasonal trends or general economic conditions;
o    announcements or introductions of new products or services by our
     competitors;
o    the outcome of our litigation with Pumatech, Inc. and the impact of any
     litigation on our financial and management resources;
o    delays in our development and introduction of new products and services;
o    changes in our pricing policies as a result of increased competition;
o    the mix of distribution channels through which we sell our products;
o    the market acceptance of our new and enhanced products and the products of
     our customers that are application developers and original equipment
     manufacturers;
o    the market adoption rate of Bluetooth or other technologies on which a
     number of our products are based;
o    the emergence of new technologies or industry standards;
o    normal seasonality that we typically experience in the first quarter of our
     fiscal year; and
o    a shift in the mix of professional services and licensing revenue, which
     may result in fluctuations in our gross margin.

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

The market for our products depends on economic conditions affecting the broader
economic climate and spending on information technology, including mobile
applications and devices. Downturns in the overall economy may cause enterprises
to delay implementation of mobile device and application rollouts, reduce their
overall information technology budgets or reduce or cancel orders for our
products. Our original equipment manufacturer customers may also limit
development of new products that incorporate our products or reduce their level
of purchases of our products in the face of slower information technology
spending by their customers. The general weakening of the global economy and
weakening of business conditions, particularly in the information technology,
telecommunications, financial services and manufacturing industry sectors, have
resulted in potential customers experiencing declines in their revenue and
operations. In this environment, customers may experience financial difficulty
or cease operations.

While we believe we have adequately factored these conditions into our current
revenue forecasts, if these conditions worsen or continue longer than expected,
demand for our products may be reduced as a result of enterprises reducing
information technology spending on our products and original equipment
manufacturers reducing their use of our products in their own products. As a
result, our revenue may fail to grow or could decline, which would harm our
operating results. If the current economic slowdown persists or worsens, we also
may be forced to reduce our operating expenses, which could result in additional
charges incurred in connection with restructuring or other cost-cutting measures
we may implement. For example, in both the first and third quarters of fiscal
2003 and the first quarter of fiscal 2004, we announced restructuring plans to
reduce costs and improve operating efficiencies and, as a result, incurred
restructuring costs, primarily for severance payments to terminated employees.

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

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

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

Our quarterly revenue and operating results currently depend in large part on
the volume and timing of orders received within the quarter and on the number of
software seats licensed, which are difficult to forecast. Significant portions
of our expenses are related to personnel and, therefore, are fixed in advance,
based in large part on our forecast of future revenue. If revenue 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 personnel and
other expenditures to compensate for the shortfall.

                                       32
<PAGE>
OUR BUSINESS MAY BE HARMED IF PUMATECH PREVAILS IN THE PATENT LITIGATION WITH US
AND THEY ARE AWARDED SIGNIFICANT DAMAGES OR BECOME ENTITLED TO SIGNIFICANT
ROYALTIES, OR IF WE ARE REQUIRED TO CEASE SELLING ANY OF OUR CURRENT PRODUCTS OR
WE IF ARE REQUIRED TO INCUR ADDITIONAL DEVELOPMENT COSTS.

On April 22, 2002, Pumatech, Inc. filed a patent infringement action against us
in the U.S. District Court in Northern California. An amended complaint was
filed on May 28, 2002. The action alleges that our XTNDConnect server and
desktop synchronization products infringe on seven of Pumatech's
synchronization-related patents, that our alleged use of the trademark
"Satellite Forms" constitutes trademark infringement, and that other alleged
actions constitute unfair competition and interference with contract. The action
seeks an injunction against further sales of our server and desktop
synchronization products and use of the allegedly infringing trademark, as well
as unspecified damages and attorneys' fees. On June 25, 2002, we filed an answer
and counterclaim in response to Pumatech's complaint in which we deny Pumatech's
charges, raise a number of affirmative defenses and request a declaration from
the court that Pumatech synchronization software patents are invalid and not
infringed by our products. On December 11, 2002, Pumatech filed a second amended
complaint, which adds allegations that unspecified synchronization products
infringe an eighth Pumatech patent. On December 31, 2002, we filed an amended
answer and counterclaim in which we deny all of Pumatech's charges, including
this additional charge, and amend our defenses and counterclaims to include this
additional patent. On August 1, 2003 the Honorable. Judge D. Lowell Jensen,
United States District Judge, issued his Claims Construction Ruling on the
interpretation, definition, and scope of the claims in the suit. We believe that
the Court's ruling has significantly narrowed claims in five of the Pumatech
patents. The Court also ruled that it could not correct an error that appears in
all asserted claims of Pumatech's '676 patent. This error must be corrected in
reissue proceedings in the Patent Office. Until the Patent Office issues
corrected claims, no synchronization software can infringe the '676 patent, and
it is unlikely that such a correction would have any retroactive effect. As a
result, if any of our products are ultimately held to be infringing this patent,
it is unlikely that Pumatech would be entitled to damages for any period prior
to the reissue date. We have petitioned the U.S. Patent Office for reexamination
of three of the Pumatech patents. The Patent Office has issued an Office Action
for each of the three patents rejecting all Pumatech patent claims over the
prior art for two of the patents and rejecting all claims on which we requested
reexamination for the other patent. As a result of the reexamination process, we
expect the patents to be significantly narrowed or rejected by the Patent Office
in their entirety. If the patents are amended and reissued, and we are
ultimately held to be infringing one of the reissued patents, it is unlikely
that Pumatech would be entitled to damages for any period preceding the reissue
date. Discovery and other pretrial proceedings are on going; trial is currently
scheduled for April 2004.

We believe that we have numerous meritorious defenses to Pumatech's claims and
we intend to continue to defend the suit vigorously. However, litigation is
inherently uncertain, and we may not prevail in our defenses or counterclaims.
If Pumatech prevails in one or more of its claims, we could be required to pay
substantial damages for past sales of infringing products, to cease selling
specific of our server or desktop synchronization products that are held to
infringe a Pumatech patent, to pay royalties on the sales of specific products
that are held to infringe a Pumatech patent, or some combination of these
results. We may also incur significant development costs to redesign certain of
our products to ensure that they are non-infringing. Any of such outcomes could
have a material adverse effect on our business and financial position. In
addition, litigation is frequently expensive and time-consuming, and management
may be required to spend significant time in the defense of the suit; such costs
and the diversion of management time could have a material adverse effect on our
business. The ultimate outcome of any litigation is uncertain and the range of
loss that could occur upon resolution of this matter is not estimable. We cannot
estimate the costs of any potential settlement. Were an unfavorable outcome to
occur, the impact could be material to our financial position, results of
operations, or cash flows.

THE SUCCESS OF OUR BUSINESS MAY DEPEND ON US IDENTIFYING AND SECURING ADDITIONAL
SOURCES OF FINANCING, WHICH SOURCES MAY NOT BE AVAILABLE WHEN NEEDED OR MAY NOT
BE AVAILABLE ON FAVORABLE TERMS.

We believe that our existing working capital, the funds from the
sale-and-leaseback of our Boise building, the expected funds from the sale of
our excess land, our borrowing capacity and the funds we expect to generate from
our operations will be sufficient to fund our anticipated working capital and
capital expenditure requirements for the next twelve months. We cannot be
certain, however, that our underlying assumed levels of revenues and expenses
will be accurate. If our operating results were to fail to meet our expectations
or if Pumatech litigation fees, accounts receivable, or other assets were to
require a greater use of cash than is currently anticipated, we could be
required to seek additional sources of liquidity. In addition, if the Pumatech
litigation were to have an unfavorable result for us, we could be required to
pay damages or royalties, or to discontinue sales, of certain products, any of
which could result in a greater use of cash than is currently anticipated. This
could also require us to seek additional sources of liquidity. These sources of
liquidity could include raising funds through public or private debt financing,
borrowing against our line of credit or offering additional equity securities.
If additional funds are raised through the issuance of

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equity securities, substantial dilution to our stockholders could result. In the
event additional funds are required, adequate funds may not be available when
needed or may not be available on favorable terms, which could have a negative
effect on our business and results of operations.

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

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

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

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

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

OUR INVESTMENT IN GOODWILL AND INTANGIBLES RESULTING FROM OUR ACQUISITIONS COULD
BECOME IMPAIRED.

As of June 30, 2003, the amount of goodwill and other identifiable intangibles
recorded on our books, net of accumulated amortization, was $13.7 million. We
ceased amortizing goodwill upon our adoption of SFAS No. 142 as of the beginning
of fiscal 2003, and we expect to amortize $1.2 million of net identifiable
intangibles in fiscal years 2004 through 2008. However, to the extent that our
goodwill or other identifiable intangibles are considered to be impaired because
circumstances indicate their carrying value may not be recoverable, all or a
portion of these assets may be subject to write-off in the quarter of
impairment. Such impairment and any resulting write-off could have a negative
impact on our results of operations in the period goodwill or other identifiable
intangibles are written off.

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

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

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We compete with:

o    mobile data management companies, including Aether Systems, IBM, iAnywhere
     (a division of Sybase), Infowave; JP Mobile, Microsoft, Pumatech, RIM and
     Synchrologic;
o    application mobilization companies, including Everypath, iAnywhere,
     Microsoft, and Oracle;
o    mobile enterprise solutions companies, including Aether Systems, Dexterra,
     and Telispark;
o    client/server database providers, including Interbase, Microsoft, Oracle
     and Pervasive Software;
o    mobile connectivity companies, including IVT Corporation, Open Interface
     and Widcomm; and
o    internal research and development departments of original equipment
     manufacturers, many of whom are our current customers.

As the markets for mobile information management products grow, we expect
competition from existing competitors to intensify, and we expect new
competitors, including original equipment manufacturers to which we sell our
products, to introduce products that compete with ours. Additionally, if
existing or new competitors were to merge or form strategic alliances, our
market share may be reduced or pressure may be put on us to reduce prices
resulting in reduced revenue and margins.

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

The markets for our products are characterized by:

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

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

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

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

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

If these standards and protocols do not achieve acceptance, our business would
be harmed. Even if accepted, these industry-wide specifications may not be
widely adopted, or competing specifications may emerge. In addition,
technologies based on these standards and specifications may not be adopted as
the standard or preferred technologies for wireless connectivity, thereby
discouraging manufacturers of personal computers and mobile devices from
bundling or integrating these technologies in their products.

If our customers do not adopt wireless technologies, demand for our products
would be reduced and our business would be harmed.

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

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

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

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

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.

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

In fiscal 2003, based on the region where the customer resides, 50% of our
revenue was generated from international sales. We expect that international
sales will continue to represent a substantial portion of our revenue for the
foreseeable future. International sales are subject to a number of risks,
including:

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

OUR BUSINESS MAY BE HARMED IF OUR PROFESSIONAL SERVICES ORGANIZATION DOES NOT
GENERATE AN ACCEPTABLE PROFIT LEVEL.

Our professional services business is subject to a variety of risks including:

o    we may be unable to accurately predict staffing requirements and therefore
     the expense of fulfilling our service contracts may be greater than we
     anticipate; and
o    we may have an inappropriate level of resources dedicated to the
     professional services business in relation to the number of projects we are
     able to sell, resulting in a low utilization rate of resources.

If we are unable to operate the professional services organization effectively,
the profitability of this business could decline, or even result in a loss,
which could harm our business.

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

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

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<PAGE>
From time to time, we enter into foreign currency forward contracts, typically
against the Canadian dollar, euro, and British pound sterling, to manage
currency fluctuations on payments and receipts of foreign currencies on
transactions with our international subsidiaries. The success of these currency
activities depends upon estimation of intercompany balances denominated in
various foreign currencies. To the extent that these forecasts are overstated or
understated during periods of currency volatility, we could experience
unanticipated currency gains or losses. When determining whether to enter into
foreign currency forward contracts, we also consider the impact that the
settlement of such forward contracts may have on our cash position. To eliminate
a potential cash settlement of a forward position we may, from time to time,
decide not to use foreign currency forward contracts to manage fluctuations in
the value of foreign currencies on transactions with our international
subsidiaries. In a period where we do not enter into foreign currency forward
contracts, we could experience significant non-cash currency gains or losses if
the value of the U.S. dollar strengthens or weakens significantly in relation to
the value of the foreign currencies.

For example, we recognized a foreign currency exchange gain in fiscal 2003 as a
result of the dollar weakening in the fourth quarter at a time when we were not
entering into foreign currency forward contracts, and we expect to report a
foreign exchange loss in a range of $50,000 to $100,000 in the first quarter of
fiscal 2004 as a result of the U.S. dollar strengthening significantly relative
to the euro, British pound sterling and Canadian dollar in the first two months
of the quarter.

IF WE ACCOUNT FOR EMPLOYEE STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS USING
THE FAIR VALUE METHOD, IT COULD SIGNIFICANTLY REDUCE OUR NET INCOME AND EARNINGS
PER SHARE.

There has been ongoing public debate whether employee stock option and employee
stock purchase plans shares should be treated as a compensation expense and, if
so, how to properly value such charges. If we elected or were required to record
an expense for our stock-based compensation plans using the fair value method,
we could have significant accounting charges. For example, in fiscal year 2003,
had we accounted for stock-based compensation plans using the fair-value method
prescribed in FASB Statement No. 123 as amended by Statement 148, our net loss
would have been increased by approximately $5.7 million. Although we are not
currently required to record any compensation expense using the fair value
method in connection with option grants that have an exercise price at or above
fair market value at the grant date and for shares issued under our employee
stock purchase plan, it is possible that future laws or regulations will require
us to treat all stock-based compensation as an expense using the fair value
method. See Note 2 of Notes to Consolidated Financial Statements for a more
detailed presentation of accounting for stock-based compensation plans. If we
are required to treat all stock-based compensation as an expense, we may change
both our cash and stock-based compensation practices.

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

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

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

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

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

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

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

Growth in our business may place a significant strain on our administrative,
operational and financial resources and increase demands on our systems and
controls, which could harm our business. Growth may also result in an increase
in the scope of responsibility for management personnel. We anticipate that our
growth and expansion will require that we recruit, hire, train and retain new
engineering, executive, sales and marketing, and administrative personnel.
Difficulty in recruiting qualified personnel could require us to incur
significant costs to recruit personnel or could limit our ability to grow. In
addition, in order to manage our growth successfully, we will need to continue
to expand and improve our operational, management and financial systems and
controls. The failure to do so could harm our business.

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

Our future success will depend on our ability to attract and retain experienced,
highly qualified management, technical, research and development, and sales and
marketing personnel. Competition for qualified personnel in the computer
software industry is intense, and there is a risk that we will have difficulty
recruiting and retaining key employees. In addition, new employees generally
require substantial training, which may require substantial resources and
management attention. If we lose the services of one or more key employees, or
if one or more of them decide to join a competitor or otherwise compete directly
or indirectly with us, our business could be harmed. Searching for replacements
for our key employees could divert management's time and result in increased
operating expenses that may not be offset by either improved productivity or
higher prices. Over the past two years, a number of our senior management
employees have left Extended Systems, including most recently, Steven Simpson,
our former President and Chief Executive Officer, and we cannot assure you that
there will not be additional departures. Any changes in management can be
disruptive to our operations. Uncertainty created by turnover of key employees
could result in reduced confidence in our financial performance, which could
cause fluctuations in our stock price.


SOME ANTI-TAKEOVER PROVISIONS CONTAINED IN OUR CERTIFICATE OF INCORPORATION,
BYLAWS AND STOCKHOLDER RIGHTS PLAN, AS WELL AS PROVISIONS OF DELAWARE LAW, COULD
IMPAIR A TAKEOVER ATTEMPT.

We have provisions in our certificate of incorporation and bylaws, each of which
could have the effect of rendering more difficult or discouraging an acquisition
deemed undesirable by our Board of Directors. These include provisions:

o    dividing our board of directors into three classes, each serving a
     staggered three-year term;
o    authorizing blank check preferred stock, which could be issued with voting,
     liquidation, dividend and other rights superior to its common stock;
o    dividend and other rights superior to its common stock;
o    limiting the liability of, and providing indemnification to, directors and
     officers;

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<PAGE>
o    requiring advance notice of stockholder proposals for business to be
     conducted at meetings of stockholders and for nominations of candidates for
     election to our Board of Directors;
o    specifying that stockholders may take action only at a duly called annual
     or special meeting of shareowners.

These provisions, alone or together, could deter or delay hostile takeovers,
proxy contests and changes in control or management of Extended Systems. As a
Delaware corporation, we also are subject to provisions of Delaware law,
including Section 203 of the Delaware General Corporation Law, which prevents
some stockholders from engaging in certain business combinations without
approval of the holders of substantially all of our outstanding common stock.

In June 2003, pursuant to a Preferred Stock Rights Agreement between Extended
Systems and EquiServe Trust Company, N.A., our Board of Directors issued certain
Preferred Share Purchase Rights. The Rights were not intended to prevent a
takeover of Extended Systems. However, the Rights may have the effect of
rendering more difficult or discouraging an acquisition of Extended Systems
deemed undesirable by our Board of Directors. The Rights would cause substantial
dilution to a person or group that attempted to acquire Extended Systems on
terms or in a manner not approved by our Board of Directors, except pursuant to
an offer conditioned upon redemption of the Rights.

Any provision of our certificate of incorporation or bylaws or Delaware law that
has the effect of delaying or deterring a change in control could limit the
opportunity for our stockholders to receive a premium for their shares of common
stock and also could affect the price that some investors are willing to pay for
our common stock.

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

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

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

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Substantially all of our liquid investments are at fixed interest rates and,
therefore, the fair value of these instruments is affected by changes in market
interest rates. All of our liquid investments mature within 90 days or less of
June 30, 2003, therefore, we believe that the market risk arising from our
holdings of liquid investments is minimal.

Sales made by our international subsidiaries are generally denominated in the
foreign country's currency. Fluctuations in exchange rates between the United
States dollar and other currencies could materially harm our business. From time
to time, we enter into foreign currency forward contracts, typically against the
Canadian dollar, euro, and British pound sterling, to manage fluctuations in the
value of foreign currencies on transactions with our international subsidiaries,
thereby limiting our risk that would otherwise result from changes in exchange
rates. We report a net currency gain or loss based on changes in the fair value
of forward contracts combined with changes in fair value of the underlying asset
or liability being managed. The success of these currency activities depends
upon estimation of intercompany balances denominated in various foreign
currencies. To the extent that these forecasts are overstated or understated
during periods of currency volatility, we could experience unanticipated
currency gains or losses. When determining whether to enter into foreign
currency forward contracts, we also consider the impact that the settlement of
such forward contracts may have on our cash position. To eliminate a potential
cash settlement

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of a forward position we may, from time to time, decide not to use foreign
currency forward contracts to manage fluctuations in the value of foreign
currencies on transactions with our international subsidiaries. In a period
where we do not enter into foreign currency forward contracts, we could
experience significant non-cash currency gains or losses if the value of the
U.S. dollar strengthens or weakens significantly in relation to the value of the
foreign currencies. We had no forward contracts in place as of June 30, 2003. As
of June 30, 2002, we had forward contracts with a nominal value of $1.9 million
in place against the euro and British pound sterling, which matured within 30
days. We recognized a net currency exchange gain of $261,182 for the fiscal year
ended June 30, 2003 and net currency exchange losses of $129,000 and $1,000 for
the fiscal years ended June 30, 2002 and 2001, respectively.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The response to this item is submitted in Item 14 of this Annual Report on Form
10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

The Company has not changed accountants, and the Company does not have any
disagreements with its accountants, PricewaterhouseCoopers, on accounting and
financial disclosure required to be disclosed pursuant to Item 304 of Regulation
S-K promulgated under the Securities Exchange Act of 1934, as amended (Exchange
Act).

ITEM 9A. CONTROLS AND PROCEDURES

We maintain "disclosure controls and procedures" within the meaning of Rule
13a-14(c) of the Exchange Act ("Disclosure Controls and Procedures"). Our
Disclosure Controls and Procedures are designed to ensure that information
required to be disclosed in our Exchange Act reports is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
forms. Our Disclosure Controls and Procedures are also designed to ensure that
such information is accumulated and communicated to our management, including
our Chief Executive Officer and Chief Financial Officer, as appropriate to allow
timely decisions regarding required disclosure. It should be noted, however,
that any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control objectives,
and management necessarily was required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.

Based on an evaluation of the Company's disclosure controls and procedures (as
defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of
1934 (the "Exchange Act")) performed by our management, with the participation
of our Chief Executive Officer and Chief Financial Officer, as of the end of the
period covered by this Annual Report on Form 10-K, such officers have concluded
that the Disclosure Controls and Procedures are effective.

There has been no change in our internal control over financial reporting that
occurred during our most recent fiscal quarter that has materially affected, or
is reasonably likely to materially affect, our internal control over financial
reporting.


                                    PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES OF THE REGISTRANT

The information required by this Item with respect to executive officers is
included in Part I of this Form 10-K under the heading "Employees." The
information required by this Item with respect to our directors is incorporated
by reference from the information contained in the section entitled "Proposal
One--Election of Class I Directors" and "Proposal Two--Election of Class II
Director" in the definitive Proxy Statement for our 2003 Annual Meeting of
Stockholders ("the Proxy Statement"), a copy of which will be filed with the
Securities and Exchange Commission before the meeting date. The information
required by this Item with respect to compliance with Section 16(a) of the
Securities Exchange Act of 1934 is incorporated by reference from the
information contained in the section captioned "Section 16(a) Beneficial
Ownership Reporting Compliance" in the Proxy Statement.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item is incorporated by reference to the
information contained in the sections entitled "Executive Compensation and Other
Matters, " and "Performance Graph" in the definitive Proxy Statement for our
2003 Annual Meeting of Stockholders.

                                       40
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
------------------------------------------------------------------

The following table sets forth information regarding our equity compensation
plans as of June 30, 2003:
<TABLE><CAPTION>
                                                                                                 NUMBER OF SECURITIES REMAINING
                                     NUMBER OF SECURITIES TO            WEIGHTED-AVERAGE         AVAILABLE FOR FUTURE ISSUANCE
                                    BE ISSUED UPON EXERCISE OF         EXERCISE PRICE OF           UNDER EQUITY COMPENSATION
                                   UTSTANDING OPTIONS, WARRANTS       OUTSTANDING OPTIONS,        PLANS (EXCLUDING SECURITIES
                                            AND RIGHTS                WARRANTS AND RIGHTS           REFLECTED IN COLUMN (A))
PLAN CATEGORY                                  (A)                            (B)                             (C)
-------------------------------------------------------------------------------------------------------------------------------
<S>                                         <C>                             <C>                             <C>
Equity compensation plans
  approved by shareholders(1).........      3,268,769                       $  9.54                         1,366,130

Equity compensation plans not
  approved by shareholders(2).........         35,000                       $  7.35                                 -

Total.................................      3,303,769                       $  9.51                         1,366,130
</TABLE>
--------------------

(1)   INCENTIVE STOCK OPTION PLANS

      The aggregate number of shares of common stock for which options may be
      granted under the 2001 Approved Share Option Scheme is 125,000. The term
      of these non-transferable stock options may not exceed ten years. The
      exercise price is generally the fair market value on the date of grant or
      at a price determined by our directors. During the years ended June 30,
      2003 and 2002, the Company granted options to purchase 58,466 and 27,150
      shares, respectively. At June 30, 2003, 87,382 options were outstanding
      under the 2001 Approved Share Option Scheme, of which 31,573 options were
      exercisable.

      The aggregate number of shares of common stock for which options may be
      granted under the 1998 Stock Plan is 3,325,000. The term of these
      non-transferable stock options may not exceed ten years. The exercise
      price is generally the fair market value on the date of grant or at a
      price determined by our directors. During the years ended June 30, 2003
      and 2002, the Company granted options to purchase 1,195,309 and 485,750
      shares, respectively. At June 30, 2003, 2,325,418 options were outstanding
      under the 1998 Stock Plan, of which 1,222,153 options were exercisable.

      The aggregate number of shares of common stock for which options have been
      granted under the 1994 Stock Plan is 2,666,667. The term of these
      non-transferable stock options may not exceed ten years. The exercise
      price is generally the fair market value on the date of grant or at a
      price determined by our directors. During the years ended June 30, 2003
      and 2002, there were no options granted under the 1994 Stock Plan. At June
      30, 2003, 264,233 options were outstanding and exercisable under the 1994
      Stock Plan.

      The aggregate number of shares of common stock for which options have been
      granted under the 1984 Stock Plan is 3,333,333. The term of these
      non-transferable stock options may not exceed ten years. The exercise
      price is generally the fair market value on the date of grant or at a
      price determined by our directors. During the years ended June 30, 2003
      and 2002, there were no options granted under the 1984 Stock Plan. At June
      30, 2003, 13,001 options were outstanding and exercisable under the 1984
      Stock Plan.

      RESTRICTED STOCK PLANS

      The aggregate number of shares of common stock for which options have been
      granted under the 1987 Restricted Stock Option Plan is 1,668,334. The term
      of these non-transferable stock options may not exceed ten years. The
      terms, such as exercise price of the options, were determined at the date
      of grant. The plan terminated in September 1997. At June 30, 2003, 406,235
      options were outstanding and exercisable under the 1987 Restricted Stock
      Option Plan.

      The aggregate number of shares of common stock for which options may be
      granted under the 1998 Director Stock Plan is 250,000. The term of these
      non-transferable stock options may not exceed ten years. The exercise
      price is generally the fair market value on the date of grant. During the
      years ended June 30, 2003 and

                                       41
<PAGE>
      2002, the Company granted options to purchase 45,000 and 37,500 shares,
      respectively. At June 30, 2003, 172,500 options were outstanding under the
      1998 Director Stock Plan, of which 120,833 options were exercisable.

      EMPLOYEE STOCK PURCHASE PLAN

      The aggregate number of shares of common stock that are available for
      issuance under this plan as of June 30, 2003 is 573,840 shares and is
      included in column (c). As of June 30, 2003, there have been 1,092,108
      shares issued since the plan's inception. The plan provides for annual
      increases in the number of shares available for issuance on each
      anniversary date of the plan's adoption equal to the lesser of (i) the
      number of shares needed to restore the maximum aggregate number of shares
      available to 700,000, or (ii) an amount determined by the Board of
      Directors.

(2)   WARRANTS

      On January 15, 2002, in connection with obtaining our line of credit with
      Silicon Valley Bank, the Company issued stock warrants to purchase 35,000
      shares of the Company's Common Stock at an exercise price of $7.35 per
      share. The warrants vested immediately upon issuance and expire seven
      years from the date of the grant.

OTHER INFORMATION REQUIRED BY THIS ITEM
---------------------------------------

Certain other information required by this Item is incorporated by reference to
the information contained in the section entitled "Share Ownership of Beneficial
Owners" in the definitive Proxy Statement for our 2003 Annual Meeting of
Stockholders.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information required by this Item is incorporated by reference to the
information contained in the section entitled "Certain Transactions" in the
definitive Proxy Statement for our 2003 Annual Meeting of Stockholders.

ITEM 14. CONTROLS AND PROCEDURES.

The information required by this Item is incorporated by reference to the
information set forth in Item 9A of this Annual Report on Form 10-K.

ITEM 15. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The information required by this Item is not required of the Company as of the
date of this Annual Report on Form 10-K.


                                     PART IV

ITEM 16.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

           (A)   1. FINANCIAL STATEMENTS

                 The following financial statements are filed as a part of this
                 report:

                 Consolidated financial statements as of June 30, 2003 and 2002
                 and for each of the three years in the period ended June 30,
                 2003:

                 Report of Independent Accountants.........................  45
                 Consolidated Balance Sheets...............................  46
                 Consolidated Statements of Operations.....................  47
                 Consolidated Statements of Comprehensive Loss.............  47
                 Consolidated Statements of Stockholders' Equity...........  48
                 Consolidated Statements of Cash Flows.....................  49
                 Notes to Consolidated Financial Statements................  50

           2.    FINANCIAL STATEMENT SCHEDULE

                 Schedule II - Valuation and Qualifying Accounts...........  68


                                       42
<PAGE>
                 All other schedules are omitted because they are not applicable
                 or the required information is shown in our consolidated
                 financial statements or the notes to our consolidated financial
                 statements.

           3.    EXHIBITS

EXHIBIT
NUMBER                       DESCRIPTION
------                       -----------
2.4        Agreement and Plan of Merger and Reorganization by and among Extended
           Systems Incorporated, Venus Acquisition Corporation, ViaFone, Inc.,
           U.S. Bank N.A. as the Escrow Agent and Josh Stein as the Company
           Representative dated May 28, 2002. (5)
3.1        Restated Certificate of Incorporation. (1)
3.2        Restated Bylaws. (2)
4.1        Preferred Stock Rights Agreement, dated June 5, 2003, between the
           Registrant and Equiserve Trust Company, N.A., including the
           Certificate of Designation, the form of Rights Certificate and the
           Summary of Rights attached thereto as Exhibits A, B, and C,
           respectively. (7)
10.1       Form of Indemnification Agreement for directors and officers. (1)
10.2.1     1998 Stock Plan and form of agreement thereunder. (1)
10.2.2     Amendment 1 to the 1998 Stock Plan. (4)
10.3.1     1998 Employee Stock Purchase Plan and forms of participation
           agreements thereunder. (1)
10.3.2     Amendment 1 to the Employee Stock Purchase Plan. (4)
10.4.1     1998 Directors Stock Option Plan and form of agreement thereunder.
           (1)
10.4.2     Amendment 1 to the 1998 Directors Stock Option Plan. (4)
10.5       1994 Incentive Stock Option Plan. (1)
10.6       1987 Restricted Stock Option Plan, as amended. (1)
10.7       1984 Incentive Stock Option Plan, as amended. (1)
10.8       Extended Systems Incorporated 2001 Approved Share Option Scheme. (4)
10.9       Extended Systems Incorporated 401(k) Plan. (1)
10.10.1    Commercial/Investment Real Estate Purchase and Sale Agreement dated
           September 3, 2003 between Extended Systems of Idaho, Incorporated and
           Hopkins Real Estate Investment #I, LLC. *
10.10.2    Commercial Lease Agreement dated September 26, 3003 between Extended
           Systems of Idaho, Incorporated and Hopkins Real Estate Investments,
           LLC. *
10.10.3    Option Agreement dated September 26, 2003 between Extended Systems of
           Idaho, Incorporated and Hopkins Real Estate Investments, LLC. *
10.21      Employment Agreement between the Company and Steven D. Simpson. (1)
10.22      Employment Agreement between the Company and Raymond A. Smelek. *
10.26      Employment Agreement between the Company and Bradley J. Surkamer. (3)
10.27.1    Employment Agreement between the Company and Karla K. Rosa. (3)
10.27.2    Amendment to Employment Agreement between the Company and Karla K.
           Rosa. *
10.28      Employment Agreement between the Company and Raphael Auphan. (6)
10.29      Employment Agreement between the Company and Fernando Ruarte. (6)
10.30.1    Employment Agreement between the Company and Kerrin Pease. *
10.30.2    Amendment to Employment Agreement between the Company and Kerrin
           Pease. *
10.31.1    Employment Agreement between the Company and Mark A. Willnerd. *
10.31.2    Amendment to Employment Agreement between the Company and Mark A.
           Willnerd. *
10.32.1    Employment Agreement between the Company and Nigel Doust. *
10.32.2    Amendment to Employment Agreement between the Company and Nigel
           Doust. *
10.33      Employment Agreement between the Company and Charles W. Jepson.*
10.50      Separation Agreement between the Company and Donald J. Baumgartner. *
10.51      Separation Agreement between the Company and Bradley J. Surkamer. *
10.52      Separation Agreement between the Company and Fernando Ruarte. *
10.53      Separation Agreement between the Company and Raphael Auphan. *
10.54      Separation Agreement between the Company and Steven D. Simpson. *
21.1       List of Subsidiaries. *
23.1       Consent of Independent Accountants. *
31         Certification of Executive Officers pursuant to Section 302 of the
           Sarbanes-Oxley Act of 2002. *
32         Certification of Executive Officers pursuant to 18 U.S.C. Section
           1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
           2002. *
-----------
                                       43
<PAGE>
(1)  Incorporated by reference from the Registrant's Registration Statement on
     Form S-1 (File No. 333-42709) filed with the Securities and Exchange
     Commission on March 4, 1998.

(2)  Incorporated by reference from our Quarterly Report on Form 10-Q filed with
     the Securities and Exchange Commission on May 14, 1998.

(3)  Incorporated by reference from our Annual Report on Form 10-K filed with
     the Securities and Exchange Commission on September 28, 1999.

(4)  Incorporated by reference from our Annual Report on Form 10-K filed with
     the Securities and Exchange Commission on September 17, 2001.

(5)  Incorporated by reference from Registrant's Registration Statement on Form
     S-4, as amended (File No. 333-91202), filed initially with the Securities
     and Exchange Commission on July 19, 2002.

(6)  Incorporated by reference from our Annual Report on Form 10-K filed with
     the Securities and Exchange Commission on September 20, 2002.

(7)  Incorporated by reference from our Current Report on Form 8-K filed with
     the Securities and Exchange Commission on June 9, 2003.

*    Filed herewith.



(B)  REPORTS ON FORM 8-K

     On April 21, 2003, we filed a current report on Form 8-K in connection with
     the issuance of a press release dated April 21, 2003 announcing the
     financial results for the third fiscal quarter ended March 31, 2003.

     On June 9, 2003, we filed a current report on Form 8-K to announce the
     adoption of a stockholder rights plan pursuant to the Preferred Stock
     Rights Agreement between Extended Systems Incorporated and EquiServe Trust
     Company, N.A., a national banking association, as Rights Agent.






                                       44
<PAGE>
REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders of Extended Systems Incorporated

In our opinion, the consolidated financial statements listed in the index
appearing under Item 16(a)(1) on page 42 present fairly, in all material
respects, the financial position of Extended Systems Incorporated and its
subsidiaries at June 30, 2003 and 2002, and the results of their operations and
their cash flows for each of the three years in the period ended June 30, 2003
in conformity with accounting principles generally accepted in the United States
of America. In addition, in our opinion, the financial statement schedule listed
in the index appearing under Item 16(a)(2) on page 42 presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial statements
and the financial statement schedule are the responsibility of Extended Systems
Incorporated's management; our responsibility is to express an opinion on these
financial statements and the financial statement schedule based on our audits.
We conducted our audits of these statements in accordance with auditing
standards generally accepted in the United States of America, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

/s/ PRICEWATERHOUSECOOPERS LLP

San Jose, California
July 25, 2003 (with the exception of Note 16, which is dated September 26, 2003)





                                       45
<PAGE>
EXTENDED SYSTEMS INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)

<TABLE><CAPTION>
                                                                              JUNE 30,        JUNE 30,
                                                                                2003            2002
                                                                             ----------      ----------
<S>                                                                          <C>             <C>
ASSETS
Current:
   Cash and cash equivalents ...........................................     $    3,502      $    5,439
   Receivables, net of allowances of $914 and $831 .....................          5,644           4,284
   Prepaids and other ..................................................            966           1,719
                                                                             ----------      ----------
      Total current assets .............................................         10,112          11,442
Property and equipment, net ............................................          5,293           5,786
Goodwill ...............................................................         12,489           1,941
Intangibles, net .......................................................          1,197           1,202
                                                                             ----------      ----------
      Total assets .....................................................     $   29,091      $   20,371
                                                                             ==========      ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current:
   Accounts payable ....................................................     $    2,314      $    2,377
   Accrued expenses ....................................................          2,888           2,739
   Deferred revenue ....................................................          2,961           2,167
   Accrued restructuring ...............................................            722              --
   Current portion of long-term debt ...................................            434              --
   Current portion of capital leases ...................................             22              --
                                                                             ----------      ----------
      Total current liabilities ........................................          9,341           7,283

Non-current:
   Long-term debt ......................................................            325              --
   Capital leases ......................................................             42              --
   Other long-term liabilities .........................................            127              --
                                                                             ----------      ----------
      Total non-current liabilities ....................................            494              --
                                                                             ----------      ----------
      Total liabilities ................................................          9,835           7,283

Commitments and contingencies--Note 11

Stockholders' equity:
   Preferred stock; $0.001 par value per share, 5,000 shares authorized;
      no shares issued or outstanding ..................................             --              --
   Common stock; $0.001 par value per share, 75,000 shares authorized;
      13,977 and 11,208 shares issued and outstanding ..................             14              11
   Additional paid-in capital ..........................................         44,481          34,053
   Treasury stock; $0.001 par value per share, 261 and 0 common shares .             --              --
   Accumulated deficit .................................................        (23,884)        (20,124)
   Accumulated other comprehensive loss ................................         (1,355)           (852)
                                                                             ----------      ----------
      Total stockholders' equity .......................................         19,256          13,088
                                                                             ----------      ----------
      Total liabilities and stockholders' equity .......................     $   29,091      $   20,371
                                                                             ==========      ==========
</TABLE>

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

                                       46
<PAGE>
EXTENDED SYSTEMS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE><CAPTION>
                                                             FOR THE YEARS ENDED JUNE 30,
                                                     ------------------------------------------
                                                        2003            2002            2001
                                                     ----------      ----------      ----------
<S>                                                  <C>             <C>             <C>
Revenue:
   License fees and royalties ..................     $   21,733      $   19,176      $   19,928
   Services ....................................          5,743           3,058           2,721
   Hardware and other ..........................             58              41           4,261
                                                     ----------      ----------      ----------
      Total net revenue ........................         27,534          22,275          26,910

Costs and expenses:
   Cost of license fees and royalties ..........          1,146           1,346           1,765
   Cost of services ............................          3,209           1,198           1,742
   Cost of hardware and other ..................            (24)              9           3,769
   Research and development ....................          7,173          10,030          12,446
   Acquired in-process research and development             430              --              --
   Marketing and sales .........................         14,482          13,489          17,542
   General and administrative ..................          4,889           4,381           7,169
   Amortization of goodwill ....................              0             925             925
   Restructuring charge ........................            597             213           1,066
                                                     ----------      ----------      ----------
      Total costs and expenses .................         31,902          31,591          46,424
                                                     ----------      ----------      ----------
      Loss from operations .....................         (4,368)         (9,316)        (19,514)
Other expense (income), net ....................           (257)              4            (457)
Interest expense ...............................            307              70              (1)
                                                     ----------      ----------      ----------
      Loss before income taxes .................         (4,418)         (9,390)        (19,056)
Income tax (benefit) provision .................           (200)         (2,257)          7,228
                                                     ----------      ----------      ----------
      Loss from continuing operations ..........         (4,218)         (7,133)        (26,284)
Discontinued operations, net of tax:
      Income (loss) from discontinued operations            458             (57)          2,810
                                                     ----------      ----------      ----------
      Net loss .................................     $   (3,760)     $   (7,190)     $  (23,474)
                                                     ==========      ==========      ==========

Basic and diluted (loss) per share:
   Loss from continuing operations .............     $    (0.31)     $    (0.64)     $    (2.48)
   Income (loss) from discontinued operations ..           0.03           (0.01)           0.26
                                                     ----------      ----------      ----------
Basic and diluted loss per share ...............     $    (0.28)     $    (0.65)     $    (2.22)
                                                     ==========      ==========      ==========

Number of shares used in per share calculations:
   Basic and diluted ...........................         13,376          11,048          10,587


CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(IN THOUSANDS)
                                                           FOR THE YEARS ENDED JUNE 30,
                                                     ------------------------------------------
                                                        2003            2002            2001
                                                     ----------      ----------      ----------
Net loss........................................     $   (3,760)     $   (7,190)     $  (23,474)
Change in currency translation..................           (503)            (65)           (108)
                                                     ----------      ----------      ----------
      Comprehensive loss........................     $   (4,263)     $   (7,255)     $  (23,582)
                                                     ==========      ==========      ==========
</TABLE>

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

                                       47
<PAGE>
EXTENDED SYSTEMS INCORPORATED

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE><CAPTION>
                                    COMMON STOCK                         RETAINED                  ACCUMULATED
                               ----------------------     ADDITIONAL     EARNINGS                      OTHER         TOTAL
                                                            PAID-IN    (ACCUMULATED    DEFERRED   COMPREHENSIVE  STOCKHOLDERS'
                                SHARES        AMOUNT        CAPITAL      DEFICIT)    COMPENSATION      LOSS         EQUITY
                               --------      --------      --------      --------      --------      --------      --------
<S>                            <C>           <C>           <C>           <C>           <C>           <C>           <C>
BALANCE AT JUNE 30, 2000 .....   10,309            10        28,108        10,540          (264)         (679)       37,715

   Net loss ..................       --            --            --       (23,474)           --            --       (23,474)
   Translation adjustment ....       --            --            --            --            --          (108)         (108)
   Employee stock plans ......      662             1         4,629            --            --            --         4,630
   Compensatory options ......       --            --           (12)           --           187            --           175
                               --------      --------      --------      --------      --------      --------      --------
BALANCE AT JUNE 30, 2001 .....   10,971            11        32,725       (12,934)          (77)         (787)       18,938
                               ========      ========      ========      ========      ========      ========      ========

   Net loss ..................       --            --            --        (7,190)           --            --        (7,190)
   Translation adjustment ....       --            --            --            --            --           (65)          (65)
   Stock issued in business
    combinations .............       34            --           204            --            --            --           204
   Stock warrants ............       --            --           209            --            --            --           209
   Employee stock plans ......      203            --           956            --            --            --           956
   Compensatory options ......       --            --           (41)           --            77            --            36
                               --------      --------      --------      --------      --------      --------      --------
BALANCE AT JUNE 30, 2002 .....   11,208      $     11      $ 34,053      $(20,124)     $     --      $   (852)     $ 13,088
                               ========      ========      ========      ========      ========      ========      ========

   Net loss ..................       --            --            --        (3,760)           --            --        (3,760)
   Translation adjustment ....       --            --            --            --            --          (503)         (503)
   Notes issued / payments
    received .................                                  157                                                     157
   Stock issued in business
    combinations .............    2,550             3         9,894            --            --            --         9,897
   Stock warrants ............       --            --            --            --            --            --
   Employee stock plans ......      219            --           377            --            --            --           377
   Compensatory options ......       --            --            --            --            --            --
                               --------      --------      --------      --------      --------      --------      --------
BALANCE AT JUNE 30, 2003 .....   13,977      $     14      $ 44,481      $(23,884)     $     --      $ (1,355)     $ 19,256
                               ========      ========      ========      ========      ========      ========      ========
</TABLE>

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

                                       48
<PAGE>
EXTENDED SYSTEMS INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE><CAPTION>
                                                                                       FOR THE YEARS ENDED JUNE 30,
                                                                               ------------------------------------------
                                                                                  2003            2002            2001
                                                                               ----------      ----------      ----------
<S>                                                                            <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss ..............................................................     $   (3,760)     $   (7,190)     $  (23,474)
   Adjustments to reconcile net loss to net cash used by operating
      activities:
   Provision for bad debts ...............................................             85             383             793
   Provision for product returns .........................................             --               1             401
   Provision for excess and obsolete inventory ...........................             86              24             785
   Depreciation and amortization .........................................          1,905           2,917           3,134
   Acquired in-process research and development ..........................            430              --              --
   Tax benefit from employee stock options ...............................             --              --           1,308
   Deferred income taxes .................................................             --              --           6,500
   Stock option compensation .............................................             --              36             175
   Other .................................................................            250             (56)           (237)
   Changes in assets and liabilities, net of effect of acquisitions:
      Receivables ........................................................             33           3,226           2,772
      Inventories ........................................................             (1)            306             878
      Prepaids and other assets ..........................................           (385)           (517)            203
      Deferred revenue ...................................................            226             827             572
      Accounts payable and accrued expenses ..............................         (2,032)         (2,429)          2,139
                                                                               ----------      ----------      ----------
          Net cash used by operating activities ..........................         (3,163)         (2,472)         (4,051)
                                                                               ----------      ----------      ----------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of property and equipment ....................................            (46)           (148)         (1,095)
   Proceeds from the sale of property and equipment ......................             15              16             671
   Proceeds from the sale of discontinued operations, net of cash expenses             --             512           1,601
   Acquisitions:
      ViaFone, net of cash acquired ......................................          1,119              --              --
      AppReach, Inc., net of cash acquired ...............................             --             (15)             --
   Other investing activities ............................................            160              97              42
                                                                               ----------      ----------      ----------
          Net cash provided by (used by) investing activities ............          1,248             462           1,219
                                                                               ----------      ----------      ----------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from the issuance of common stock ............................            376             871           3,297
   Payments on long-term debt ............................................           (499)             --             (67)
                                                                               ----------      ----------      ----------
          Net cash provided by (used by) financing activities ............           (123)            871           3,230
   Effect of exchange rate changes on cash ...............................            101              (7)             (4)
                                                                               ----------      ----------      ----------
   Net increase (decrease) in cash and cash equivalents ..................         (1,937)         (1,146)            394

CASH AND CASH EQUIVALENTS:
   Beginning of year .....................................................          5,439           6,585           6,191
                                                                               ----------      ----------      ----------
   End of year ...........................................................     $    3,502      $    5,439      $    6,585
                                                                               ==========      ==========      ==========
</TABLE>
                 The accompanying notes are an integral part of
                      the consolidated financial statements

                                       49
<PAGE>
EXTENDED SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------

NOTE 1.  BASIS OF PRESENTATION

Our consolidated financial statements include Extended Systems Incorporated, a
Delaware corporation, and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated on consolidation. Tabular amounts
are in thousands, except years, percentages and per share amounts.

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

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

We have a history of incurring losses from operations and have an accumulated
deficit of approximately $23.9 million as of June 30, 2003. For the year ended
June 30, 2003, we incurred a loss from operations of approximately $3.8 million,
and negative cash flows from operations of approximately $3.2 million. At June
30, 2003, we had cash and cash equivalents of $3.5 million. Subsequent to that
date we closed the sale of our Boise building and approximately eight acres of
land under a sale-and-leaseback agreement, generating additional cash proceeds
of $4.6 million. Management believes that our existing working capital and
borrowing capacity, the funds we have generated from the property transaction
and the funds we expect to generate from our operations will be sufficient to
fund our anticipated working capital and capital expenditure requirements
through at least June 30, 2004.

Management cannot be certain, however, that the underlying assumed levels of
revenues and expenses will be accurate. If operating results were to fail to
meet management's expectations, we could be required to seek additional sources
of liquidity. These sources of liquidity could include raising funds through
public or private debt financing, borrowing against our line of credit or
offering additional equity securities. If additional funds are raised through
the issuance of equity securities, substantial dilution to our stockholders
could result. In the event additional funds are required, adequate funds may not
be available when needed or may not be available on favorable terms, which could
have a negative effect on our business and results of operations.


NOTE 2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ACCOUNTING CHANGES. We completed the adoption of Statement of Financial
Accounting Standards ("SFAS") No. 141, "Business Combinations," and SFAS No.
142, "Goodwill and Other Intangible Assets," effective July 1, 2002. SFAS No.
141 requires all business combinations initiated after June 30, 2001 to be
accounted for using the purchase method of accounting. SFAS No. 142 requires,
among other things, the discontinuance of goodwill amortization. In addition,
the standard requires, upon adoption, the reclassification of certain existing
recognized intangibles as goodwill, reassessment of the useful lives of existing
recognized intangibles and reclassification of certain intangibles out of
previously reported goodwill. Impairment of existing goodwill must be tested at
least annually thereafter. We perform our annual impairment test in the fourth
quarter of each fiscal year. For fiscal 2003 we found there to be no impairment
of our goodwill.

As of the beginning of fiscal 2003, we discontinued amortization of
approximately $1.9 million of net goodwill as required by SFAS No. 142. Because
an assembled workforce no longer meets the definition of an identifiable
intangible asset, we reclassified the net assembled workforce balance on our
books of $138,000 to goodwill as of the beginning of fiscal 2003. In lieu of
amortization, we performed an impairment review of our goodwill balance upon the
initial adoption of SFAS No. 142. We concluded that there was no impairment in
our recorded goodwill.

                                       50
<PAGE>
In accordance with SFAS No. 142, the effect of adopting this accounting change
is reflected prospectively. The following table presents comparative financial
information showing the effects that discontinuance of goodwill amortization
would have had on the income statement for the fiscal years ended:

                                                           JUNE 30,
                                                  --------------------------
                                                     2003            2002
                                                  ----------      ----------
Net loss:
Reported net loss ...........................     $   (3,760)     $   (7,190)
Goodwill amortization (1) ...................             --             925
                                                  ----------      ----------
Adjusted net loss ...........................     $   (3,760)     $   (6,265)
                                                  ==========      ==========

Basic and diluted loss per share:

Reported loss per share .....................     $    (0.28)     $    (0.65)
Goodwill amortization (1) ...................             --            0.08
                                                  ----------      ----------
Adjusted basic and diluted loss per share....     $    (0.28)     $    (0.57)
Number of shares used in per share
calculations ................................         13,376          11,048

(1)      Includes $75,000 of amortization related to assembled workforce assets
         that were reclassified as goodwill effective July 1, 2002.

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

Effective January 1, 2003, we adopted SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities", which supersedes Emerging Issues
Task Force ("EITF") Issue No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring). This new standard requires companies to
recognize costs associated with exit or disposal activities when the costs are
incurred rather than at the date of a commitment to an exit or disposal plan.
Costs covered by the standard include lease termination costs and certain
employee severance costs that are associated with a restructuring, discontinued
operation, plant closing, or other exit or disposal activity. Adoption of this
statement had no material effect on our financial position or results of
operations.

Effective January 1, 2003, we adopted the disclosure provisions of FASB
Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others." FIN 45 requires that a liability be recorded in the guarantor's balance
sheet upon issuance of a guarantee. In addition, FIN 45 requires disclosures
about the guarantees that an entity has issued, including a reconciliation of
changes in the entity's product warranty liabilities. The initial recognition
and initial measurement provisions of FIN 45 are applicable on a prospective
basis to guarantees issued or modified after December 31, 2002, irrespective of
the guarantor's fiscal year-end. The adoption of this interpretation did not
have a material effect on our financial position or results of operations.
Disclosure of our guarantees, indemnifications, and warranties is included in
Note 11 of our financial statements.

Effective January 1, 2003, we adopted the interim disclosure provisions of SFAS
No. 148, "Accounting for Stock-Based Compensation, Transition and Disclosure."
SFAS No. 148 provides alternative methods of transition for a voluntary change
to the fair value based method of accounting for stock-based employee
compensation. SFAS No. 148 also requires that disclosures of the pro forma
effect of using the fair value method of accounting for stock-based employee
compensation be displayed more prominently and in a tabular format. The
transition and annual disclosure requirements are effective for our fiscal year
beginning July 1, 2003. We currently plan to continue accounting for stock-based
compensation under Accounting Principles Board Opinion No. 25 ("APB No. 25"),
"Accounting for Stock Issued to Employees," and do not anticipate changing to
the fair value method of accounting.

                                       51
<PAGE>
We apply APB No. 25 and its related interpretations to measure compensation
expense for stock-based compensation plans. If compensation expense for our
stock option plans had been determined under SFAS No. 123, our net loss would
have been equal to the pro forma amounts indicated below for the years ended
June 30:
                                          2003           2002           2001
                                      ----------     ----------     ----------
As reported:
   Net loss.......................... $   (3,760)    $   (7,190)    $  (23,474)
   Loss per share:
      Basic and diluted..............      (0.28)         (0.65)         (2.22)
Pro forma:
   Net loss..........................     (9,412)       (13,901)       (31,545)
   Loss per share:
      Basic and diluted..............      (0.70)         (1.26)         (2.98)

We determined the fair value of options at the date of grant using the
Black-Scholes option-pricing model. We assumed no future dividends will be paid.
The other weighted-average assumptions and the weighted-average fair values of
stock options are as follows for the years ended June 30:

                                             2003        2002        2001
                                            ------      ------      ------
Risk-free interest rate:
   Option plans...........................     4.6%        4.6%        5.6%
   Purchase plan..........................     3.3%        3.7%        4.7%
Volatility factor.........................     103%        113%         99%

Expected life in years:
   Option plans...........................     7.6         7.6         7.6
   Purchase plan..........................     0.5         0.7         1.6

Fair value at grant date:
   Exercise price equal to market price...  $ 2.37      $ 4.30      $26.07
   Exercise price less than market price..  $   --      $   --      $   --


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

From time to time, we enter into foreign currency forward contracts, typically
against the Canadian dollar, euro and the British pound sterling to manage
fluctuations in the value of foreign currencies on transactions with our
international subsidiaries, thereby limiting our risk that would otherwise
result from changes in currency exchange rates. While these instruments are
subject to fluctuations in value, these fluctuations are generally offset by
fluctuations in the value of the underlying asset or liability being managed.
These forward contracts do not qualify for hedge accounting under SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, and, as such, the
contracts are recorded in the consolidated balance sheet at fair value. We
report a net currency gain or loss based on changes in the fair value of forward
contracts combined with the changes in fair value of the underlying asset or
liability being managed. As of June 30, 2003, we had no forward contracts in
place. As of June 30, 2002, we had forward contracts with a nominal value of
$1.9 million in place against the euro and British pound sterling, which matured
within 30 days. We recognized a net currency exchange gain of $261,182 for the
fiscal year ended June 30, 2003 and net currency exchange losses of $129,000 and
$1,000 for the fiscal years ended June 30, 2002 and 2001, respectively.

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

                                       52
<PAGE>
Our diluted earnings or loss per share computations exclude the following common
stock equivalents as the impact of their inclusion would have been antidilutive:

                                                    2003      2002     2001
Stock options..................................    3,269     2,787    2,819
Warrants.......................................       35        35       --

REVENUE. License and royalty revenue consists principally of fees earned from
the licensing of our software, as well as royalty fees earned upon the shipment
or activation of products that incorporate our software. Revenue from software
license fees is recognized when the licensed product is delivered, collection is
reasonably assured, the fee for each element of the transaction is fixed or
determinable, persuasive evidence of an arrangement exists, and vendor-specific
objective evidence exists for all undelivered elements of the arrangement.
Portions or all of the revenue may be deferred in cases where the license
arrangement calls for the future delivery of products or services for which we
do not have vendor-specific objective evidence to allocate a portion of the
total fee to the undelivered element. In such cases, revenue is recognized when
the undelivered elements are delivered or vendor-specific objective evidence of
the undelivered elements becomes available. However, if such undelivered
elements consist of services that are essential to the functionality of the
software, license and service revenue is recognized using contract accounting,
generally on a percentage of completion basis. If license arrangements include
the rights to unspecified future products, revenue is recognized over the
contractual or estimated economic term of the arrangement. Royalty revenue is
generally recognized when reported to us, which occurs after shipment or
activation of the related products. In cases where the arrangement with a
customer provides for a prepaid nonrefundable royalty, we generally recognize
revenue when persuasive evidence of an arrangement exits, delivery has occurred,
the fee is fixed or determinable and collection of the resulting receivable is
reasonably assured.

Service revenue consists of consulting, support and maintenance, and other
services. Revenue for consulting and other services, including training revenue,
is generally recognized as services are performed. Support and maintenance
includes both updates and technical support. Support and maintenance revenue is
recognized ratably over the term of the agreement, and generally represents a
fixed percentage of license fees incurred under the contract. Where software
license agreements include a combination of consulting, support and maintenance,
and other services, any fees related to undelivered elements are unbundled from
the arrangement based on their vendor specific objective evidence of fair value
and the residual fees after the unbundling are allocated to the delivered
elements and recognized as revenue ("the residual method"). For certain of our
products, we do not sell maintenance separately, but do provide minimal support
and bug fixes and, from time to time, minor enhancements to ensure that the
products comply with their warranty provisions. Accordingly, we allow for
warranty costs at the time the product revenue is recognized.

Revenue from 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.

RESEARCH AND DEVELOPMENT COSTS are expensed as incurred.

SOFTWARE DEVELOPMENT COSTS. Under Statement of Financial Accounting Standards
No. 86, Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed, certain software development costs incurred subsequent to
the establishment of technological feasibility are capitalized and amortized
over the estimated lives of the related products. Technological feasibility is
established upon completion of a working model, which is typically demonstrated
by initial beta shipment. The period between the achievement of technological
feasibility and the general release of our products has been of short duration.
As a result, to date, technological feasibility has been considered to be
established concurrent with the general release of the software and, therefore,
no costs have been capitalized.

ADVERTISING COSTS are expensed as incurred. Our advertising costs were $962,000
in fiscal 2003, $1,534,000 in fiscal 2002 and $3,404,000 in fiscal 2001.

FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF RISK. Our cash equivalents are
highly liquid investments with original maturities of three months or less,
readily convertible to known amounts of cash. We consider the amounts we report
as cash equivalents and receivables as reasonable approximations of their fair
values. We made these estimates of fair value in accordance with the
requirements of Statement of Financial Accounting Standard No. 107, `Disclosure
about Fair Value of Financial Instrument.' We based the fair value estimates on
market information available to us as of June 30, 2003. The use of different
market assumptions and estimation methodologies could have a material effect on
our estimated fair value amounts.

From time to time, we enter into foreign currency forward contracts, typically
against the Canadian dollar, euro and British Pound, to hedge payments and
receipts of foreign currencies related to the purchase and sale of goods to our

                                       53
<PAGE>
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. We do not hold or issue financial
instruments for speculative purposes.

Financial instruments that potentially subject us to concentrations of credit
risk consist primarily of cash and trade accounts receivable. Our cash balances
held in financial institutions may, at times, exceed federally insured amounts.
We invest cash through high-credit-quality financial institutions and, by
policy, limit the concentration of credit exposure by restricting investments
with any single obligor. We perform ongoing credit evaluations on customers and
generally do not require collateral.

PROPERTY AND EQUIPMENT are stated at cost and depreciated using the
straight-line method over estimated useful lives of 7 to 15 years for land
improvements, 7 to 40 years for buildings, 3 to 5 years for computer equipment
and 5 to 7 years for furniture and fixtures. Our depreciation and amortization
expense for property and equipment was $1.2 million in fiscal 2003, $1.3 million
in fiscal 2002 and $1.4 million in fiscal 2001. We remove the net book value of
property and equipment retired or otherwise disposed of from our books and
include the net gain or loss in the determination of our results of operations.

IMPAIRMENT OF LONG-LIVED ASSETS. We review the carrying value of long-lived
assets, comprised mainly of property and equipment, goodwill and intangible
assets, for impairment whenever events and circumstances indicate that we may
not recover the carrying value of an asset from the estimated future cash flows
expected to result from its use and eventual disposition. In cases where
expected future cash flows are less than the carrying value, we recognize an
impairment loss equal to an amount by which the carrying value exceeds the fair
value of assets. No assets were considered impaired at June 30, 2003 or 2002.

PRODUCT WARRANTY AND SUPPORT. We offer warranties and free support on certain
products and record an accrual for the estimated future costs associated with
warranty claims and support, which is based upon historical experience and our
estimate of the level of future costs. Warranty costs are reflected in our
statement of operations as a cost of net revenues.

INCOME TAXES. We recognize deferred tax assets and liabilities for the expected
future tax consequences of temporary differences between the financial statement
carrying amounts and the tax basis of assets and liabilities. We record a
valuation allowance against deferred tax assets when it is more likely than not
that such assets will not be realized.

Our consolidated income tax provision or benefit is allocated to continuing and
discontinued operations based principally on the taxable income or loss and tax
credits directly attributable to each operation. Such allocations reflect each
operation's contribution to our consolidated federal taxable income or loss and
the consolidated federal tax asset or liability and tax credit position. We
credited tax benefits that cannot be used by the operation generating those
benefits but can be used on a consolidated basis to the operation that generated
such benefits. Accordingly, the amounts of taxes payable or refundable allocated
to each operation may not necessarily be the same as that which would have been
payable or refundable had each operation filed a separate income tax return.

RECENTLY ISSUED ACCOUNTING STANDARDS. In January 2003, the FASB issued
Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities,
an Interpretation of ARB No. 51." FIN 46 requires certain variable interest
entities to be consolidated by the primary beneficiary of the entity if the
equity investors in the entity do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for the entity to
finance its activities without additional subordinated financial support from
other parties. FIN 46 is effective for all new variable interest entities
created or acquired after January 31, 2003. For variable interest entities
created or acquired prior to February 1, 2003, the provisions of FIN 46 must be
applied for the first interim or annual period beginning after June 15, 2003. We
believe we have no investment in or contractual relationship or other business
relationship with a variable interest entity, and therefore, the adoption of
this interpretation did not have any impact on our financial position or results
of operations.

In April 2003, the FASB issued SFAS 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS 149 amends and clarifies
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities under SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS 149 is
generally effective for derivative instruments, including derivative instruments
embedded in certain contracts, entered into or modified after June 30, 2003 and
for hedging relationships designated after June 30, 2003. We do not expect
adoption of this statement to have a material impact on our financial position
or results of operations.

                                       54
<PAGE>
In May 2003, the FASB issued SFAS 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." SFAS 150
improves the accounting for certain financial instruments that, under previous
guidance, issuers could account for as equity and requires that those
instruments be classified as liabilities (or assets in certain circumstances) in
statements of financial position. SFAS 150 also requires disclosures about
alternative ways of settling the instruments and the capital structure of
entities--all of whose shares are mandatorily redeemable. SFAS 150 is generally
effective for all financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. We do not expect the adoption of this statement
to have a material impact on our financial position or results of operations.

NOTE 3.  SUPPLEMENTAL CASH FLOW INFORMATION

Our selected cash payments and non-cash activities were as follows for the years
ended June 30:
                                               2003         2002         2001
                                             ----------------------------------
Income taxes paid (refunded), net........... $     26     $ (1,375)    $ (1,393)
Stock issued in business combinations.......    9,894          204           --
Deferred compensation.......................       --          (41)         (12)
Interest paid...............................       91           41           22

NOTE 4.  DISCONTINUED OPERATIONS

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

The following summarizes the results of discontinued operations:

                                                FOR THE YEARS ENDED JUNE 30,
                                               2003         2002         2001
                                             ----------------------------------
Net revenue................................. $  1,488     $  2,687     $ 21,129
Gross profit................................      696        1,175        8,091
Income tax provision........................      273          491        1,662
Income (loss) from discontinued operations,
  net of taxes..............................      458          278        2,740
Gain (loss) on sale of discontinued
  operations, net of taxes..................       --         (335)          70
Earnings (loss) per share from discontinued
  operations:
      Basic and diluted.....................     0.03        (0.01)        0.26

NOTE 5.  RESTRUCTURING CHARGES

We recorded $597,000 in workforce reduction costs during fiscal 2003, consisting
primarily of severance, benefits, and other costs related to the termination of
31 employees in research and development, marketing and sales, manufacturing,
and administration, of which 24 were located in the United States, 3 in Canada
and 4 in Europe. As of June 30, 2003 we had paid $409,000 of these charges. The
remaining balance of $188,000 will be paid in the first two quarters of fiscal
2004.

During the first quarter of fiscal 2003 we also assumed a restructuring
liability in connection with our acquisition of ViaFone. Prior to our
acquisition of the company, ViaFone had implemented a restructuring program that
resulted in charges for workforce reduction costs, costs related to closing its
office in France and excess facilities costs related to lease commitments for
space no longer used in Brisbane, California. At the time we completed the
ViaFone acquisition, there were $993,000 of future lease commitments that had
been accrued but not yet paid, $266,000 of workforce reduction liabilities and
$30,000 of liabilities relating to the closure of ViaFone's French office. As of
June 30, 2003 the workforce reduction liabilities and liabilities related to
closing ViaFone's French office had been paid in full, and the balance of future
lease commitments assumed was $534,000. We will pay $145,000 in each of the next
three quarters and $99,000 in the final quarter of fiscal 2004 for these lease
commitments.
                                       55
<PAGE>
A summary of the restructuring costs is outlined as follows:
<TABLE><CAPTION>
                                                              Workforce     Facilities
                                                              Reduction        and
                                                                Costs       Other Costs      Total
                                                              ----------    ----------    ----------
<S>                                                           <C>           <C>           <C>
Restructuring charges incurred in fiscal 2001 ..............  $    1,096    $       --    $    1,096
Cash payments ..............................................          --            --            --
                                                              ----------    ----------    ----------
Balance at June 30, 2001 ...................................       1,096            --         1,096
Restructuring charges incurred in fiscal 2002 ..............         213            --           213
Cash payments ..............................................      (1,309)           --        (1,309)
                                                              ----------    ----------    ----------
Balance at June 30, 2002 ...................................  $       --    $       --    $       --
Restructuring charges incurred in fiscal 2003 ..............         597            --           597
Restructuring accrual assumed with ViaFone acquisition .....         266         1,023         1,289
Adjustment to the accrual assumed with ViaFone acquisition..         (14)           --           (14)
Cash payments ..............................................        (661)         (489)       (1,150)
                                                              ----------    ----------    ----------
Balance at June 30, 2003 ...................................  $      188    $      534    $      722
                                                              ==========    ==========    ==========
</TABLE>

NOTE 6.  GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS

We recorded $11.0 million of goodwill upon closing of the ViaFone acquisition in
the first quarter of fiscal 2003. In the second, third, and fourth quarters of
fiscal 2003, we adjusted the purchase price allocation to reflect a reduction in
accrued acquisition costs and revisions to the fair values of certain assets
acquired and liabilities assumed at the date of acquisition. These adjustments
resulted in a net decrease to goodwill of approximately $198,000, $346,000 and
$17,000, respectively. No goodwill was impaired or written off in fiscal 2003.
The changes in the carrying amount of goodwill for the fiscal year 2003 are as
follows:
<TABLE><CAPTION>
<S>                                                                                       <C>
Balance as of June 30, 2002............................................................   $    1,941
Reclassification of certain intangibles in connection with SFAS 142 adoption...........          138
Acquisitions during the period.........................................................       10,971
Post-acquisition adjustments in the second quarter of fiscal 2003......................         (198)
Post-acquisition adjustments in the third quarter of fiscal 2003.......................         (346)
Post-acquisition adjustments in the fourth quarter of fiscal 2003......................          (17)
                                                                                          ----------
Balance as of June 30, 2003............................................................   $   12,489
                                                                                          ==========
</TABLE>

Upon closing of the ViaFone acquisition in the first quarter of fiscal 2003, we
acquired purchased technology valued at $780,000 with an amortization period of
five years. Customer relationship assets acquired with the ViaFone acquisition
were valued at $80,000 with an amortization period of five years. Other
identifiable intangible assets, excluding goodwill, consist of the following:
<TABLE><CAPTION>
                                                         AS OF JUNE 30,
                            -------------------------------------------------------------------------
                                           2003                                   2002
                            ----------------------------------     ----------------------------------
                              Gross                                 Gross
                            Carrying   Accumulated                 Carrying    Accumulated
                             Amount    Amortization      Net        Amount     Amortization     Net
                            --------     --------     --------     --------     --------     --------
<S>                         <C>          <C>          <C>          <C>          <C>          <C>
Purchased technology ....   $  3,691     $ (2,561)    $  1,130     $  2,911     $ (1,848)    $  1,063
Assembled workforce (1)..         --           --           --          375         (237)         138
Customer relationships...         80          (13)          67           --           --           --
Non-compete covenants ...          6           (6)          --            6           (6)          --
Other ...................          5           (5)          --            5           (4)           1
                            --------     --------     --------     --------     --------     --------
Total ...................   $  3,782     $ (2,585)    $  1,197     $  3,297     $ (2,095)    $  1,202
                            ========     ========     ========     ========     ========     ========
</TABLE>

(1)  As part of our adoption of SFAS No. 142, we reclassified $138,000 of net
     assembled workforce to goodwill as of July 1, 2002.

Amortization of other intangible assets, reported as a component of cost of net
revenue, was $726,000 for fiscal 2003 and $582,000 the fiscal years 2002. Based
on the identified intangible assets recorded at June 30, 2003, the estimated
future amortization expense for the fiscal years 2004, 2005, 2006, 2007 and 2008
is $621,000, $204,000, $172,000, $172,000, and $28,000, respectively.

                                       56
<PAGE>
NOTE 7.  BUSINESS COMBINATIONS

VIAFONE, INC. In August 2002, we completed our acquisition of ViaFone. ViaFone
was a privately held, leading provider of real-time, mobile platform and mobile
applications that connect field sales and service employees with critical
business systems, information and processes of their enterprise. As a result of
the acquisition, we expect to benefit from the licensing of ViaFone's software
technology and from the addition of an experienced professional services
organization. We also expect to benefit from the strong cross-selling
opportunities present within each company's customer base and strategic
relationships. The adjusted total purchase price of $10.6 million consisted of
$9.9 million of Extended Systems common stock (2,550,000 shares issued based on
the average stock price for the five trading days surrounding May 28, 2002) and
$0.7 million of direct transaction costs. The total purchase price decreased by
$87,000 in the second quarter of fiscal 2003 due to an $87,000 decrease in
direct transaction costs resulting from the true-up of accrued transaction costs
at the time of payment. In exchange for the Extended Systems common stock
issued, all outstanding shares of ViaFone common and preferred stock were
acquired. As part of the acquisition agreement, an additional 450,000 shares of
Extended Systems common stock were issued to shareholders of ViaFone and placed
in an escrow fund for a period of up to one year to be used as the exclusive
source of reimbursement to us for breaches of certain terms of the agreement,
including, among other provisions, failure of ViaFone to achieve certain revenue
and net loss targets for the nine months ended September 30, 2002. ViaFone did
not meet these revenue and net loss targets, and all 450,000 shares held in
escrow were returned to us in December 2002 to satisfy our claims against the
escrow. In accordance with the applicable provisions of the Delaware General
Corporation Law, all 450,000 shares automatically became treasury stock.

The transaction was accounted for as a purchase pursuant to SFAS No. 141. The
purchase price was allocated as follows:
                                               AMORTIZATION
                                                  PERIOD           AMOUNT
                                               ------------     ------------
Existing technology............................   5 yrs.        $        780
In-process research and development............    n/a                   430
Net tangible assets/liabilities (1)............    n/a                (1,041)
Customer relationships.........................   5 yrs.                  80
Goodwill (2)...................................    n/a                10,410
                                                                ------------
Purchase price (3).............................                 $     10,659
                                                                ============

(1)  This amount reflects a net adjustment of $111,000 in the second quarter, a
     net adjustment of $346,000 in the third quarter and a net adjustment of
     $17,000 in the fourth quarter to the fair values of certain assets acquired
     and liabilities assumed from ViaFone.
(2)  This amount reflects a reduction in accrued direct acquisition costs of
     $87,000 and net adjustments to the fair values of certain assets acquired
     and liabilities assumed from ViaFone in the second, third and fourth
     quarters of fiscal 2003 of $111,000, $346,000 and $17,000 respectively.
(3)  This amount reflects a reduction in accrued direct acquisition costs of
     $87,000.

The adjusted estimated fair value of tangible assets acquired and liabilities
assumed as of the purchase date are as follows:

Current assets................................................  $   4,722
Property and equipment........................................        589
                                                                ---------
Total assets acquired.........................................      5,311
Current liabilities...........................................     (4,943)
Deferred revenue..............................................       (491)
Non-current liabilities.......................................       (918)
                                                                ---------
Net tangible assets acquired..................................  $  (1,041)
                                                                =========

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

The purchased in-process research and development was charged to operations at
the time of acquisition as it had not yet reached technological feasibility and
had no alternative future use. The value assigned to in-process research and
development was determined by estimating the costs to develop the purchased
in-process research and development into a commercially viable product,
estimating the resulting net cash flows from sale of those products once
commercially viable, and discounting the net cash flows back to their present

                                       57
<PAGE>
values using discount rates of either 19% or 21%, depending on the technology.
These rates were based on the industry segment for the technology, the nature of
the products to be developed, the length of time to complete development, and
the overall maturity and history of the development team. The in-process
research and development percentage of completion was estimated to range from
50% to 80%. As of June 30, 2003, the projects in-process at the time of
acquisition had been completed with no material differences in the cost to
complete from that originally estimated.

The results of operations for the fiscal year 2003 include the operations of
ViaFone from August 31, 2002. The following unaudited pro forma consolidated
results of continuing operations assume the ViaFone acquisition occurred at the
beginning of each period presented:
                                                  PRO FORMA (UNAUDITED)
                                                   FOR THE YEARS ENDED
                                                         JUNE 30,
                                                   --------------------
                                                     2003        2002
                                                   --------    --------
Net revenue from continuing operations........     $ 27,884    $ 23,992
Loss from continuing operations...............       (7,498)    (21,447)

Loss per share from continuing operations:
Basic and diluted.............................     $  (0.56)   $  (1.58)

The pro forma information above is presented in response to applicable
accounting rules relating to business acquisitions and is not necessarily
indicative of the actual results that would have been achieved had the
acquisition occurred at the beginning of fiscal 2002 or 2003, nor is it
indicative of results of operations for any future period.

APPREACH, INC. In February 2002, we acquired all of the outstanding stock of
AppReach, Inc. for 33,950 shares of our Common Stock valued at $204,000 plus
acquisition expenses of approximately $18,000. AppReach, based in Baltimore,
Maryland, specialized in the development of enterprise software that extends
customer resource management (CRM) applications to mobile and wireless devices.

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

Net working capital.................................................    $   (20)
Property and equipment..............................................          5
Goodwill............................................................        237
                                                                        -------
   Net assets acquired as of date of acquisition....................    $   222
                                                                        =======

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

NOTE 8.  RECEIVABLES                                      AS OF JUNE 30,
                                                        2003          2002
                                                     -----------------------
Accounts receivable................................  $   6,338     $   5,109
Other receivables..................................         98            67
Allowance for doubtful accounts....................       (792)         (892)
                                                     -----------------------
                                                     $   5,644     $   4,284
                                                     =======================

NOTE 9.  PROPERTY AND EQUIPMENT                          AS OF JUNE 30,
                                                       2003          2002
                                                     -----------------------
Land and land improvements.........................  $   1,007     $     897
Buildings..........................................      5,798         5,864
Computer equipment.................................      5,702         5,443
Furniture and fixtures.............................      2,308         2,302
                                                     -----------------------
                                                        14,815        14,506
Less accumulated depreciation......................     (9,522)       (8,720)
                                                     -----------------------
                                                     $   5,293     $   5,786
                                                     =======================

                                       58
<PAGE>
NOTE 10. ACCRUED EXPENSES                                AS OF JUNE 30,
                                                       2003          2002
                                                     -----------------------
Accrued payroll and related benefits...............  $   1,336     $   1,211
Accrued warranty and support costs.................        141           175
Other..............................................      1,411         1,353
                                                     -----------------------
                                                     $   2,888     $   2,739
                                                     =======================

NOTE 11. COMMITMENTS AND CONTINGENCIES

COMMITMENTS. We currently lease office space at our locations in Brisbane,
California; Herrenberg, Germany; Toronto, Canada; Corvallis, Oregon; Paris,
France; Bristol, England; Los Gatos, California; American Fork, Utah;
's-Hertogenbosch, the Netherlands; and Atlanta, Georgia. We also lease certain
equipment under non-cancelable operating and capital leases. Lease expense under
operating lease agreements was $894,000, $391,000, and $531,000 for the fiscal
years ended June 30, 2003, 2002 and 2001, respectively.

Upon completion of our acquisition of ViaFone on August 30, 2002, we assumed
$1.1 million of term debt with Silicon Valley Bank ("SVB"). We restructured that
debt into a term loan due in 30 equal monthly installments bearing interest at
8%. The term loan is collateralized by certain of our assets, requires us to
maintain certain financial ratios and is scheduled to be paid in full by March
2005. At June 30, 2003, the loan balance was $759,000.

On September 3, 2003, we entered into a definitive agreement with Hopkins
Financial Services for the sale-and -leaseback of our headquarters building and
land in Boise, Idaho. We closed the transaction on September 26, 2003. As part
of the agreement, we entered into a 10-year master lease for the building with
annual lease payments equal to 9.2% of the sale price. We have a 10-year option
to repurchase the building at a price of $5.1 million. Pursuant to Statement of
Financial Accounting Standards ("SFAS") No. 98, "Accounting for Leases," the
sale-and-leaseback will be recorded as a financing transaction and will be
reflected as long-term debt on our balance sheet for our quarter ending
September 30, 2003.

Our minimum future contractual commitments associated with our operational
restructuring, indebtedness and lease obligations are as follows (in thousands):
<TABLE><CAPTION>
                                                            YEAR ENDING JUNE 30,
                                            ------------------------------------------------
                                              2004      2005      2006      2007      2008   THEREAFTER   TOTAL
                                            --------  --------  --------  --------  --------  --------  --------
<S>                                         <C>       <C>       <C>       <C>       <C>       <C>       <C>
Restructuring-related commitments:
   Operating leases (1)...................  $    534  $     --  $     --  $     --  $     --  $     --  $    534
Other commitments:
   SVB debt principal (2).................       434       325        --        --        --        --       759
   SVB debt interest......................        46        11        --        --        --        --        57
   Payment pursuant to building
        sale-and-leaseback (3)............       331       442       442       442       442     2,317     4,416
   Post-retirement benefits...............        17        17        17        17        17        59       144
   Capital leases (2).....................        28        28        12         7        --        --        75
   Operating leases.......................       730       330       189       157       143       143     1,692
                                            --------  --------  --------  --------  --------  --------  --------
Total other commitments...................     1,586     1,153       660       623       602     2,519     7,143
                                            --------  --------  --------  --------  --------  --------  --------
Total commitments.........................  $  2,120  $  1,153  $    660  $    623  $    602  $  2,519  $  7,677
                                            ========  ========  ========  ========  ========  ========  ========
</TABLE>
(1)  The restructuring accrual related to the Brisbane lease obligation is
     reported as an accrued expense in the current liabilities section.
(2)  The term debt and capital leases are reported on the balance sheet as
     current and non-current liabilities, depending on the timing of when
     payments are due.
(3)  There was no contractual commitment related to the sale-and-leaseback
     transaction as of June 30, 2003 as the transaction closed on September 26,
     2003. See Note 16 for additional information on the sale-and-leaseback.

                                       59
<PAGE>
Non-current capital lease obligations are as follows (in thousands):

                                                             AS OF
                                                         JUNE 30, 2003
                                                         -------------
Gross capital lease obligations.......................        $75
Less imputed interest.................................        (10)
                                                         -------------
Present value of net minimum lease payments...........         65
Less current portion..................................        (17)
                                                         -------------
Non-current capital lease obligations.................        $48
                                                         =============

GUARANTEES. We have provided a letter of credit that secures our rental payments
at our Brisbane, California location. We could be required to perform under this
guarantee if we were to default with respect to any of the terms, provisions,
covenants, or conditions of the lease agreement. This guarantee is renewed
annually for successive one-year terms until the expiration of our lease on May
31, 2004. The maximum potential amount of future payments we could be required
to make under this letter of credit as of June 30, 2003 is $120,000.

We have also provided a guarantee that secures our rental payments at our
Bristol, England location. We could be required to perform under this guarantee
if we were to default with respect to any of the terms, provisions, covenants,
or conditions of the lease agreement. This guarantee is valid until the
expiration of our lease on January 13, 2005. The maximum potential amount of
future payments we could be required to make under this letter of credit as of
June 30, 2003 is approximately $25,000.

INDEMNIFICATIONS. We enter into standard indemnification agreements in our
ordinary course of business. Pursuant to these agreements, we indemnify, defend,
hold harmless, and agree to reimburse the indemnified party for losses suffered
or incurred by the indemnified party in connection with any U.S. patent,
copyright or other intellectual property infringement claim by any third party
with respect to our products. The term of these indemnification agreements is
generally perpetual any time after execution of the agreement. The maximum
potential amount of future payments we could be required to make under these
indemnification agreements is unlimited. We have not incurred costs to defend
lawsuits or settle claims related to these indemnification agreements.

As permitted under Delaware law, we have agreements whereby we indemnify our
officers and directors for certain events or occurrences while the officer or
director is, or was, serving at our request in such capacity. The term of the
indemnification period is for the officer's or director's lifetime. The maximum
potential amount of future payments we could be required to make under these
indemnification agreements is unlimited; however, we have a director and officer
insurance policy that limits our exposure and enables us to recover a portion of
any future amounts paid. We have not incurred costs to defend lawsuits or settle
claims related to these indemnification agreements.

From time to time we enter into indemnification agreements in our ordinary
course of business with certain service providers, such as financial
consultants, whereby we indemnify such service providers from claims, losses,
damages, liabilities, or other costs or expenses arising out of or related to
their services. The maximum potential amount of future payments we could be
required to make under these indemnification agreements in unlimited. We have
not incurred costs to defend lawsuits or settle claims related to these
indemnifications.

WARRANTIES. We offer warranties on both our software products and discontinued
hardware products. We record an accrual for the estimated future costs
associated with warranty claims based upon our historical experience and our
estimate of future costs. We also include in the warranty reserve an accrual for
the estimated future costs associated with free support that we provide on
certain products. The adequacy of our warranty reserve is reviewed at least
quarterly and if necessary, adjustments are made.

The following table reconciles the changes in our warranty reserve for the year
ended June 30, 2003:

Balance at June 30, 2002..........................................    $    175
Accrual for warranty reserve for sales made during the
  year ended June 30, 2003........................................         235
Warranty expirations during the year ended June 30, 2003..........        (269)
                                                                      --------
Balance at June 30, 2003..........................................    $    141
                                                                      ========

LINE OF CREDIT. On January 15, 2002, we entered into a loan and security
agreement with Silicon Valley Bank, under which we can access up to $5.0 million
of financing in the form of a demand line of credit. Our borrowing capacity is
limited to 75% of eligible accounts receivable, net of current payments due on

                                       60
<PAGE>
our long-term debt. Certain of our assets collateralize the line of credit.
Interest on any borrowings will be paid at prime plus one percent but not less
than 5.5%. The line of credit agreement requires us to maintain certain
financial ratios and expires on January 15, 2004. As of June 30, 2003, we had no
outstanding borrowings on the line of credit and we are in compliance with all
financial covenants required under the line of credit.

LITIGATION. On April 22, 2002, Pumatech, Inc. filed a patent infringement action
against us in the U.S. District Court in Northern California. An amended
complaint was filed on May 28, 2002. The action alleges that our XTNDConnect
server and desktop synchronization products infringe on seven of Pumatech's
synchronization-related patents, that our alleged use of the trademark
"Satellite Forms" constitutes trademark infringement, and that other alleged
actions constitute unfair competition and interference with contract. The action
seeks an injunction against further sales of our server and desktop
synchronization products and use of the allegedly infringing trademark, as well
as unspecified damages and attorneys' fees. On June 25, 2002, we filed an answer
and counterclaim in response to Pumatech's complaint in which we deny Pumatech's
charges, raise a number of affirmative defenses and request a declaration from
the court that Pumatech synchronization software patents are invalid and not
infringed by our products. On December 11, 2002, Pumatech filed a second amended
complaint, which adds allegations that unspecified synchronization products
infringe an eighth Pumatech patent. On December 31, 2002, we filed an amended
answer and counterclaim in which we deny all of Pumatech's charges, including
this additional charge, and amend our defenses and counterclaims to include this
additional patent. On August 1, 2003 the Honorable Judge D. Lowell Jensen,
United States District Judge, issued his Claims Construction Ruling on the
interpretation, definition, and scope of the claims in the suit. We believe that
the Court's ruling has significantly narrowed claims in five of the Pumatech
patents. The Court also ruled that it could not correct an error that appears in
all asserted claims of Pumatech's '676 patent. This error must be corrected in
reissue proceedings in the Patent Office. Until the Patent Office issues
corrected claims, no synchronization software can infringe the '676 patent, and
it is unlikely that such a correction would have any retroactive effect. As a
result, if any of our products are ultimately held to be infringing this patent,
it is unlikely that Pumatech would be entitled to damages for any period prior
to the reissue date. We have petitioned the U.S. Patent Office for reexamination
of three of the Pumatech patents. The Patent Office has issued an Office Action
for each of the three patents rejecting all Pumatech patent claims over the
prior art for two of the patents and rejecting all claims on which we requested
reexamination for the other patent. As a result of the reexamination process, we
expect the patents to be significantly narrowed or rejected by the Patent Office
in their entirety. If the patents are amended and reissued, and we are
ultimately held to be infringing one of the reissued patents, it is unlikely
that Pumatech would be entitled to damages for any period preceding the reissue
date. Discovery and other pretrial proceedings are on going; trial is currently
scheduled for April 2004.

We believe that we have numerous meritorious defenses to Pumatech's claims and
we intend to continue to defend the suit vigorously. However, litigation is
inherently uncertain, and we may not prevail in our defenses or counterclaims.
If Pumatech prevails in one or more of its claims, we could be required to pay
substantial damages for past sales of infringing products, to cease selling
specific of our server or desktop synchronization products that are held to
infringe a Pumatech patent, to pay royalties on the sales of specific products
that are held to infringe a Pumatech patent, or some combination of these
results. We may also incur significant development costs to redesign certain of
our products to ensure that they are non-infringing. Any of such outcomes could
have a material adverse effect on our business and financial position. In
addition, litigation is frequently expensive and time-consuming, and management
may be required to spend significant time in the defense of the suit; such costs
and the diversion of management time could have a material adverse effect on our
business. The ultimate outcome of any litigation is uncertain and the range of
loss that could occur upon resolution of this matter is not estimable. We cannot
estimate the costs of any potential settlement. Were an unfavorable outcome to
occur, the impact could be material to our financial position, results of
operations, or cash flows.

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

NOTE 12.  STOCKHOLDERS' EQUITY

TREASURY STOCK. On August 30, 2002, we completed our acquisition of ViaFone. As
part of the acquisition agreement, 450,000 of these shares were placed in an
escrow fund for a period of up to one year to be used as the exclusive source of
reimbursement to us for breaches of certain terms of the agreement, including,
among other provisions, failure of ViaFone to achieve certain revenue and loss
targets for the nine months ended September 30, 2002. ViaFone did not meet these
revenue and net loss targets, and all 450,000 shares held in escrow were
returned to us in December 2002 to satisfy our claims against the escrow. In
accordance with applicable provisions of the Delaware General Corporation Law,
all 450,000 shares automatically became treasury stock. During fiscal 2003, we

                                       61
<PAGE>
reissued 188,943 in connection with employee stock purchases. The remaining
261,057 shares are classified as treasury stock at June 30, 2003.

WARRANTS. In connection with entering into the line of credit agreement with
Silicon Valley Bank, on January 15, 2002, we issued warrants to purchase 35,000
shares of Extended Systems common stock at an exercise price of $7.35 per share.
The warrants vested immediately upon issuance and expire seven years from the
date of the grant. The fair value of these warrants at the date of grant was
$210,000 and is being amortized over twenty-four months, the term of the line of
credit facility. Amortization expense of $157,000 was recorded during the year
ended June 30, 2003.

STOCKHOLDER RIGHTS PLAN. On June 5, 2003, our Board of Directors adopted a
stockholder rights plan in which preferred stock purchase rights were
distributed as a rights dividend at the rate of one right for each share of
common stock held as of the close of business on June 19, 2003. The rights plan
is designed to deter coercive or unfair takeover tactics and to prevent an
acquirer from gaining control of Extended Systems without offering a fair price
to all of our stockholders. The plan is intended to protect the interests of
stockholders in the event we are confronted in the future with coercive or
unfair takeover tactics.

Each right will entitle holders of Extended Systems common stock to buy a
fraction of a share of Extended Systems Preferred Stock at an exercise price of
$21 per fraction of a preferred share. Generally, the rights will be exercisable
only if a person or group acquires more than 15% of the common stock or
announces a tender or exchange offer which would result in its ownership of 15%
or more of the common stock.

If any person or group becomes the beneficial owner of 15% or more of the common
stock, referred to as a "flip-in event," each right not owned by such person or
related parties will entitle its holder to purchase, at the then current
exercise price of the right, common stock of Extended Systems having a value of
twice the right's exercise price. After the occurrence of a flip-in event and
before any person or affiliated group becomes the owner of 50% or more of the
then outstanding common stock, Extended Systems may also exchange one share of
common stock for each right outstanding. In addition, if Extended Systems is
involved in a merger or other business combination transaction with another
person in which its common stock is changed or converted, or sells or transfers
more than 50% of its assets or earning power to another person, each right that
has not previously been exercised will entitle its holder to purchase, at the
then current exercise price of the right, shares of common stock of such other
person having a value of twice the right's exercise price.

Extended Systems can redeem the rights at $0.001 per right at any time on or
prior to the fifth day after a public announcement is made that a person or
group has acquired ownership of 15% or more of our common stock. The rights will
expire on June 19, 2013, unless earlier redeemed or exchanged.

STOCK PLANS. We have four incentive stock option plans, adopted in 1984, 1994,
1998 and 2001. Our employees, directors and consultants are eligible for options
under these plans. Options granted before December 24, 1997 generally vest 20%
per year over a period of five years from the date of grant. Options granted
December 24, 1997 and after generally vest over a period of four years, vesting
25% on the first anniversary of the option and 1/48 per month thereafter. The
exercise price generally is equal to the fair market value of our common stock
on the date of grant or at a price determined by the compensation committee of
our Board of Directors. For the 1984 and 1994 plans, unexercised options
generally lapse ten years after issuance or upon the date the option holder
ceases to be an employee. Options granted under the 1998 and 2001 plan generally
lapse ten years after issuance or three months after the option holder ceases to
be an employee. Shares available for grant under these plans totaled 722,707 at
June 30, 2003.

We also had a restricted stock option plan, adopted in 1987. Our regular,
full-time employees and directors were eligible for options under this plan.
Terms of the options were determined at the date of grant. Unexercised options
generally lapse ten years after issuance or upon the date the option holder
ceases to be an employee or director. We recorded unearned compensation related
to these options at the date of the award based on the market value of the
shares and amortize unearned compensation over the periods during which the
restrictions lapse. The plan terminated in September 1997.

We adopted a director stock plan in 1998. Our directors are eligible for options
under this plan. Options are granted at the fair market value of our common
stock on the grant date. An initial grant of 15,000 shares per director will
vest over a period of three years vesting one-third on the first anniversary of
the option and 1/36 per month thereafter. Subsequent grants of 7,500 shares will
be automatically granted to directors each year provided that such directors
have served on the Board for at least six months. These subsequent options will
vest in full on the first anniversary of the date of grant. Unexercised options
lapse ten years after issuance or three months after the date the option holder
ceases to be a director. Shares available for grant under this plan totaled
69,583 at June 30, 2003.
                                       62
<PAGE>
We adopted an employee stock purchase plan in 1998. The plan is generally
implemented by 24-month offering periods beginning the first trading day on or
after June 30 and December 31 of each year. Each offering period contains up to
four purchase periods of six months duration. The purchase plan generally
permits eligible employees to purchase our common stock through payroll
deductions of up to 15% of an employee's compensation, except that no
participant's right to purchase shares may accrue at a rate that exceeds $25,000
each calendar year. The price of stock purchased under the purchase plan is 85%
of the lower of the fair market value of our common stock on the first day of an
offering period or the last day of each six-month purchase period. Employees may
end their participation at any time during a purchase period, and they will be
paid their payroll deduction withheld within that purchase period. Shares
available for purchase under this plan totaled 573,840 at June 30, 2003.

                                       WEIGHTED-
                                         AVERAGE
STOCK OPTION ACTIVITY             EXERCISE PRICE    OUTSTANDING     EXERCISABLE
-------------------------------------------------------------------------------
AS OF JUNE 30, 2000.............           10.39          2,332           1,130
   Granted......................           26.07            894              --
   Became exercisable...........                             --             549
   Exercised....................           33.03           (278)           (278)
   Canceled/expired.............           16.45           (129)            (10)
                                                    ----------------------------
AS OF JUNE 30, 2001.............           15.52          2,819           1,391
                                                    ===========================
   Granted......................            4.35            550              --
   Became exercisable...........                             --             556
   Exercised....................            6.26            (89)            (89)
   Canceled/expired.............           16.86           (493)           (170)
                                                    ---------------------------
AS OF JUNE 30, 2002.............           13.44          2,787           1,688
                                                    ===========================
   Granted......................            2.37          1,299              --
   Became exercisable...........               -             --             694
   Exercised....................            3.64            (30)            (30)
   Canceled/expired.............           11.78           (787)           (294)
                                                    ---------------------------
AS OF JUNE 30, 2003.............            9.54          3,269           2,058
                                                    ===========================

The weighted-average remaining contractual life of options outstanding at June
30, 2003 was 6.75 years. The weighted-average per share exercise price of
options exercisable at June 30, 2003, 2002 and 2001 was $11.52, $13.47 and
$9.81, respectively.
<TABLE><CAPTION>
                                                      WEIGHTED-
                                   WEIGHTED-            AVERAGE                    WEIGHTED-
       RANGE OF                      AVERAGE          REMAINING                      AVERAGE
   STOCK OPTION     NUMBER OF       EXERCISE        CONTRACTUAL        NUMBER       EXERCISE
EXERCISE PRICES        SHARES          PRICE               LIFE     OF SHARES          PRICE
--------------------------------------------------------------------------------------------
                               OPTIONS OUTSTANDING                    OPTIONS EXERCISABLE
                    -------------------------------------------    -------------------------
<S>                 <C>             <C>              <C>           <C>             <C>
$ 1.33 - $ 3.10         1,036       $   2.24          9.3 years           331      $    2.51
  3.19 -   4.84           621           4.10          7.7                 360           4.19
  5.41 -   6.96           415           6.45          6.0                 328           6.38
  7.01 -  10.89           551           8.66          3.4                 502           8.78
 11.33 -  27.50           258          13.16          2.1                 242          12.95
 34.00 -  40.00           253          35.28          7.0                 196          35.21
 45.06 -  66.00           135          48.49          7.1                  99          48.57
                    ---------                                      ----------
                        3,269                                           2,058
                    =========                                      ==========
</TABLE>



                                       63
<PAGE>
NOTE 13.  INCOME TAXES

The provision (benefit) for income taxes consists of the following:

                                             FOR THE YEARS ENDED JUNE 30,
                                            ------------------------------
                                              2003       2002       2001
                                            --------   --------   --------
Current:
   Federal................................  $     --   $     --   $     --
   State..................................        --         --         66
   Foreign................................        73       (201)       400
Deferred:
   Federal................................        --     (1,566)     6,089
   State..................................        --         --      1,252
   Foreign................................        --         --      1,083
                                            ------------------------------
      Income tax provision (benefit)......  $     73   $ (1,767)  $  8,890
                                            ==============================


                                             FOR THE YEARS ENDED JUNE 30,
                                            ------------------------------
                                              2003       2002       2001
                                            ------------------------------
Continuing operations.....................  $   (200)  $ (2,257)  $  7,228
Discontinued operations...................       273        490      1,662
                                            ------------------------------
      Income tax provision (benefit)......  $     73   $ (1,767)  $  8,890
                                            ==============================

Significant components of deferred income tax assets and liabilities are as
follows as of June 30:
                                                         2003       2002
                                                       --------   --------
Intangible asset amortization.............             $  1,548   $  1,598
Federal and state loss carryforwards......               34,132     18,072
Foreign loss carryforwards................                9,982      2,205
Other.....................................                1,590        555
Valuation allowance.......................              (47,252)   (22,430)
                                                       -------------------
      Net deferred tax assets.............             $     --   $     --
                                                       ===================

We recorded net deferred tax assets and liabilities of approximately $23.8
million upon the acquisition of ViaFone. The net deferred tax assets are
composed primarily of loss and tax credit carryforwards. The net deferred tax
assets and liabilities were reduced by a valuation allowance of $23.8 million.
If we determine that we will realize the tax attributes related to ViaFone in
the future, the related decrease in the valuation allowance will reduce goodwill
instead of the provision for taxes. The use of these loss and tax credit
carryforwards may be limited pursuant to Section 382 of the Internal Revenue
Code.

At June 30, 2003, we had available federal, state, and foreign net operating
loss carryforwards of approximately $85.4 million, $66.4 million, and $22.1
million, respectively. We also had unused research credits and foreign tax
credit carryforwards of approximately $1,000,000 and $217,000 respectively. If
not utilized, the federal net operating loss and research credit carryforwards
will expire in fiscal years 2020 to 2023 and the state net operating loss
carryforwards will expire between fiscal 2004 and fiscal 2023. Of the $22.1
million of foreign net operating loss carryforwards, approximately $2.9 million
will expire between fiscal 2006 and 2008 and the balance can be utilized
indefinitely. The available foreign tax credits expire between fiscal 2004 and
fiscal 2006. If certain substantial changes in our ownership should occur, as
defined by Section 382 of the Internal Revenue Code, there may be an annual
limitation on the amount of carryforwards that we can utilize.

Deferred tax assets of approximately $12.0 million as of June 30, 2002 pertain
to certain net operating loss carryforwards and credit carryforwards resulting
from the exercise of employee stock options. When these assets are recognized

                                       64
<PAGE>
and the related valuation allowance against these assets is reduced,
approximately $5.6 million of the tax benefit will be accounted for as a credit
to additional paid-in capital rather than a reduction of the income tax
provision.

Our net deferred tax assets as of June 30, 2003 were reduced by valuation
allowances of $47.3 million as a result of management having concluded that
significant evidence does not exist under generally accepted accounting
principles to support a conclusion that it is more likely than not that these
assets will be realized in the future. The valuation allowance increased by
$24.9 million in fiscal 2003 and $2.6 million in fiscal 2002.

We have not provided United States income taxes on the undistributed earnings of
our international subsidiaries, as such earnings are considered permanently
reinvested in these operations. While these earnings could become subject to
additional tax if repatriated, we do not anticipate repatriation.

Our effective income tax rate varies from the U.S. federal statutory rate as
follows for the years ended June 30:
<TABLE><CAPTION>
                                                                             2003         2002          2001
                                                                            ---------------------------------
<S>                                                                         <C>          <C>           <C>
Federal tax rate......................................................      (34.0)%      (34.0)%       (34.0)%
States taxes, net of federal benefit..................................       (4.4)        (2.7)         (3.2)
Earnings taxed in both U.S. and foreign jurisdictions.................        8.6          3.4           1.7
Earnings of subsidiaries taxed at different rates than U.S. rates.....       (2.7)        (1.1)         (1.3)
In-process research and development...................................        4.0           --            --
NOL carryback due to tax law change...................................         --        (17.5)           --
Valuation allowance...................................................       23.2         30.9          96.0
Other, net............................................................        3.3          1.3           1.7
                                                                            ---------------------------------
   Effective income tax rate..........................................       (2.0)%      (19.7)%        60.9 %
                                                                            =================================
</TABLE>

Losses before income taxes consist of the following:
<TABLE><CAPTION>
                                                                               FOR THE YEARS ENDED JUNE 30,
                                                                            ---------------------------------
                                                                                2003       2002       2001
                                                                            ---------------------------------
<S>                                                                         <C>          <C>           <C>
Subject to tax in:
United States.........................................................      $  (2,973) $  (4,115) $   (8,544)
Foreign jurisdictions.................................................           (714)    (4,842)     (6,040)
                                                                            ---------------------------------
   Total loss before income taxes.....................................      $  (3,687) $  (8,957) $  (14,584)
                                                                            =================================
</TABLE>

NOTE 14.  BUSINESS SEGMENT, GEOGRAPHIC AREA DATA AND MAJOR CUSTOMERS

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

At June 30, 2003, we had only one operating segment. Our mobile information
management segment includes both mobile data management and wireless
connectivity solutions that enable mobile users to access, collect, synchronize
and print information on demand. Our products include wireless connectivity
products, data synchronization and management software and client/server
database management systems with remote access capabilities. We sell mobile
information management products primarily to original equipment manufacturers,
application developers, enterprises and computer resellers.

No customers accounted for more than 10% of our net revenue from continuing
operations in fiscal 2003 and 2002.
<PAGE>
We based our geographic revenue information on the location of the selling
entity. Long-lived assets consist primarily of property and equipment.

                                                      AS OF JUNE 30,
                                            ------------------------------------
                                              2003         2002         2001
                                            ------------------------------------
Long-lived assets:
   United States..........................  $   4,724    $   5,297    $   6,369
   Germany................................        216          239          267
   Canada.................................        208           --           --
   Other countries........................        145          250          366
                                            ------------------------------------
      Total...............................  $   5,293    $   5,786    $   7,002
                                            ====================================


                                                 FOR THE YEARS ENDED JUNE 30,
                                            ------------------------------------
                                              2003         2002         2001
                                            ------------------------------------
Net revenue from continuing operations:
   United States..........................  $  16,762    $  15,282    $  17,052
   Germany................................      4,864        3,506        6,100
   Other countries........................      5,908        3,486        3,759
                                            ------------------------------------
      Total...............................  $  27,534    $  22,274    $  26,910
                                            ====================================


NOTE 15.  DEFINED CONTRIBUTION PLAN

We established the Extended Systems Incorporated 401(k) Investment Plan, a
defined contribution benefit plan, effective January 1991. All regular United
States employees are eligible to participate. Each participant having completed
six months of service is eligible for a discretionary matching contribution to
his or her account, up to a maximum of three percent of his annual pretax
compensation. Our matching contributions to the plan were $140,000 in fiscal
2003, $317,000 in fiscal 2002 and $355,000 in fiscal 2001.


NOTE 16.  SUBSEQUENT EVENTS

On September 3, 2003, we entered into a definitive agreement with Hopkins
Financial Services for the sale-and-leaseback of our headquarters building and
land in Boise, Idaho. We closed the transaction on September 26, 2003. The sale
price of the building and land was $4.8 million. We received approximately $4.6
million in net cash proceeds after deducting fees related to the transaction and
entered into a 10-year master lease for the building with annual lease payments
equal to 9.2% of the sale price. We are also obligated to pay all expenses
associated with the building during our lease, including the costs of property
taxes, insurance, operating expenses and repairs. We have a 10-year option to
repurchase the building at a price of $5.1 million. Pursuant to Statement of
Financial Accounting Standards ("SFAS") No. 98, "Accounting for Leases," the
sale-and-leaseback will be recorded as a financing transaction and will be
reflected as long-term debt on our balance sheet for our quarter ending
September 30, 2003.

On September 2, 2003, we entered into a definitive agreement with Brighton
Investments, LLC for the sale of approximately 16 acres of excess land adjacent
to our headquarters building in Boise, Idaho. Upon closing, we expect to receive
approximately $1.5 million in net cash proceeds after deducting fees related to
the transaction. We expect to report a gain of approximately $1.0 million on the
sale. We expect the transaction to close in the second quarter of fiscal 2004
subject to the satisfaction of customary closing conditions.


                                       66
<PAGE>
QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE><CAPTION>
                                                                     FIRST       SECOND        THIRD       FOURTH
                                                                  ---------    ---------    ---------    ---------
<S>                                                               <C>          <C>          <C>          <C>
FOR THE YEAR ENDED JUNE 30, 2003:
   Net revenue from continuing operations.......................  $   5,909    $   6,883    $   7,361    $   7,381
   Cost of license fees and royalties...........................        272          295          287          292
   Cost of services and other...................................        545          981          785          874
   Loss from continuing operations..............................     (1,992)      (1,406)        (795)         (24)
   Income from discontinued operations, net of tax..............         28          140          147          142
   Net income (loss)............................................     (1,964)      (1,266)        (648)         118
   Loss per share from continuing operations:
      Basic.....................................................       (.16)        (.10)        (.06)          --
      Diluted...................................................       (.16)        (.10)        (.06)          --
   Earnings per share from discontinued operations:
      Basic.....................................................         --          .01          .01          .01
      Diluted...................................................         --          .01          .01          .01
   Earnings (loss) per share:
      Basic.....................................................       (.16)        (.09)        (.05)         .01
      Diluted...................................................       (.16)        (.09)        (.05)         .01

FOR THE YEAR ENDED JUNE 30, 2002:
   Net revenue from continuing operations.......................      4,903        6,428        5,827        5,116
   Cost of license fees and royalties...........................        364          281          351          350
   Cost of services and other...................................        285          242          338          341
   Loss from continuing operations..............................     (2,879)      (1,931)        (370)      (1,951)
   Income (loss) from discontinued operations and gain (loss)
      on sale of discontinued operations, net of tax............         62          (59)         147         (209)
   Net loss.....................................................     (2,817)      (1,990)        (223)      (2,160)
   Loss per share from continuing operations:
      Basic.....................................................      (0.27)       (0.18)       (0.03)       (0.17)
      Diluted...................................................      (0.26)       (0.18)       (0.03)       (0.17)
   Earnings (loss) per share from discontinued operations:
      Basic.....................................................       0.01           --         0.01        (0.02)
      Diluted...................................................       0.01           --         0.01        (0.02)
   Loss per share:
      Basic.....................................................      (0.26)       (0.18)       (0.02)       (0.19)
      Diluted...................................................      (0.26)       (0.18)       (0.02)       (0.19)
</TABLE>

Our loss from continuing operations and net loss for the third quarter ended
June 30, 2002, includes a $1.6 million tax benefit related to a tax refund that
reduces our net loss by approximately $0.14 per share.




                                       67
<PAGE>
                                   SCHEDULE II

                          EXTENDED SYSTEMS INCORPORATED

                        VALUATION AND QUALIFYING ACCOUNTS
                                 (IN THOUSANDS)





<TABLE><CAPTION>
                                                                     BALANCE AT       CHARGED     DEDUCTIONS     BALANCE AT
                                                                      BEGINNING     TO PROFIT           FROM         END OF
                                                                      OF PERIOD      AND LOSS      ALLOWANCE         PERIOD
                                                                     ------------------------------------------------------
<S>                                                                  <C>            <C>           <C>            <C>

Amount deducted in balance sheet from the asset to which it applies:

   Year ended June 30, 2003:

      Allowance for doubtful accounts.......................         $      892     $      84     $     (184)    $      792
      Allowance for product returns.........................                 22            17             (1)            37
      Allowance for obsolete inventory......................                380            86            106            360

   Year ended June 30, 2002:

      Allowance for doubtful accounts.......................                787           383           (278)           892
      Allowance for product returns.........................                 24             1             (3)            22
      Allowance for obsolete inventory......................                348            24              8            380

   Year ended June 30, 2001:

      Allowance for doubtful accounts.......................                201           793           (207)           787
      Allowance for product returns.........................                 97           401           (474)            24
      Allowance for obsolete inventory......................                719           785         (1,156)           348
</TABLE>












                                       68
<PAGE>
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Annual Report on Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized, in Boise,
Idaho, on September 29, 2003.

                                 EXTENDED SYSTEMS INCORPORATED

                                 By:  /s/ CHARLES W. JEPSON
                                      --------------------------------
                                      CHARLES W. JEPSON
                                      PRESIDENT AND CHIEF EXECUTIVE OFFICER



                                POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Charles W. Jepson and Karla K. Rosa, and each of
them, his attorneys-in-fact, each with the power of substitution, for him and in
his name, place and stead, in any and all capacities, to sign any and all
amendments to this Annual Report on Form 10-K with all exhibits thereto and all
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that such attorneys-in-fact and agents or any of them, or his or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of Registrant and in
the capacities indicated on September 29, 2003.



       SIGNATURE                                 TITLE
       ---------                                 -----

/s/ CHARLES W. JEPSON            President and Chief Executive Officer
--------------------------      (Principal Executive Officer)
    CHARLES W. JEPSON


/s/ KARLA K. ROSA                Vice President of Finance, Chief Financial
--------------------------       Officer and Corporate Secretary
    KARLA K. ROSA                (Principal Financial and Accounting Officer)


/s/ RAYMOND A. SMELEK            Director
--------------------------
    RAYMOND A. SMELEK


/s/ JOHN M. RUSSELL              Director
--------------------------
    JOHN M. RUSSELL


/s/ RUSSEL H. MCMEEKIN           Director
--------------------------
    RUSSEL H. MCMEEKIN


/s/ JAMES R. BEAN                Director
--------------------------
    JAMES R. BEAN


/s/ JODY B. OLSON                Director
--------------------------
    JODY B. OLSON

                                       69