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

                                  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, 2005

                                       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 Act). Yes |_| No |X|

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

The aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold as of the last business day of the Registrant's most recently
completed second fiscal quarter was approximately $29 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 23, 2005, there were 15,636,542 shares outstanding of the
Registrant's common stock.
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<PAGE>

                          EXTENDED SYSTEMS INCORPORATED

                    FISCAL YEAR 2005 FORM 10-K ANNUAL REPORT

                                TABLE OF CONTENTS

                                                                            PAGE
                                                                            ----

PART I.

Item 1.      Business.                                                        3
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Item 2.      Properties.                                                     13
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Item 3.      Legal Proceedings.                                              13
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Item 4.      Submission of Matters to a Vote of Security Holders.            14
             ----------------------------------------------------



PART II.

Item 5.      Market for Registrant's Common Equity, Related Stockholder
               Matters and Issuer Purchases of Equity Securities.            15
               --------------------------------------------------

Item 6.      Selected Financial Data.                                        16
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Item 7.      Management's Discussion and Analysis of Financial Condition
               and Results of Operation.                                     17
               -------------------------

Item 7A.     Quantitative and Qualitative Disclosures About Market Risk.     42
             -----------------------------------------------------------

Item 8.      Financial Statements and Supplementary Data.                    42
             --------------------------------------------

Item 9.      Changes in and Disagreements with Accountants on
               Accounting and Financial Disclosure.                          42
               ------------------------------------

Item 9A.     Controls and Procedures.                                        42
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Item 9B.     Other Information.                                              42
             ------------------



PART III.

Item 10.     Directors and Executive Officers of the Registrant.             43
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Item 11.     Executive Compensation.                                         44
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Item 12.     Security Ownership of Certain Beneficial Owners
               and Management and Related Stockholder Matters.               48
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Item 13.     Certain Relationships and Related Transactions.                 50
             -----------------------------------------------

Item 14.     Principal Accounting Fees and Services.                         50
             ---------------------------------------



PART IV.

Item 15.     Exhibits, Financial Statement Schedules.                        52
             ----------------------------------------



             SIGNATURES                                                      79


                                        2
<PAGE>

FORWARD-LOOKING STATEMENTS

IN ADDITION TO HISTORICAL INFORMATION, THIS FORM 10-K CONTAINS FORWARD-LOOKING
STATEMENTS. IN THIS FORM 10-K, THE WORDS "MAY", "SHOULD", "EXPECTS,"
"ANTICIPATES," "BELIEVES," "INTENDS," "WILL", "SHOULD", "ESTIMATES", "PREDICTS",
"POTENTIAL", "CONTINUE", "STRATEGY", "PLANS", "OUTLOOK", "COULD", "PROJECT",
"FORECAST" 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 2006. ALL PERIOD REFERENCES ARE TO OUR FISCAL YEARS ENDED JUNE
30, 2006, 2005, 2004 AND 2003, UNLESS OTHERWISE INDICATED.


                                     PART I

ITEM 1. BUSINESS.

RECENT DEVELOPMENTS
-------------------

We entered into an agreement and plan of merger with Sybase, Inc. ("Sybase") and
Ernst Acquisition Corporation, a wholly owned subsidiary of Sybase, dated as of
July 28, 2005 pursuant to which we agreed to be acquired by Sybase in an all
cash transaction for $4.460847 per share. Subject to approval by our
stockholders and receipt of various regulatory approvals and other specified
closing conditions, we expect the consummation of the merger to occur during the
fourth quarter of calendar 2005.

OVERVIEW
--------

We provide the expertise and solutions to help companies optimize their business
processes and accelerate product development with our mobility software. Our
software allows corporate enterprises, application developers and device
manufacturers to share, exchange, collaborate, manage and deploy data
effectively and easily across a wide range of mobile devices. This creates a
mobile environment that accelerates companies into the mobile world. Examples of
our successes include:

     o    Deployment of our mobile applications in approximately 2,500
          enterprise companies such as ThyssenKrupp, Airbus, BASF and
          DaimlerChrysler.

     o    Use of our software in application development by approximately 1,500
          independent software developers working for application software
          vendors such as HDC Healthcare, QAD, Unique Solutions and Messaging
          Architects.

     o    Integration of our technology into mobile devices or shipment together
          with mobile phones by device manufacturers such as Siemens, Motorola,
          Sony Ericsson, Palm, Panasonic, LG Electronics, Toshiba and Hewlett
          Packard.

Founded in 1984, we are incorporated under the laws of the state of Delaware
with our headquarters located in Boise, Idaho. Our Internet address is
www.extendedsystems.com. On the "Investor Relations" section of our web site, 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 Reports 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 web site does not constitute a part of this Annual Report on Form 10-K.

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

The use of mobile devices has increased tremendously as notebook computers,
personal digital assistants (PDAs) and mobile phones have achieved acceptance
and have become more advanced and increasingly capable of running complex
applications. Improvements in mobile technology and wireless infrastructure are
facilitating the ability to exchange both personal and corporate information,
thereby enabling mobile devices to be used for both data and voice applications.
IDC, a leading provider of technology and market data, predicts that 38.8
million converged mobile devices (devices that support both voice and data
capabilities) will ship in 2005 and 99.4 million will ship in 2008. IDC also
predicts that the United States population of mobile workers, such as field
service workers or sales representatives, will reach 104.6 million by 2006.
InStat/MDR, an analyst firm that follows the Bluetooth market, forecasts
Bluetooth chipset unit shipments will increase from 69 million in 2003 to 720
million in 2008, which is a compound annual growth rate of 60 percent.
InStat/MDR also predicts revenue from Bluetooth chips alone will reach $1.7
billion in 2008.

Mobile device manufacturers, corporate enterprises and application developers
face pressure to provide increased mobile functionality and proven value
propositions for their devices and applications. Many of these manufacturers,
enterprises and developers seek to incorporate mobile data communication
capabilities to enhance existing services or expand into new markets.

                                        3
<PAGE>

Providing flexible information access has historically been cumbersome and
expensive because it required combining products from multiple companies to
arrive at a mobile solution. The mobile environment alone, while providing much
of the enabling technology, is not sufficient to meet the needs of enterprises
seeking a solution that requires security and flexible support for applications
across a broad range of networks and devices.

There is a growing awareness of how mobile solutions can positively impact
company profitability, competitiveness, workforce productivity, time-to-market
and market leadership. Interest in the enabling devices and software has
resulted in the creation of a new market category. As companies have become
confident in the positive returns on investment from mobility projects, they
have been increasingly funding mobility projects to optimize their business
processes. Additionally, mobile device manufacturers have increased their
reliance on short-range wireless connectivity software vendors to accelerate
their product development cycles.

With the growing adoption of ever-more powerful mobile devices based on multiple
operating systems, the availability of wireless networks using myriad different
technologies, and the requirement of mobile devices to support a wide range of
applications, a mobile middleware solution is required for enterprises to deploy
these technologies given the complexity inherent in a highly heterogeneous
environment. Different types of customers have different solution requirements
as described below.

CORPORATE ENTERPRISES

Enterprises seek to advance their business by investing in mobility solutions
that use existing infrastructures, optimize business processes, increase
employee productivity, maintain corporate data security and deliver a clear
return on investment. As a result, enterprises require a solution that provides:

     o    MIDDLEWARE PLATFORM. Enterprises need a solution that enables
          corporate information and data to be accessed, viewed and updated by
          workers that are disconnected from the traditional wired corporate
          infrastructure. The solutions must support a constantly evolving and
          broad range of mobile devices and operating systems. Additionally, the
          solution needs to support the ability to access data from the multiple
          and often disparate information systems that comprise the enterprise's
          IT environment. The solution needs to support both the applications
          that enterprises have deployed today plus the applications they plan
          for the future.

     o    MOBILE MANAGEMENT AND SECURITY. Enterprises require data security. In
          addition, enterprises increasingly require the ability to manage and
          deploy mobile devices and applications with a similar infrastructure
          so that enterprises can leverage their existing security protocols and
          preferences.

     o    GROUPWARE APPLICATION. Enterprises have become dependent on the
          exchange of e-mail, contact and calendar information. It is important
          for them to be able to deploy this type of data on mobile devices
          efficiently, cost effectively and easily.

     o    MOBILE WORKFORCE APPLICATIONS. Enterprise workforces have become
          increasingly mobile to improve productivity and enhance customer
          interaction. Enterprises require proven applications that can be
          deployed on mobile devices for tasks such as sales force automation,
          field service management, real-time collaboration and data access.

MOBILE APPLICATION DEVELOPERS

Application developers seek to expand their business by developing and selling
applications that will meet the demands of their customers. Increasingly their
customers are requesting applications for the mobile workforce that improve
workforce productivity and maintain data security. As a result, application
developers require a solution that provides:

     o    MIDDLEWARE PLATFORM. Application development organizations need a
          solution that enables them to broaden their product offering by
          mobilizing existing applications or developing new mobile applications
          that they market and sell to enterprises. The solutions need to
          support the current broad range of mobile devices and operating
          systems available in the marketplace plus evolve as new devices and
          operating system updates come to market. The solutions must also
          provide connectivity and the ability to extract information and data
          from the broad range enterprise application systems available in the
          marketplace.

     o    MOBILE MANAGEMENT AND SECURITY. Application development organizations
          require a solution that assures their products can exchange data
          securely and that their products are able to manage and deploy mobile
          devices and applications.

     o    DATABASE SYSTEM. Application development organizations often choose a
          database that is designed to achieve lowest total cost of ownership
          and is easy to manage across servers and mobile devices. Other
          important aspects include the speed and reliability of the database as
          well as the product's ability to scale and easily increase the number
          of client users.

                                        4
<PAGE>

MOBILE DEVICE MANUFACTURERS

Mobile device manufacturers include companies that develop and market equipment
such as cellular phones, PDAs, converged devices, notebooks and even
automobiles. Device manufacturers seek to accelerate their time-to-market and
revenues with new mobile devices and applications that incorporate the latest
technologies and standards. As a result, manufacturers require a solution that
provides:

     o    MOBILE STANDARDS. With short development cycles and a requirement to
          support a broad range of mobile standards, manufacturers look for
          solutions that support standards such as Bluetooth, IrDA and SyncML to
          reduce the complexity of their product releases.

     o    MOBILE PROFILES. The value of mobile devices is through the exchange
          of information. Manufacturers want a solution that will communicate
          with other devices but also has the framework to exchange data with a
          wide range of applications.

     o    GROUPWARE APPLICATIONS. One of the first types of applications
          deployed with mobile devices is exchange of contact, calendar and
          e-mail data from the phone, PDA or converged device to a computer.
          Device manufacturers often choose to bundle software that allows the
          mobile devices to exchange this data with desktop and laptop PCs,
          enterprise servers or the head unit of an automobile.

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

We design, develop, sell and support mobile software that accelerates
development and deployment of solutions for corporate enterprises, application
developers and device manufacturers. We have designed our products to:

     o    ENABLE MOBILE DATA MANAGEMENT. Our products enable enterprises,
          developers and device manufacturers to access, synchronize and manage
          information between mobile devices and computers, either directly to
          the desktop or through enterprise networks. Using our products,
          enterprises can connect their users wirelessly to a wide range of
          devices and manage information between their mobile device application
          servers such as enterprise messaging, including Microsoft Exchange and
          IBM Lotus Domino; enterprise applications such as customer resource
          management (CRM) and enterprise resource management (ERP), including
          Siebel and SAP; or enterprise databases via JDBC, XML data sources and
          ODBC database connectors.

     o    INCREASE PRODUCTIVITY AND USABILITY OF MOBILE DEVICES. Our mobility
          products and services improve the management of information and
          applications and provide convenient, wireless connectivity. These
          products enable users to share data between their mobile devices on
          demand, accessing information over the wireless Internet to enterprise
          applications and database servers. We believe our products help mobile
          users, developers and enterprises increase their productivity by using
          mobile devices for a variety of new tasks.

     o    INCREASE VALUE AND USAGE OF MOBILE DEVICES AND COMMUNICATIONS
          SERVICES. Our products 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 solutions for enterprise, developer and device manufacturers include:

ENTERPRISE MOBILITY SOLUTIONS

Our OneBridge family of products includes our OneBridge Mobile Platform, which
provides the foundation upon which enterprise applications can be extended to
mobile workers. Increasing the productivity of mobile workers through mobile
applications requires a dependable architecture that ensures high availability
of the application and data even when the wireless networks are not available.
The OneBridge platform delivers high availability mobile business solution based
on an open architecture model, which allows enterprises to optimize their
solutions over the current heterogeneous environment of devices and networks.
The product is offered in two components--mobile platform and enterprise
applications. The platform provides the foundation for support for a wide range
of mobile devices, communication for both wired and wireless environments,
authentication of users, enhanced device security features, encryption of data,
software deployment, reporting tools and device management. Our enterprise
applications provide a suite of pre-built applications that extends existing
enterprise systems to mobile devices such as groupware applications, sales force
automation (SFA), CRM and ERP applications.

                                        5
<PAGE>

OneBridge Mobile Platform
-------------------------

     o    ONEBRIDGE MOBILE DATA SUITE gives enterprises the power to extend
          enterprise applications to mobile workers. Our platform supports
          mobile operating systems such as Microsoft Windows Mobile Pocket PC,
          Microsoft Windows Mobile Smartphone, Microsoft Windows, Palm OS,
          Symbian and browser-enabled mobile phones. It provides a comprehensive
          set of mobility engines for pushing data, synchronizing data,
          accessing data in real-time and creating transaction extensions to
          enterprise applications. It also addresses issues such as encryption,
          authenticated access, configuration and deployment of mobile devices.
          Built on industry standard technologies like WAP, XML, LDAP, Web
          Services and SyncML, it provides the capability to connect enterprise
          applications to mobile applications. OneBridge Mobile Data Suite also
          offers advanced adapters into various enterprise servers such as
          Microsoft Exchange, IBM Lotus Notes, Siebel, SAP, TIBCO, Microsoft SQL
          Server, Oracle Database Server and others, allowing existing systems
          to be extended to a mobile world.

     o    ONEBRIDGE MOBILE SECURE enables enterprises to extend an
          organization's security, data management, and access management
          standards and policies to mobile devices. It allows administrators to
          manage mobile users, mobile devices and mobile data whether the device
          is connected, periodically connected or disconnected from the
          enterprise. It also includes the ability to encrypt data on mobile
          devices to provide a further depth of security.

OneBridge Mobile Applications
-----------------------------

     o    ONEBRIDGE MOBILE GROUPWARE delivers e-mail and PIM (calendar, contacts
          and tasks) data to mobile workers when and where they need it
          regardless of the device used, the connection method or the enterprise
          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 for use offline. OneBridge
          Mobile Groupware supports both Lotus Domino and Microsoft Exchange
          servers and Novell GroupWise through a third party partner, Messaging
          Architects.

     o    ONEBRIDGE MOBILE FIELD SERVICE is a series of templates customers can
          leverage to build a customized mobile solution that integrates with
          their existing field service processes. It gives field technicians the
          ability to manage work orders, schedule appointments, prepare for
          service calls en route, retrieve and update spare parts inventories,
          and gather customer information and electronic signatures.

     o    XTNDCONNECT PC is a flexible desktop-based solution that enables
          enterprise mobile users to synchronize and manage contacts, calendars,
          tasks, e-mail and notes between their mobile device and popular
          personal computer applications such as Microsoft Outlook, Microsoft
          Outlook Express, Novell GroupWise and IBM Lotus Notes.

ENTERPRISE DATABASE SOLUTIONS

We provide in-house developers, commercial application software developers and
value added resellers with a relational database management solution (RDBMS). We
offer a complete, high performance client/server data management system for
stand-alone, networked, Internet and mobile database applications. Our product
offering allows developers the flexibility to combine powerful SQL statements
and relational data access methods with the performance and control of
navigational commands. It provides native development interfaces designed to
leverage existing knowledge of popular development environments. Using optimized
data access, it provides security, stability and data integrity with no
administration. Our enterprise database solutions offer application developers a
product that can meet their demands for proven reliability, performance and
functionality, as well as a cost-effective solution for virtually any
application development environment.

     o    ADVANTAGE DATABASE SERVER is a scalable, client/server relational
          database management system for networked, stand-alone, mobile and
          Internet database applications. It allows developers to combine
          powerful SQL statements and relational data access methods with the
          performance and control of navigational commands and is designed to
          deliver a low total cost of ownership with no administration, making
          it ideally suited for business environments without database
          administrators. Advantage allows commercial application developers the
          ability to create scalable, reliable and secure applications without
          encumbering their end-users with expensive licensing fees, burdensome
          management requirements or expensive long-term cost-of-ownership
          obligations.

     o    ADVANTAGE LOCAL SERVER provides Advantage Windows and Linux
          applications access to data files located locally, in shared
          environments and in peer-to-peer environments. The Advantage Local
          Server is a non-client/server solution and can be used to access data
          on computers that are not running the Advantage Database Server. The
          Advantage Local Server is a dynamic linked library for Windows and a
          shared object for Linux. Advantage Local Server resides on the client
          machine and is called directly, instead of sending requests to a
          remote Advantage Database Server. Applications enabled to use the
          Advantage Local Server can automatically scale to use the Advantage
          Database Server with no source code changes.

     o    ADVANTAGE REPLICATION allows Advantage Database Server customers to
          maintain identical database information at distributed locations.
          Advantage Replication is available via our OneBridge Mobile Data
          Suite. Replication allows for the

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          synchronization of data and/or subsets of data in a database across
          one or more systems. Using replication, a consistent view of a
          database can be maintained. OneBridge allows for scheduled replication
          of an Advantage database from a corporate server to branch servers, as
          well as replication from an Advantage server to a desktop, laptop or
          mobile device.

     o    ADVANTAGE CLIENT PRODUCTS AND DEVELOPMENT TOOLS provide native
          connections to the Advantage Database Server and Advantage Local
          Server, thereby providing a seamless integration into existing
          applications and allowing replacement of existing database drivers
          with fully compatible Advantage drivers. Advantage clients provide
          optimized data access for all development environments and are
          designed to speed the development of Advantage-enabled applications.

MOBILE DEVICE SOLUTIONS

Our mobile embedded products help manufacturers streamline the development
process and rapidly integrate short-range wireless connectivity and
synchronization into converged mobile devices, mobile phones, PDAs, Microsoft
notebook PCs and other mobile devices. Our products permit device manufacturers
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).

     o    XTNDACCESS BLUE SDK provides an efficient way to add reliable
          Bluetooth radio communications and mobile profiles to embedded
          devices. This software development kit is on the Bluetooth Special
          Interest Group (SIG) Qualified Product List and includes certified
          mobile profiles for Generic Access, Service Discovery, Serial Port,
          FAX, Dial-up Networking and Generic Object Exchange. Additional
          profile support is also available.

     o    XNTDACCESS IRDA SDK 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 is an
          add-on to the XTNDAccess IrDA SDK and provides the source code, tools
          and documentation required to implement IrFM (infrared for financial
          messaging) on a Personal Trusted Device (PTD) or a Point of Sales
          (POS) terminal.

     o    XTNDAccess IrDA Test Suite is a complete financial messaging and
          object exchange (OBEX) application test tool and provides a set of
          customizable tests that enable developers to quickly and easily test
          their IrFM, POS and PTD devices as well as OBEX-based mobile
          communications applications. The test suite reduces the cost and time
          needed to develop, test and debug IrDA, IrFM and OBEX-based products.

     o    XTNDACCESS DATA SYNC CLIENT SDK is a client toolkit that enables
          developers to implement the Open Mobile Alliance data synchronization
          protocol specification for a wide range of embedded devices. Designed
          for client devices such as cell phones, smart phones and PDAs, the kit
          provides a complete set of tools including portable source code,
          easy-to-use APIs and comprehensive documentation.

     o    XTNDACCESS DEVICE MANAGEMENT CLIENT SDK is a client toolkit that
          enables developers to implement the Open Mobile Alliance device
          management protocol specification for a wide range of embedded
          devices. Designed for client devices such as cell phones and smart
          phones, the kit provides a complete set of tools including portable
          source code, easy-to-use APIs and comprehensive documentation.

     o    XTNDCONNECT PC provides device manufacturers with a desktop PC
          synchronization solution that manages contacts, calendars, tasks,
          e-mail and notes between their mobile device and popular personal
          computer applications such as Microsoft Outlook, Microsoft Outlook
          Express, Novell GroupWise and Lotus Notes. It is bundled with devices
          and supports 26 languages.

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

The markets for our products are rapidly evolving and intensely competitive.
Further, the markets for our mobile 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 enterprise mobility database and mobile device solutions.
As a result, we expect competition in these markets to intensify.

Enterprise Mobility Solutions
-----------------------------

Our mobile groupware, other mobile application and platform solutions compete
primarily with products offered by Dexterra, Everypath, Good Technology,
iAnywhere (a division of Sybase), IBM, Intellisync, Microsoft, RIM and SAP. We
also compete with numerous smaller companies with customized product offerings
that focus on a particular vertical mobile application. We believe that the
primary competitive factors for these products are:

                                        7
<PAGE>

     o    ability to support a broad range of mobile device platforms and
          multiple modes of synchronization such as push and browse;
     o    ability to combine groupware, device management, security and mobile
          applications in a single platform;
     o    ability to support Microsoft Exchange, IBM Lotus Notes and Novell
          GroupWise environments;
     o    speed and security of synchronization; and
     o    ability to quickly and easily extend enterprise platforms, such as
          SAP, Siebel, Oracle and DB2data, and enterprise applications to mobile
          devices.

Enterprise Database Solutions
-----------------------------

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

     o    existing brand awareness and market share;
     o    ease of integration into developers' applications;
     o    the total cost of ownership;
     o    ease of use without a database administrator; and
     o    speed and reliability.

Mobile Device Solutions
-----------------------

Our short-range wireless connectivity product solutions and embedded desktop
synchronization products compete primarily with in-house development, open
source solutions and products offered by IVT Corporation, Open Interface,
Agilent, Intellisync, Embednet, CSR, Broadcom, Stonestreet One, and Telica. We
believe that the primary competitive factors for these products are:

     o    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.

We believe our solutions are differentiated from our competitors. Some of our
competitors, particularly platform providers, generate a substantial amount of
their sales from non-mobile solutions. Due to their less dedicated focus on the
mobility market, the solution offerings of these competitors meet a narrower
range of customer mobility needs. For example, these competitors focus on a more
limited set of mobile devices or enterprise application solutions. We believe
that our combined focus on 1) delivering mobile application solutions that
address specific business requirements for our customers, 2) continuing our
commitment to deliver a platform with open architecture, and 3) securing the
support of a growing number of application vendors will continue to allow us to
be successful. We have also established a large customer base that relies on our
solutions to optimize their business processes and accelerate product
development through our mobility solutions. In addition, the mobility market is
relatively new and is characterized by frequent product introductions and new
technology standards that require a research and development and marketing
organization that can adapt and deliver solutions that meet customer needs. We
believe our focus on mobile solutions, our existing customer base and our
flexibility to adapt to the evolving market differentiates our products in the
marketplace.

PRODUCT DEVELOPMENT/RESEARCH AND DEVELOPMENT
--------------------------------------------

Without regard to the proposed acquisition of us by Sybase, our product
development objectives are to:

     o    develop the infrastructure and applications to provide solutions for
          mobilizing and provisioning back-end enterprise systems;
     o    provide customers solutions of high quality, robust functionality and
          low overall total cost of ownership; and
     o    use industry and technology standards, where appropriate, across the
          broadest array of enterprise devices, applications and databases.

Our product development staff is organized into teams consisting of software
engineers, software quality assurance engineers, technical writers, project
leads and product managers. Working closely with our customers, analysts, and
sales and marketing consultants, we determine product functionality based upon
market requirements. We also factor in user feedback, which we obtain from our
customers and partners, sales force, technical support and professional services
groups. In addition, we strive to incorporate standard technologies where
possible to minimize research and development costs and ensure interoperability
with other business solutions employed by our customers.

In July 2004, we released OneBridge Mobile Secure, an enterprise security
component for the OneBridge Mobile Platform that provides "on device" encryption
capabilities and enables IT to extend and enforce corporate security policies to
virtually any mobile device including PDAs, smartphones, laptops and tablet PCs.

                                       8
<PAGE>

In August 2004, we released version 4.2 of the OneBridge Mobile Platform.
Notable new features included increased synchronization performance to support
enterprise-wide mobile application deployments, enhanced administrative
monitoring and control, mobile Web Services capabilities, and expanded device
support that brought the number of supported devices to 70 across the Symbian,
Palm, and Microsoft Windows Mobile platforms.

In November 2004, we announced a new module for the OneBridge Mobile Platform
which extends business-critical enterprise applications to Java-based BlackBerry
Wireless Handhelds(TM) via the Mobile Data Service feature of BlackBerry
Enterprise Server(TM). OneBridge's support for Java-based BlackBerry(R) devices
means that BlackBerry users will be able to access OneBridge Mobile Solutions'
range of wireless business applications.

In December 2004, we released a service pack for OneBridge Mobile Groupware that
provided expanded device support for new certified mobile devices including the
Nokia 9500 Communicator, Sony Ericsson P910, Sprint Harrier (HTC Blue Angel),
and the Treo 650 smartphone by Palm. As opposed to spot testing devices on
reference platforms, OneBridge certification provides in-depth testing of device
functionality across carriers, regions, and languages. This release extended our
certification to more than 85 devices across the Symbian, Palm OS, and Microsoft
Windows Mobile platforms.

Also, in December 2004, we released XTNDAccess Device Management SDK, a
full-featured toolkit that enables manufacturers to embed industry-standard
device management client protocols into cell phones. As part of an overall
device management strategy, XTNDAccess Device Management SDK enables carriers to
perform firmware patch upgrades by taking remote control of a device,
eliminating the need for end users to perform these upgrades and drastically
reducing carrier support costs. The technology also facilitates the transfer of
other mobile device applications over-the-air (OTA), providing carriers with
another avenue of potential revenue stream.

In March 2005, we launched a Japanese Language Pack for OneBridge Real Time
server. The OneBridge Real Time server provides remote and mobile workers
browser-based access to e-mail, calendar, contacts and task data from any
Internet-enabled location via a thin-client device, such as a mobile phone,
laptop, remote PC, airport or hotel kiosk or WebTV. The Real Time server
supports more than 40 different device Web browsers, including those commonly
used by i-Mode, EZ Web, and Vodafone Live for mobile phone Web browsing in
Japan, as well as an array of devices not typically supported by other
solutions. The Japanese version runs all real-time applications, menus and
messages in the local language. OneBridge Real Time server supports Microsoft
Exchange and Lotus Notes groupware applications. Security features integrate
with existing enterprise infrastructures, ensuring enterprise data remains
protected and secure. The server-based approach means IT administrators maintain
control with the same level of security and application maintenance as they
offer their desktop users.

In June 2005, we announced the availability of enhanced developer tools for our
OneBridge Mobile Platform. OneBridge Mobile Platform version 4.5 enables
developers to easily retrofit existing applications with push capabilities. With
no re-architecting for legacy applications necessary, OneBridge can detect
database changes and push them to a mobile device in the field in real time.
This enhancement enables developers and independent software vendors to quickly
and easily build solutions that bring enterprise information to mobile workers,
while significantly reducing development time. Utilizing the new OneBridge
Mobile Application Acceleration Toolkit (OMAAT), version 4.5 also enables
developers creating mobile solutions in .NET or J2ME environments to embed our
synchronization, web services and push engine technologies into their
application, eliminating the need for separate components on the client. This
reduces client footprint requirements and makes these processes invisible to the
end user, resulting in a more streamlined user experience.

In September 2005, we released OneBridge Mobile Secure version 2.0. An add-on
software module to the OneBridge Mobile Platform, OneBridge Mobile Secure 2.0
provides IT administrators with control over mobile devices and the information
they carry. OneBridge Mobile Secure 2.0 allows an organization to extend and
enforce security policies to myriad mobile devices currently located outside the
confines of the corporate firewall.

Also in September 2005, we released XTNDAccess Blue Software Development Kit
(SDK) for Linux, which is the latest release in our line of Bluetooth protocol
stack and profile technologies. XTNDAccess Blue SDK for Linux enables developers
to easily implement Bluetooth capabilities on devices using a Linux operating
system.

We maintain global development operations and have development centers in Boise,
Idaho; Toronto, Canada and Bristol, UK. We also have smaller development teams
in Corvallis, Oregon and American Fork, Utah.

MARKETING, SALES AND DISTRIBUTION
---------------------------------

We market and sell our mobility products and professional services directly to
enterprise customers and OEMs. We also market and sell our products through
indirect sales channels, including value-added resellers ("VARs"), distributors
and systems integrators ("SIs"). Our enterprise customers include Global 2000
companies as well as small to medium-sized businesses, primarily in Europe and
the Americas. In the event the proposed acquisition of us by Sybase does not
occur, we plan to grow our market presence in Asia and the Pacific Rim by
expanding the number of VAR's, partners and other distributors with customers
and relationships in this geography. Additionally we sell to several of the
world's largest mobile phone and wireless semiconductor companies who embed our
technology into their products.

                                        9
<PAGE>

We market and license our device manufacturer products to our OEM or ODM
customers through our global network of VARs and distributors. We support these
resellers and also sell some products directly, with our team of sales and
technical professionals located in North America. We have entered into strategic
relationships with many of the world's largest telematics suppliers, mobile
phone manufacturers and component suppliers for sales of our mobile device
manufacturer products. Our OEM and ODM customers integrate our software into
their products, bundle our products with their products, and some endorse our
products in the marketplace. We have relationships with Bluetooth chipset
suppliers, such as Texas Instruments and ST Microelectronics, which can provide
our software with their hardware components directly to their customers, and in
some cases, their customers will also enter into a source code license directly
with us. Mobile device manufacturers incorporating our products include Siemens,
Motorola, LG Electronics, Palm, Hewlett-Packard and Visteon. We work directly
with OEMs and ODMs to identify the requirements of new products in the design
phase for later market launch. We develop a proposal to address the customers'
technical and business requirements and typically confirm our products will meet
the technical specifications before the sales transaction is completed. The
sales cycle to achieve a customer design win for these products ranges from one
to nine months based on the customer's time to market requirements. Once a
design win has been achieved, the products containing our software products can
take from one to 12 or more months to reach the intended customer market.

We market our enterprise mobility and enterprise database products through both
our direct sales representatives and through a sales channel comprised of VARs,
distributors, systems integrators and other resellers and commercial application
developers. In North America we market and license our enterprise mobility
solutions primarily through our direct sales organization although we are
building our indirect sales channels to reach additional customers in North
America. Our North American sales representatives and technical pre-sales staff
are located in sales territories throughout the United States and Canada. In the
EMEA region (Europe, Middle East and Africa), we market and license our products
through both our direct sales force and through channel partners. We also have
sales representatives based at our corporate headquarters that support our
resellers and work to expand the number of resellers in the Pacific Rim, Asia
and Latin America.

In the event the proposed acquisition of us by Sybase does not occur, a
component of our plan is to grow our market presence through expanding our value
added indirect channels including:

APPLICATION DEVELOPERS

We market our enterprise mobility products and enterprise database solutions to
commercial application developers. In the event the proposed acquisition of us
by Sybase does not occur, our growth plans include broadening the portfolio of
available applications that include our mobile platform and database software.
This entails developing new relationships with many of the leading application
developers across a range of vertical markets for both large and mid-tier
enterprises, including healthcare, manufacturing, financial services and the
public sector. These well-established application partners bring both domain
expertise and large installed customer bases, providing a ready market in which
to adopt mobile solutions. These leading application vendors have back-end
applications that comprise a part of the existing legacy application
infrastructure for enterprises in their target markets, and are in the best
position to extend these applications into the mobile environment. By embedding
our mobile platform into their applications, these partners generate sales and
distribute our products as an integral part of their mobile solution.

SYSTEM INTEGRATORS AND MANAGED SERVICES PROVIDERS

Another channel to market for our mobile software products is through SIs that
have professional services capabilities and in-depth knowledge of customers'
legacy environments that enable them to build custom applications according to
specific customer requirements. We have worked together with some of the world's
largest systems integrators that have used our products to build mobile
applications for their customers. Some of our systems integrator relationships
include T-Systems, Software AG, Hewlett Packard, Electronic Data Systems (EDS),
and Computer Sciences Corporation (CSC) and we are working to increase these and
other SIs use of our products. Most systems integration partners are authorized
resellers of our products and some like EDS and CSC use our products to deliver
managed services.

To assist our direct sales teams and support our resellers and other channel
partners, we engage in a variety of marketing activities. Our marketing
personnel assist in generating new sales opportunities by creating various
marketing programs, updating our Web site, targeting additional strategic
relationships, advertising in industry and other publications, and conducting
public relations campaigns. We also participate in a number of trade shows and
industry events. We communicate with our installed customer base via newsletters
and by hosting web-based seminars. Our public relations strategy is designed to
convey our messages to appropriate audiences, and we reinforce this through our
ongoing communications with a number of key industry analysts and members of the
press.

We are committed to have our sales and technical support personnel located close
to our customer locations. As of June 30, 2005, we maintain sales and technical
support offices primarily in Boise, Idaho; Bristol, UK and Herrenberg, Germany.
We also maintain smaller regional sales and support offices in Paris, France;
San Diego, California; Corvallis, Oregon; American Fork, Utah and
s'-Hertogenbosch, Netherlands.

                                       10
<PAGE>

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

PROFESSIONAL SERVICES

Our professional services organization is staffed by qualified employees with
experience in the mobile application field. We provide our clients, as well as
our implementation partners, with consulting and deployment services, mobile
application design and development, work flow process for mobile workers and
comprehensive training and support to help achieve business goals with a quicker
return on investment. The professional services team consists of project
managers, business analysts and technologists. Our professional services
include:

     o    PROJECT ADVISORY SERVICES. Our consultants assess current or planned
          mobile application needs, develop and document the project plan, and
          deliver the design specification. We provide a configuration and
          implementation roadmap to help meet business goals, including an
          analysis of return on investment and business change management.

     o    PROJECT IMPLEMENTATIONS. Our professional services consultants
          individually, or as members of our project teams, implement and assist
          in the configuration of our solutions to accelerate the project
          deployment schedule and ensure a successful implementation process.
          Such activities include the design, configuration and testing of our
          deliverables as well as training and supporting the customer
          organization during the rollout and when the applications go live. The
          implementation activities also include the development and
          configuration of interfaces to other enterprise solutions - either
          commercial or in-house legacy systems - as needed based on the
          project.

     o    BUSINESS ANALYSIS. We offer consulting services targeted at assisting
          our customers and implementation partners to deliver a working
          solution. This includes consulting to determine strategies to mobilize
          applications and to develop estimates for the return on investment for
          these mobile deployments.

     o    CUSTOM MOBILE APPLICATION DEVELOPMENT. We have developed and
          implemented successful mobile applications at enterprises in the
          financial services, telecommunications, pharmaceuticals, retail
          services, transportation and logistics, field service and utilities,
          public sector and education, manufacturing, life sciences and
          healthcare and other industries. We use a simple and standardized
          methodology when developing and implementing customized mobile
          solutions, based on the following five-step process:

          o    Discover the need for a mobile solution which incorporates
               business analysis and strategy consulting.
          o    Define the customer's business objectives and the benefits of
               mobile technology to the customer's organization, including the
               project scope definition, return on investment justifications and
               business case formulation.
          o    Design the best mobile solution for the customer's users and
               their needs.
          o    Develop a mobile solution using our mobile development tools.
          o    Deploy the solution to the customer's mobile users.

TECHNICAL SUPPORT

Commitment to customer service and technical support is an essential component
of our ability to provide high levels of customer satisfaction and help us to
make our business a success. Our technical support teams interact regularly with
customers' network administrators and application developers and respond to
their needs. In the process of supporting our existing customers, our team is
also able to identify requirements for future products or product enhancements.

We offer a wide range of customer support services including multiple support
programs tailored to meet the needs of our customers. We also provide access to
a web site that allows our customers and partners to access information and a
wide range of support tools such as our on-line knowledge base, FAQs and
technical notes. These support services include a technical support hotline to
provide telephone support to our customers through a toll-free number. In
addition to our internal support, our independent distributors and resellers
provide service and support to certain customers.

OUR CUSTOMERS
-------------

We have licensed our software products to over 2500 enterprise customers and
1500 independent software developers. We sell our products to enterprises both
directly and through a variety of channel partners including VARs, distributors
and other channel partners. We also sell to application developers and device
manufacturers. We have a worldwide customer base and key relationships with CSC,
EDS, Hewlett Packard, Microsoft, Motorola, Palm, PalmSource, Siemens, Software
AG, Symbian and Toshiba. By giving mobile workers real-time access to business
critical information, we have helped companies like FedEx, Janssen-Cilag, Otis
Elevator and 20th Century Fox improve operating efficiencies and increase
customer satisfaction.

INTELLECTUAL PROPERTY
---------------------

Our success is significantly dependent on our proprietary technology and other
intellectual property. To protect our proprietary rights, we rely generally on
patent, copyright, trademark and trade secret laws. Additionally, we maintain
confidentiality agreements with many of our employees, consultants and
customers. 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

                                       11
<PAGE>

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 28 registered trademarks. We cannot provide assurance 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 12 patents; all of which expire beginning in 2010. We also
have 11 patent applications pending. We cannot provide assurance 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 non-infringing 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, 2005 we had 196 employees worldwide. 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 and their ages as of September 15, 2005 are as follows:

NAME                          AGE   POSITION
----------------------------  ---   --------------------------------------------

Charles W. Jepson...........  59    Chief.Executive Officer and President
Valerie A. Heusinkveld......  46    Vice President of Finance, Chief Financial
                                      Officer and Corporate Secretary
Neal J. Benz................  53    Vice President of Research and Development
Nigel S. Doust..............  49    Vice President of Worldwide Mobility
Gregory T. Pappas...........  43    Vice President of Human Resources
Nathan L. Pendleton.........  43    Vice President of Mobile Device Solutions
Mark A. Willnerd............  40    Vice President of Business Development

CHARLES W. JEPSON was named 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 July 2001 to October 2002. From June 2000 to July 2001, he was the
Senior 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.

VALERIE A. HEUSINKVELD was appointed Chief Financial Officer, Vice President of
Finance and Corporate Secretary in November 2003. Prior to joining us, Ms.
Heusinkveld was an independent consultant to early stage companies. Before its
sale to Cyprus Semiconductor, she served as Chief Financial Officer at In-System
Design, Inc., a fabless semiconductor company, from October 2000 until January
2002. From 1989 to 2000, Ms. Heusinkveld held senior management positions at TJ
International, Inc., where she was the Chief Financial Officer from December
1992 until the sale of the company to Weyerhaeuser Company in 2000.

NEAL J. BENZ was appointed Vice President of Research and Development in October
2004. Prior to joining us, Mr. Benz was the Vice President of Engineering at
BenefitPoint, a web-based platform for CRM and procurement of employee benefits,
from January

                                       12
<PAGE>

2004 to June 2004 and the Chief Technology Officer of Prelytic Software Systems,
a predictive analytics company from May 2003 to January 2004. From May 1997 to
November 2002, Mr. Benz served as Vice President of Foundation Engineering and
Director of Consulting Services at Chordiant Software, Inc. Prior to Chordiant,
Mr. Benz served in management, technical, and professional services positions at
J. Frank Consulting, Lexis Nexis and Watkins Johnson Co.

NIGEL S. DOUST was appointed Vice President Worldwide Mobility in February 2005.
Mr. Doust joined us in April 2003 as Vice President of EMEA. Prior to joining
us, Mr. Doust served as Vice President, International for Diligent Software
Systems, a provider of e-procurement software from September 2001 to January
2003. Prior to his tenure with Diligent, he was the Vice President EMEA from
August 1999 to August 2001 and Customer Services Director from December 1998 to
July 1999 at eGain Communications. From December 1988 to December 1998, he
served as Divisional Manager, Business Group Manager, and Technical Manager at
Tangent International, a system integrator.

GREGORY T. PAPPAS was appointed Vice President of Human Resources in July 2004.
Prior to joining us, Mr. Pappas served as Vice President of Human Resources and
Administration for GlobalEnglish Corporation from 2000 to 2004. From 1998 to
2000, he was Vice President of Human Resources and Administration for Inference
Corporation. From 1996 to 1998 Mr. Pappas was the Sr. Director of Human
Resources for Chordiant Software, Inc. and from 1993 to 1996, he held the
position of Human Resources Manager for Apple Computer, Inc.

NATHAN L. PENDLETON was appointed Vice President of Mobile Device Solutions in
February 2005. From August 1997 to February 2000, Mr. Pendleton held the
positions of Business Unit Manager for our short range wireless hardware and
software group and President and Vice President of Sales of Counterpoint Systems
Foundry before it became one of our wholly owned subsidiaries. Prior to
rejoining us, Mr. Pendleton served as Vice President of Business Development for
AirZip, Inc. a file encryption software company, from June 2003 to January 2005.
From June 2001 to May 2003 he founded and was the president of Aztec Wireless
Technologies, a wireless software company, and from March 2000 to March 2001 he
was the Vice President of Sales at a cellular phone software maker, Pixo
Incorporated. Prior to Pixo, Mr. Pendleton worked for Wind River Systems from
February 1993 to May 1997 in various marketing management roles.

MARK A. WILLNERD was appointed Vice President of Business Development in
September 2002. Mr. Willnerd joined us in July 1989 and has held numerous
positions, including Business Development Director and Alliance and Product
Manager for our products.

ITEM 2. PROPERTIES.

Our corporate headquarters facility is located in Boise, Idaho where we conduct
research and development, marketing and sales, customer support, professional
services and administration activities. We currently lease our headquarters
facility pursuant to a sale-and-leaseback agreement that we entered into in
September 2003. Of the approximately 100,000 square foot facility that we lease,
approximately 52,000 square feet is unused space that we sublease to third
parties or have available for lease. We also lease sales, support, professional
services and development offices throughout the United States, Canada and
Europe. These leases expire at varying dates through 2014 and some include
renewals at our option. 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.

ITEM 3. LEGAL PROCEEDINGS.

AppForge, Inc.
--------------

On June 29, 2004 AppForge, Inc. ("AppForge") filed a complaint against us in the
United States District Court for the District of Delaware (the "Court"). An
amended complaint was filed on August 12, 2004 joining Extended Systems of
Idaho, Inc. ("ESI-Idaho") and four of our European subsidiaries. ESI-Idaho and
AppForge had entered into a reseller agreement and incorporation license
agreement related to certain AppForge software. AppForge alleges that we have
used AppForge's technology, copyrighted material, and trademarks in a manner not
authorized by the parties' agreements. We believe that our use and distribution
of our products that interface with AppForge's software, copyrighted material,
and trademarks has been within the scope of the parties' agreements.

We filed a motion with the Court seeking to compel arbitration and to dismiss or
stay the case pending the outcome of arbitration. On March 28, 2005 the Court
ordered the parties to arbitrate, stayed the case pending arbitration, and
ordered that our four European subsidiaries be bound by any factual
adjudications in the arbitration. ESI-Idaho had filed a demand for arbitration
with the American Arbitration Association seeking a declaration of the parties'
respective rights and obligations. AppForge has filed counterclaims reasserting
the charges first made in its court complaint and also asserting breach of
contract. The hearing in the arbitration commenced in late September 2005, but
no order has yet been issued by the arbitrators. We believe that we have
meritorious defenses against AppForge's counterclaims, and we will continue to
vigorously defend against them.

Agilent Technologies Singapore Pte., Ltd. and Samsung Electronics Co., Ltd.
---------------------------------------------------------------------------

On December 2, 2004, ESI-Idaho, one of our wholly owned subsidiaries, filed a
complaint in the United States District Court for the District of Idaho against
Agilent Technologies Singapore Pte., Ltd. ("Agilent") for failure to pay
royalties due under a license

                                       13
<PAGE>

agreement and for contributing to infringement of ESI-Idaho's registered
copyrights in ESI-Idaho's IrDA software. Subsequently, based on factual
representations from Agilent concerning the alleged conduct of Samsung
Electronics Co., Ltd. ("Samsung"), on February 3, 2005, ESI-Idaho filed an
Amended Complaint joining Samsung, Samsung Electronics America, Inc. and Samsung
Telecommunication America, L.P. (collectively, the "Samsung Defendants") on
copyright infringement claims alleging, based on Agilent's representations, that
the Samsung Defendants have infringed certain of ESI-Idaho's registered
copyrights in IrDA software by knowingly copying the software into Samsung
phones with non-royalty bearing Agilent transceivers and importing and selling
those cell phones in the United States without the permission of ESI-Idaho.

The claims in the lawsuit related to a business arrangement entered into by
ESI-Idaho with Agilent and Samsung in 2002 whereby Agilent agreed to sell
certain royalty-bearing transceivers to Samsung for use by Samsung with our
ESI-Idaho software in Samsung cell phones. Agilent agreed to pay ESI-Idaho
royalties based on Samsung's use of the ESI-Idaho software with royalty-bearing
Agilent transceivers and Samsung was licensed to use ESI-Idaho software only
with Agilent royalty-bearing transceivers. ESI-Idaho alleged that Samsung
knowingly used ESI-Idaho software with non-royalty bearing Agilent transceivers
outside the scope of its license from ESI-Idaho and that Agilent aided and
abetted Samsung's conduct and has failed and refused to pay royalties to
ESI-Idaho for Samsung's use of ESI-Idaho software with Agilent transceivers.

ESI-Idaho sought payments in accordance with the agreed contractual royalty
rates for all uncompensated use of its software by Samsung and sought a full
accounting from Agilent and Samsung as to the number of Agilent transceivers
shipped to Samsung that were compatible with ESI-Idaho software and as to the
number of Samsung cell phones in which ESI-Idaho software has been copied.

ESI-Idaho also filed a motion for preliminary injunction asking the Court to
restrain Agilent from shipping transceivers to Samsung for use with ESI-Idaho
software without payment of agreed royalties and to restrain Samsung from
selling or importing in the United States any cell phones incorporating
unauthorized copies of ESI-Idaho software.

Shortly after joining Samsung as a party to the lawsuit, the parties entered
into a Standstill Agreement, which has subsequently been amended, under which
ESI-Idaho agreed to temporarily set over the scheduled hearing on its
preliminary injunction. Under the Standstill Agreement, ESI-Idaho was paid $1.5
million toward ESI-Idaho's claims against Agilent and Samsung. Shortly prior to
the expiration of the Standstill Agreement, as amended, the parties entered into
a Binding Memorandum of Understanding (the "Resolution Agreement"), effective
April 27, 2005 that resolved the lawsuit. Under the terms of the Resolution
Agreement, ESI-Idaho entered into a royalty-bearing license with Samsung for
Samsung's future use of ESI-Idaho's IrDA software. ESI-Idaho also granted
Samsung an option to purchase for a lump sum a two-year license to use
ESI-Idaho's IrDA software and its XTNDConnect PC software in Samsung cell
phones. At the conclusion of the two-year paid up licenses, Samsung would have
the option to continue to license the software at royalty rates not greater than
those set out in the Resolution Agreement. On May 6, 2005, Samsung notified
ESI-Idaho that Samsung would not exercise its option for the two year license.
In addition to the $1.5 million received by ESI-Idaho under the Standstill
Agreement in March and April 2005, the Resolution Agreement provides for
additional payments. Samsung and Agilent paid ESI-Idaho $1.25 million and $2.0
million in May 2005 and August 2005, respectively, and a final payment of $1.0
million is due in December 2005.

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.

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

None.


                                       14
<PAGE>

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES.

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

                                                               HIGH       LOW
                                                             ------------------
FISCAL YEAR 2005
         Fourth Quarter, ended June 30, 2005.............    $  5.15    $  2.90
         Third Quarter, ended March 31, 2005.............       4.98       2.30
         Second Quarter, ended December 31, 2004.........       3.10       1.99
         First Quarter, ended September 30, 2004.........       5.03       2.38
FISCAL YEAR 2004
         Fourth Quarter, ended June 30, 2004.............    $  7.15    $  4.81
         Third Quarter, ended March 31, 2004.............       6.58       4.35
         Second Quarter, ended December 31, 2003.........       4.88       3.70
         First Quarter, ended September 30, 2003.........       5.50       3.50

On September 23, 2005, the last reported per share sale price of our common
stock on the Nasdaq National Market was $4.39 per share. The market for our
common stock is highly volatile. See "Management's Discussion and Analysis of
Financial Condition and Results of Operation--Factors That May Affect Future
Results and Market Price of Stock."

According to the records of American Stock Transfer and Trust Company, our
transfer agent, we had 279 stockholders of record as of September 23, 2005.
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 our securities authorized for
issuance under equity compensation plans is incorporated by reference to the
information set forth in Part III, Item 12 of this annual report on Form 10-K.

We made no repurchase of any of our equity securities during our quarter ended
June 30, 2005.

In December 2004, we determined that we had inadvertently failed to register or
qualify under the federal securities laws or the securities laws of certain
states the public sale of approximately 893,811 shares of our common stock
pursuant to our Employee Stock Purchase Plan ("ESPP"). The shares were sold to
employees at a per share price equal to 85% of the lesser of the fair market
value per share of the common stock on the start date of the offering period
under the ESPP or on the purchase date, for aggregate cash consideration of
approximately $2.0 million. We filed a registration statement on Form S-8 in
April 1998 for the registration of the initial 700,000 shares authorized under
the ESPP. However, we subsequently added an aggregate of 1,315,621 additional
shares of our common stock to the ESPP pursuant to the evergreen provisions of
the ESPP but did not file a registration statement covering these additional
shares. In December 2004, our board of directors terminated the ESPP and the
last sales occurred under the ESPP in June 2004. As a consequence of the failure
to register or qualify the sales of our common stock under the ESPP, certain
ESPP participants may have had the right to rescind their purchases under the
ESPP prior to June 2005 or may have the right to recover damages from us and
others related to the unregistered or nonqualified sale of the ESPP shares.
Governmental regulatory authorities may seek penalties or other sanctions
against us with respect to the failure to register or qualify the ESPP sales or
our failure to timely disclose such failure to register or qualify the ESPP
shares.

                                       15
<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
Operation" 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,
                                                                        --------------------------------------------------------
                                                                          2005        2004        2003        2002        2001
                                                                        --------    --------    --------    --------    --------
<S>                                                                     <C>         <C>         <C>         <C>         <C>
Net revenue .........................................................   $ 40,073    $ 32,186    $ 27,534    $ 22,275    $ 26,910
Gross margin ........................................................     35,343      27,745      23,203      19,722      19,634
Restructuring charges ...............................................         --       1,446         597         213       1,066
Patent litigation fees, license and settlement ......................         --       3,425       1,240          --          --
Income (loss) from operations .......................................      5,189      (3,798)     (4,368)     (9,316)    (19,514)(A)
Other income (expense), net .........................................       (341)      1,007 (B)     257          (4)        457
Interest expense ....................................................       (511)       (453)       (307)        (70)          1
Income (loss) before income taxes ...................................      4,337      (3,244)     (4,418)     (9,390)    (19,056)
Income tax provision (benefit) ......................................        379          94        (200)     (2,257)(C)   7,228 (D)
Income (loss) from continuing operations ............................      3,958      (3,338)     (4,218)     (7,133)    (26,284)
Income (loss) from discontinued operations and gain
    (loss) from sale of discontinued operations, (net) ..............         --          88         458         (57)      2,810
Net income (loss) ...................................................      3,958      (3,250)     (3,760)     (7,190)    (23,474)

Earnings (loss) per share from continuing operations:
    Basic ...........................................................   $   0.26    $  (0.23)   $  (0.31)   $  (0.64)   $  (2.48)
    Diluted .........................................................   $   0.25    $  (0.23)   $  (0.31)   $  (0.64)   $  (2.48)

Earnings (loss) per share from discontinued operations:
    Basic ...........................................................   $     --    $     --    $   0.03    $  (0.01)   $   0.26
    Diluted .........................................................   $     --    $     --    $   0.03    $  (0.01)   $   0.26

Earnings (loss) per share:
    Basic ...........................................................   $   0.26    $  (0.23)   $  (0.28)   $  (0.65)   $  (2.22)
    Diluted .........................................................   $   0.25    $  (0.23)   $  (0.28)   $  (0.65)   $  (2.22)

Shares used in computing basic and diluted earnings (loss) per share:
    Basic ...........................................................     15,313      14,370      13,376      11,048      10,587
    Diluted .........................................................     15,546      14,370      13,376      11,048      10,587



                                                                                             AS OF JUNE 30,
                                                                        --------------------------------------------------------
                                                                          2005        2004        2003        2002        2001
                                                                        --------    --------    --------    --------    --------

Cash and cash equivalents............................................   $ 13,617    $  7,225    $  3,502    $  5,349    $  6,585
Total assets.........................................................     39,986      33,356      29,091      20,371      28,143
Long-term debt and other long-term liabilities.......................      4,899       4,970         494          --          --
Total stockholders' equity...........................................     23,773      19,156      19,256      13,088      18,938
</TABLE>

(A)  Our loss from operations includes $1.4 million in charges associated with
     the terminated merger with Palm, Inc. included in general and
     administrative expenses.
(B)  Other income (expense) includes $1.1 million of gain on the sale of excess
     land at our Boise, Idaho headquarters facility.
(C)  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
     relates primarily to a reserve that was reversed when we sold our Singapore
     subsidiary.
(D)  Our income tax provision includes a $14.0 million valuation allowance
     recorded against our deferred tax assets.

                                       16
<PAGE>
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATION.

INTRODUCTION
------------

We begin Management's Discussion and Analysis of Financial Condition and Results
of Operation with an overview to give the reader our perspective on our results
for fiscal 2005 and our general review of the current fiscal year. This is
followed by a discussion of the critical accounting policies that we believe are
important to understanding the assumptions and judgments incorporated in our
reported financial results. In the next section, we discuss our results of
operations for fiscal 2005 compared to fiscal 2004 and for fiscal 2004 compared
to fiscal 2003. We then provide an analysis of our liquidity and capital
resources.

This discussion and other parts of this Annual Report on Form 10-K contain
forward-looking statements (within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended). These statements are based upon current
expectations that involve risks, uncertainties and assumptions, and we undertake
no obligation to update the forward-looking statements or reflect events or
circumstances after the date of this report. Any statements contained in this
Annual Report on Form 10-K that are not statements of historical fact may be
deemed to be forward-looking statements. These forward-looking statements
include words such as "may," "will," "should," "estimates," "predicts,"
"potential," "continue," "strategy," "believes," "anticipates," "plans,"
"expects," "intends," "outlook," "could," "estimate," "project," "forecast," or
similar expressions that are intended to identify forward-looking statements.

Our actual results may differ materially from the results discussed in such
forward-looking statements. Factors that may cause a difference include, but are
not limited to, those discussed under "Management's Discussion and Analysis of
Financial Condition and Results of Operation --Factors That May Affect Future
Results and Market Price of Stock and --Liquidity, Capital Resources and
Financial Condition." The following discussion should be read in conjunction
with the Consolidated Financial Statements and notes thereto appearing elsewhere
in this Annual Report on Form 10-K. All yearly references are to our fiscal
years ended June 30, 2005, 2004 and 2003, unless otherwise indicated. All
tabular amounts are in thousands, except percentages.

OVERVIEW
--------

We entered into an agreement and plan of merger with Sybase and a wholly owned
subsidiary of Sybase, dated as of July 28, 2005, pursuant to which we agreed to
be acquired by Sybase in an all cash transaction for $4.460847 per share.
Subject to approvals by our stockholders, receipt of various regulatory
approvals and other specified closing conditions, we expect the consummation of
the merger to occur during the fourth quarter of calendar 2005.

We are a provider of software and services that delivers solutions to help
companies optimize their business processes and improve workforce productivity
through mobilizing corporate applications and data. The users of our products
include enterprise employees that complete their jobs or portions of their jobs
outside of company-owned facilities where they have traditionally accessed,
viewed and updated information through wired networks. Advancing the adoption of
enterprise mobility solutions is the increased availability and capability of
powerful mobile devices, such as PDAs, mobile phones and converged devices.
Enterprises are increasingly realizing they can improve their competitiveness by
mobilizing corporate information. We also provide software and expertise that
enable our mobile device manufacturer customers to accelerate their product
development cycles and enhance the functionality of new products they bring to
market. The users of our device manufacturer products are companies that design
and sell products that need wireless communication protocols, such as handset
manufacturers and automotive telematics providers. As the supply chain for these
products consolidates, our customer base is increasingly becoming the chipset
manufacturers and original design manufacturers that supply these industries.
Finally, we provide database software to customers that develop commercial
applications, including mobile applications that need a reliable, stable and
easy to administer database to support their application needs.

We believe a full understanding of our operating results for fiscal 2005
requires an understanding of how the mobility solutions market is evolving and
how this evolution influences our financial performance. Although the mobility
solutions market is still in the early phases of development, organizations are
increasingly developing a mobile computing strategy as a part of their plans to
increase productivity, improve competitiveness and enhance customer
relationships. However, the decision to mobilize is being driven by group or
division level executives who have the ability to make faster decisions on a
mobile deployment project and accordingly, the projects are relatively small in
size and are not being deployed on an organization-wide basis. Additionally, the
tight oversight of capital spending continues to restrain spending on
information technology infrastructure projects and has caused enterprises to
focus spending on mobile technology investments that can achieve a 12 to 18
month payback. Many companies launch their mobile strategy with a mobile
contacts, calendar, task and e-mail application. Our mobile solution that meets
this need, OneBridge Mobile Groupware, comprises the dominant portion of our
enterprise mobility software revenue. We have experienced increased competition
and related pricing pressure for our Groupware products in the marketplace and
we expect this trend to continue. Our plans to grow our enterprise mobility
product revenue include an emphasis on increasing the number of seats deployed
to our existing customer base, increasing the sales of our enhanced security
product, OneBridge Mobile Secure, and increasing sales of enterprise mobile
applications, such as OneBridge Mobile Field Service.

Device manufacturers are also evolving their products to address this growing
enterprise mobility market. Notebooks, mobile phones and standard PDAs have been
the dominant mobile infrastructure devices. However, as mobile device designers
and marketers have launched campaigns to communicate the added value of
smartphones and converged devices, adoption rates for these devices have
increased. Additionally, other industries, such as automotive parts suppliers
and medical device

                                       17
<PAGE>
manufacturers, have included wireless communication functionality to enhance the
capability of their products to meet customer needs. To address the growth in
this market, the rapid product development cycle, and the demand for a robust
feature set, device manufacturers have increasingly turned to third-party
providers like us to provide the technology for short-range wireless
connectivity products. During fiscal 2005, we experienced an increasing trend of
chipset manufacturers and original design manufacturers choosing our software to
meet their needs for their short-range wireless communication requirements.

We believe Europe has been the global leader in the deployment of wireless
infrastructure. The coverage and data capacity of wireless networks developed
more rapidly in Europe than in other global markets, and the market for mobility
solutions has grown most rapidly in Europe. We have a long operating history in
Europe with offices in four countries. We have gained market awareness in Europe
and developed long-standing customer relationships. A significant portion of our
revenue in fiscal 2005 was derived from European customers purchasing our
enterprise mobility solutions and European device manufacturers introducing
successful converged devices that contained our mobile device solutions
products. Our revenue from our European customers that purchase our products in
either British pound sterling or euros is affected by changes in the exchange
rate between these currencies and the U.S. dollar. In fiscal 2005, the weakening
of the U.S. dollar positively affected our reported revenue.

In 1993, we introduced our first enterprise database products. We continue to
market and sell these products to commercial application developers and
enterprises to support the data requirements of both mobile and traditional
enterprise applications. Application developers that purchase our enterprise
database products have required a solution that is stable, is priced
competitively and does not require a significant amount of database
administration support. We have developed an extensive network of resellers that
market these products globally. Because these products do not require heavy
research and development investment or significant sales and marketing support,
they were an important source of positive cash flow for us in fiscal 2005.

In fiscal 2005 we directed our resources at achieving revenue growth by
generating more sales of our solutions to enterprise customers and companies in
the mobile device manufacturer supply chain. We believe enterprise customers
will continue investing first in mobile mail and messaging software and later
moving toward purchasing mobile applications that can have an immediate
financial impact on their business. Examples of these applications are field
service, supply chain and logistics, healthcare and field sales. We believe
enterprises will choose vendors with knowledge of workflows and business
processes and those that can provide a business case for investment. We expect
to compete directly with both larger companies that have significant resources
and experience and smaller companies that focus on a particular mobile vertical.
We also expect to experience longer sales cycles, which is typical for sales of
larger, essential business applications.

Our operating expenses declined in fiscal 2005 compared to fiscal 2004 by $1.1
million. However, the decline was due primarily to restructuring charges and
costs associated with defending and settling a patent infringement case in the
third quarter of fiscal 2004 year that did not recur in fiscal 2005. Excluding
these expenditures, our operating expenses increased $3.8 million in fiscal 2005
compared to fiscal 2004 primarily as a result of increased marketing and sales
expenses and general and administrative expenses. Net revenue increased $7.9
million in fiscal 2005 compared to the prior year. This revenue growth was due
to a combination of factors, including prepaid royalties and license fees from
the sale of our Bluetooth wireless technology software to Texas Instruments and
$2.75 million of revenue for royalty payments received as a result of resolving
our lawsuit against Agilent and Samsung. Because revenue growth in fiscal 2005
outpaced spending increases, we reported both income from operations of $5.2
million and net income of $4.0 million in fiscal 2005.

USE OF ESTIMATES AND 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 (loss) 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 we
consider critical to an understanding of the consolidated financial statements
are highlighted below.

REVENUE RECOGNITION
-------------------

Revenue recognition rules for software companies are very complex. We follow
specific and detailed guidelines in determining the proper amount of revenue to
be recorded; however, certain judgments must be made by management in
interpreting the rules and in applying our revenue recognition policy. Revenue
results are difficult to predict, and any shortfall in revenue or delay in
recognizing revenue could cause our operating results to vary significantly.

We apply the provisions of Statement of Position 97-2, SOFTWARE REVENUE
RECOGNITION (SOP 97-2), as amended by SOP 98-9, and recognize software 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.

                                       18
<PAGE>
We assess whether the fee associated with a transaction is fixed or determinable
at the time of the transaction, based on the payment terms associated with the
transaction. If payment terms are extended for a significant portion of the fee
or if there is a risk that the customer will expect a concession, we do not
consider the fee fixed or determinable. In these cases, we recognize revenue as
the fee becomes due and payable. If we were to assess the fixed or determinable
criterion differently, the timing and amount of our revenue recognition might
differ 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 were to assess our ability to collect
differently, the timing and amount of our revenue recognition might differ
materially from that reported.

For arrangements with multiple obligations (for instance, license, service, and
maintenance and support), we allocate revenue to each component of the
arrangement based on fair value and 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 us. For example,
the vendor-specific objective evidence of fair value for maintenance and support
is based upon separate sales of renewals to other customers 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, patches, bug fixes
and other modifications to ensure that the products comply with their warranty
provisions. Accordingly, we accrue for warranty costs for these products at the
time the product revenue is recognized.

When a contractual relationship with one of our customers stipulates the
submission of a royalty report to us, revenue is generally recorded when the
royalty report is received and recognized in the period that the report covers.
If a royalty report is not received by the desired date to facilitate the
closing of the books for a given fiscal period and there exists the basis to
make a fair and reasonable estimate of the revenue related to that royalty
report, this estimate will be recorded as revenue. Estimated royalty fees and
revenues are subsequently adjusted based upon actual amounts realized. If the
actual amount realized differs materially from the recorded estimate and is
reported to us after an estimate has been recorded and before financial results
are announced externally, the recorded amount will be adjusted to reflect the
actual amount realized. If the amount differs and is reported after financial
results are announced externally and does not differ materially, the adjustment
will be made in the subsequent fiscal period. In cases where the arrangement
with our customer provides for a prepaid nonrefundable royalty, we recognize
revenue when persuasive evidence of an arrangement exists, 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 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. We recognize no
more than 90% of the total contract amount until project acceptance is obtained.
In cases where our professional services involve customizations for which the
amount of customization effort cannot be reasonably estimated, or where
significant uncertainty about the project completion or customer acceptance
exists, we defer the contract revenue under the completed contract method of
accounting until the uncertainty is sufficiently resolved or the contract is
complete and accepted by the customer. If we were to make different judgments or
use 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 gross profit margins, might differ materially
from that reported.

BUSINESS COMBINATIONS AND ACQUIRED INTANGIBLE ASSETS
----------------------------------------------------

We account for our purchases of acquired companies in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations," and
account for the related acquired intangible assets in accordance with SFAS No.
142, "Goodwill and Other Intangible Assets." In accordance with SFAS No. 141, we
allocate the cost of the acquired companies to the identifiable tangible and
intangible assets acquired and liabilities assumed, with the remaining amount
being classified as goodwill. Certain intangible assets, such as "developed
technologies," are amortized to expense over time, while in-process research and
development costs ("IPR&D"), if any, are immediately expensed in the period the
acquisition is completed. Identifiable intangible assets are currently amortized
over a five-year period using the straight-line method.

The majority of entities we acquire do not have significant tangible assets and,
as a result, a significant portion of the purchase price is typically allocated
to intangible assets and goodwill. Our future operating performance will be
affected by the future amortization of intangible assets, potential charges
related to IPR&D for future acquisitions and potential impairment charges
related to goodwill. Accordingly, the allocation of the purchase price to
intangible assets and goodwill has a significant effect on our future operating
results. The allocation of the purchase price of the acquired companies to
intangible assets and goodwill requires us to make significant estimates and
assumptions, including estimates of future cash flows expected to be generated
by the acquired assets and the appropriate discount rate for these cash flows.
Should different conditions prevail, material write-downs of intangible assets
and/or goodwill could occur.

                                       19
<PAGE>

Under SFAS No. 142, goodwill is no longer subject to amortization. Rather, we
evaluate goodwill for impairment at least annually, during the fourth quarter of
each fiscal year, or more frequently if events and changes in circumstances
suggest that the carrying amount may not be recoverable. Impairment of goodwill
is tested at the reporting unit level by comparing the reporting unit's carrying
value, including goodwill, to the fair value of the reporting unit. The fair
values of the reporting units are estimated using a combination of the income,
or discounted cash flows, approach and the market approach, which utilizes
comparable companies' data. If the carrying amount of the reporting unit exceeds
its fair value, goodwill is considered impaired and we then compare the implied
fair value of the goodwill to its carrying amount to determine the impairment
loss, if any.

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. 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
were to make different judgments or use different estimates, our measurement of
any impairment might differ 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, 2005 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 were to make different judgments or used different estimates,
the amount or timing of the valuation allowance recorded might differ materially
from that reported. If actual results differ from these estimates or if 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 affect 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 were to make different
judgments or used different estimates, the timing and amount of our reserve
might differ materially from that reported.

RESTRUCTURING
-------------

We report costs associated with employee terminations and other exit activity in
accordance with SFAS No. 112, "Employers' Accounting for Postemployment Benefits
- an amendment of FASB Statements No. 5 and 43," and SFAS No. 146, "Accounting
for Costs Associated with Exit or Disposal Activities." We record employee
termination benefits as an operating expense when the benefit arrangement is
communicated to the employee and no significant future services are required. We
recognize facility lease termination obligations, net of estimated sublease
income, and other exit costs when we have future payment with no future economic
benefit or a commitment to pay the termination costs of a prior commitment.
These termination and other exit costs are reported at fair value.

DETERMINING FUNCTIONAL CURRENCIES FOR THE PURPOSE OF CONSOLIDATION
------------------------------------------------------------------

In preparing our consolidated financial statements, we are required to translate
the financial statements of our international subsidiaries from their functional
currencies, generally the local currency, into U.S. dollars. This process
results in exchange gains and losses, or cumulative translation adjustments,
which are included as a separate part of our net equity under the caption
"Accumulated other comprehensive loss."

Under the relevant accounting guidance, the computation method and treatment of
these translation gains or losses are dependent upon management's determination
of the functional currency of each subsidiary. The functional currency is
determined based on management's judgment and involves consideration of all
relevant economic facts and circumstances affecting the subsidiary. Generally,
the currency in which the subsidiary transacts a majority of its transactions,
including billings, financing, payroll and

                                       20
<PAGE>

other expenditures, is considered the functional currency, but any dependency
upon the parent and the nature of the subsidiary's operations is also
considered.

Cumulative translation adjustments include any gain or loss associated with the
translation of that subsidiary's financial statements when the functional
currency of any subsidiary is the local currency. However, if the functional
currency were deemed to be the U.S. dollar then any gain or loss associated with
the remeasurement of these financial statements would be included within our
statement of operations. If we dispose of any of our subsidiaries, any
cumulative translation gains or losses would be realized and recorded within our
statement of operations in the period during which the disposal occurs. If we
determine that there has been a change in the functional currency of a
subsidiary to the U.S. dollar, any translation gains or losses arising after the
date of change would be included within our statement of operations.

Based on our assessment of the factors discussed above, we consider the relevant
subsidiary's local currency to be the functional currency for each of our
international subsidiaries. Accordingly, during fiscal 2005, 2004 and 2003,
translation adjustments of $1.0 million, $144,000 and $503,000, respectively,
were recorded as additions to our accumulated other comprehensive loss. At June
30, 2005 and 2004, cumulative translation losses of approximately $2.5 million
and $1.5 million, respectively, were included as part of accumulated other
comprehensive loss within our balance sheet. These translation losses have
accumulated since we formed our first non-U.S. subsidiary in 1991. Had we
determined that the functional currency of our subsidiaries was the U.S. dollar,
we would have computed a remeasurement gain or loss using a different method and
such gain or loss would have been included in our results of operations for each
of the periods presented.

The magnitude of these gains or losses is dependent upon movements in the
exchange rates of the foreign currencies in which we transact business against
the U.S. dollar and the significance of the assets, liabilities, revenue and
expenses denominated in foreign currencies. These currencies include the euro,
the British pound sterling and Canadian dollar. Any future translation gains or
losses could be significantly higher than those noted in each of the periods
presented. In addition, if we determine that a change in the functional currency
of one of our subsidiaries has occurred at any point in time or we sell or
liquidate one of our subsidiaries, we would be required to include any
translation gains or losses from the date of change in our statement of
operations.

LEGAL CONTINGENCIES
-------------------

From time to time we may be involved in various legal proceedings and claims.
Periodically, but not less than quarterly, we review the status of each
significant matter and assess our potential financial exposure. If the potential
loss from any legal proceeding or claim is considered probable and the amount
can be reasonably estimated, we accrue a liability for the estimated loss.
Significant judgment is required in both the determination of probability and
the determination as to whether an exposure is reasonably estimable. Due to the
uncertainties related to these matters, accruals are based only on the best
information available at the time. As additional information becomes available,
we reassess the potential liability related to our pending litigation and claims
and may revise our estimates. Any revisions could have a material impact on our
results of operations and financial condition.

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

The following table sets forth the selected consolidated financial data for the
periods indicated, expressed as a percentage of total revenue for fiscal 2005,
2004 and 2003.






                                       21
<PAGE>
<TABLE><CAPTION>
                                                                FOR THE YEARS ENDED JUNE 30,
                                                             ----------------------------------
                                                               2005         2004         2003
                                                             --------     --------     --------
<S>                                                          <C>          <C>          <C>
Revenue:
    License fees and royalties ...........................         78%          78%          79%
    Services and other ...................................         22           22           21
                                                             --------     --------     --------
         Total net revenue ...............................        100          100          100
Costs and expenses:
    Cost of license fees and royalties ...................          1            1            2
    Cost of services and other ...........................         11           13           15
    Amortization of identifiable intangibles .............          1            2            3
    Research and development .............................         20           21           27
    Acquired in-process research and development .........         --           --            2
    Marketing and sales ..................................         38           42           46
    General and administrative ...........................         16           17           15
    Restructuring charges ................................         --            4            2
    Patent litigation fees, license and settlement .......         --           11            4
    Non-cash stock-based compensation ....................          1            1           --
                                                             --------     --------     --------
         Total costs and expenses ........................         88          112          116
                                                             --------     --------     --------
         Income (loss) from operations ...................         12          (12)         (16)
    Other income (expense), net ..........................         (1)          --            1
    Gain on sale of land .................................         --            3           --
    Interest expense .....................................         (1)          (1)          (1)
                                                             --------     --------     --------
         Income (loss) before income taxes ...............         10          (10)         (16)
    Income tax provision (benefit) .......................          1           --           (1)
                                                             --------     --------     --------
         Income (loss) from continuing operations.........          9          (10)         (15)
    Discontinued operations, net of tax:
         Income from discontinued operations .............         --           --            1
                                                             --------     --------     --------
         Net income (loss) ...............................          9%         (10)%        (14)%
                                                             ========     ========     ========
</TABLE>

COMPARISON OF FISCAL YEARS ENDED JUNE 30, 2005, 2004 AND 2003

Revenue
-------

The following table presents our license, support and maintenance, and
professional services revenue for fiscal 2005, 2004 and 2003, and the percentage
change from the prior year.

<TABLE><CAPTION>
                                                                 FISCAL YEARS ENDED JUNE 30,
                                                ------------------------------------------------------------
                                                  2005       % CHANGE       2004       % CHANGE       2003
                                                ------------------------------------------------------------
<S>                                             <C>          <C>          <C>          <C>          <C>
Revenue:
    License fees and royalties...............   $ 31,148        24%       $ 25,028        15%       $ 21,733
    Support and maintenance..................      5,425        23           4,398        43           3,082
    Professional services and other..........      3,500        27           2,760         2           2,719
                                                --------                  --------                  --------
    Total net revenue........................   $ 40,073        25%       $ 32,186        17%       $ 27,534
                                                ========                  ========                  ========
</TABLE>

We sell our mobility products to enterprises, original equipment manufacturers,
application developers, distributors and VARs. No customer accounted for greater
than 10% of revenue from continuing operations for fiscal 2005, 2004 or 2003. In
the third quarter of fiscal 2005, we licensed our Bluetooth protocol stack and
profiles suite to Texas Instruments and more than 10% of our third quarter
revenue from continuing operations was from this single customer. The sale to
Texas Instruments included license fees and prepaid royalties and we do not
expect revenue from this customer to exceed 10% of total revenue from continuing
operations for the first quarter of fiscal 2006 or, assuming the proposed
acquisition of us by Sybase is not completed prior to that time, any subsequent
quarter in fiscal 2006. In the fourth quarter of fiscal 2005, we resolved our
dispute with Agilent and Samsung and recorded $1.75 million in revenue for
payments received pursuant to our resolution agreement with these companies.
More than 10% of our fiscal 2005 fourth quarter revenue from continuing
operations was attributable to this payment. The resolution agreement specifies
a payment of $2.0 million in the first quarter of fiscal 2006 and this payment
could represent more than 10% of first quarter fiscal 2006 revenue. Assuming the
proposed acquisition of us by Sybase is not completed prior to that time, we do
not anticipate that the final payment of $1.0 million due in the second quarter
of fiscal 2006 will represent more than 10% of fiscal 2006

                                       22
<PAGE>
second quarter revenue nor do we anticipate that the total payments of $3.0
million to be received in fiscal 2006 will exceed 10% of revenue from continuing
operations for all of fiscal 2006.

LICENSE FEES AND ROYALTIES. The majority of our product license revenue consists
of fees related to products licensed to customers on a perpetual basis. Product
license fees can be associated with a customer's licensing of a given software
product for the first time or with a customer's purchase of the right to run a
previously licensed product on additional computing capacity or by additional
users. Our royalty revenue primarily consists of fees related to our device
solutions products customers prepaying or periodically increasing the number of
units they are authorized to use of a licensed software product. Royalties are
normally paid to us on a quarterly basis.

We classify our product offerings into one operating segment, the mobility
segment, which consists of products and services that extend enterprise
applications to mobile and wireless environments. The products in our mobility
segment include enterprise mobility solutions, mobile device solutions and
enterprise database solutions.

The table below presents total net license fees and royalty revenue by product
line and each product line's percentage of license fee and royalty revenue for
fiscal 2005, 2004 and 2003.
<TABLE><CAPTION>
                                                                     FISCAL YEARS ENDED JUNE 30,
                                                    ------------------------------------------------------------
                                                      2005       % CHANGE       2004       % CHANGE       2003
                                                    ------------------------------------------------------------
<S>                                                 <C>          <C>          <C>          <C>          <C>
License fees and royalties:
Enterprise Mobility Solutions....................   $ 12,246         8%       $ 11,301        15%       $  9,848
    % of license fees and royalty revenue .......        39%                       45%                       45%
Mobile Device Solutions..........................     11,573        95           5,942        25           4,740
    % of license fees and royalty revenue .......        37%                       24%                       22%
Enterprise Database Solutions....................      7,329        (6)          7,785         9           7,145
    % of license fees and royalty revenue .......        24%                       31%                       33%
                                                    --------                  --------                  --------
Total license fees and royalty revenue...........   $ 31,148        24%       $ 25,028        15%       $ 21,733
                                                    ========                  ========                  ========
</TABLE>

We sell our enterprise mobility products to corporate customers either directly
or through distributors, VARs or other channel partners. License fee revenue
from our enterprise mobility products increased $945,000 in fiscal 2005 compared
to fiscal 2004 as a result of several factors. In the first half of fiscal 2005
we completed an OEM sale of our enterprise XTNDConnect PC product for use in
connection with a third party's mail and messaging software. The weakening of
the U.S. dollar in comparison to the British pound sterling and the euro also
increased reported revenue in fiscal 2005 compared to fiscal 2004 (see
"International Revenue" below for further discussion). Additionally, revenue
increased as a result of our installed customer base deploying additional
licenses of our OneBridge Mobile Groupware. Partially offsetting the higher
volume of OneBridge Mobile Groupware licenses sold to customers in fiscal 2005
compared to fiscal 2004 was per seat pricing pressure caused by greater
competition in the marketplace for our OneBridge products. License fee revenue
from our enterprise mobility products increased $1.5 million in fiscal 2004
compared to fiscal 2003. The increase in enterprise mobility product license
revenue in fiscal 2004 compared to fiscal 2003 was due primarily to the
successful introduction of our new IP-based push enabled OneBridge products in
early 2004. Sales growth resulted from sales of OneBridge Mobile Groupware to
both new customers and existing customers deploying our products to more users
during the year.

We sell our mobile device products either directly or through distributors,
primarily to OEMs, ODMs and semiconductor companies that supply the mobile
handset, telematics and other industries. License fees and royalty revenue from
our mobile device products increased $5.6 million in fiscal 2005 compared to
fiscal 2004. The increase in revenue for fiscal 2005 was due primarily to the
license and prepaid royalty transaction with Texas Instruments. Additionally, in
fiscal 2005 we reported $2.75 million of revenue for royalty payments received
as a result of resolving our lawsuit against Agilent and Samsung. In April 2005
we entered into a Binding Memorandum of Understanding that resolved the
litigation with Agilent and Samsung. Under the terms of the agreement, $1.0
million was paid to us in March 2005, $500,000 was paid to us in April 2005,
$1.25 million was paid to us in May 2005, $2.0 million was paid to us in August
2005 and a final installment of $1.0 million is payable to us in December 2005.
These payments are for previously unpaid royalties due as a result of Samsung's
use of our XTND Access(TM) IrDA Software Development Kit (SDK) and XTND
Access(TM) IrFM SDK solutions in combination with Agilent transceiver products
that were shipped prior to February 2005. We also entered into a royalty-bearing
license with Samsung for future use of our software and no revenue was
recognized in fiscal 2005 under the terms of this new license agreement.
Offsetting these increases somewhat was a lower level of royalties from a
European handset manufacturer. Although our products continue to be licensed by
the manufacturer, volumes and unit pricing for fiscal 2005 were lower than the
amounts for the previous year. License and royalty revenue from our mobile
device products increased $1.2 million in fiscal 2004 compared to fiscal 2003.
During fiscal 2004, we experienced both new design wins with OEM manufacturers
that licensed our products and saw existing customers increase shipments of
handsets that include our products.

Royalty revenue generated from sales to OEMs has fluctuated from quarter to
quarter 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 customer marketing
efforts. Additionally, fluctuations can occur due to the nature of the
arrangements with customers, which can vary between quarterly royalty payments
that become due as devices are shipped by the manufacturer

                                       23
<PAGE>
and initial one-time payments that allow the customer either unlimited or a
capped number of licenses. Finally, we have experienced late royalty reporting
from some of our customers and despite efforts to coordinate more closely with
customers, we anticipate late reporting could recur in future quarters.

We sell our database products to enterprise customers and commercial software
developers who write applications utilizing our products' data management
capabilities. License fees revenue from our enterprise database product lines in
fiscal 2005 declined $456,000 compared to fiscal 2004. The decline was the
result of a reduced number of seats purchased by our developer and reseller
customers to support the sales of their applications. Revenue declines in fiscal
2005 were also the result of aggressive price incentives offered and accepted by
our customers in the second half of fiscal 2004 that were not repeated in fiscal
2005. License fees revenue from our enterprise database product lines increased
$640,000 in fiscal 2004 compared to fiscal 2003 as the applications developed
and sold by VARs using our database technology gained wider acceptance in the
marketplace. Additionally in the second half of fiscal 2004, we offered
significant incentives and discounts for quantity-based purchases to our
customers that resulted in higher license fee revenue.

SUPPORT AND MAINTENANCE. Support and maintenance revenue is derived
predominantly from our enterprise mobility products and represents the ratable
recognition of fees to enroll customers in our software maintenance and support
programs. Enrollment in these programs generally entitles customers to product
enhancements, technical support services and ongoing updates for compatibility
with new mobile devices and mobile device operating systems. These fees are
generally charged annually and for software products sold directly to
enterprises have been in the range of 15% to 25% of the discounted price of the
product. For software products sold through resellers that provide support
directly to their customers, the range of support fees has been 11% to 20% of
the discounted price of the product. Software sold to OEM customers generally
does not include support or maintenance agreements, as all technical issues are
resolved before the sales transaction is completed.

Support and maintenance revenue increased $1.0 million in fiscal 2005 compared
to fiscal 2004 and $1.3 million in fiscal 2004 compared to fiscal 2003. These
increases were the result of existing customers renewing their OneBridge support
and maintenance contracts combined with the ratable recognition of revenue from
new support and maintenance contracts sold to customers purchasing our products
for the first time in fiscal 2005 and fiscal 2004. Also contributing to revenue
growth in fiscal 2004 compared to fiscal 2003 was the first-time purchase of
support and maintenance contracts by several resellers who had previously
elected to forgo these programs. We expect that our support and maintenance
revenue will increase or decrease as our license revenue increases or decreases.

PROFESSIONAL SERVICES. Professional services revenue is derived primarily from
our work related to our enterprise mobility products and consists of fees for
consulting, product installations, training, and developing custom applications
that utilize our middleware products such as OneBridge Mobile Data Suite.
Professional services revenue is driven by our customers purchasing services to
aid them in developing software solutions for their mobile workforce in both
Europe and North America. Additionally, we derive professional services revenue
as we perform custom modifications or porting of our device manufacturer
solutions for OEM customers.

Professional services revenue increased $740,000 in fiscal 2005 compared to
fiscal 2004. The increase in revenue was the result of increased customer demand
for services from our enterprise mobility group to build custom applications and
assist with OneBridge Mobile Groupware deployments. Professional services
revenue in fiscal 2004 did not change significantly from the revenue we reported
in fiscal 2003. The primary driver for our professional services revenue was our
customers purchasing services to aid them in developing software solutions for
their mobile workforce. These services consisted primarily of work to develop,
test and deploy custom mobile applications for field service, sales force
automation and mobile consumer applications in both Europe and North America.

International Revenue
---------------------

We derive a significant amount of our revenue from sales to customers outside of
the United States, principally from our European-based sales force and channel
partners, overseas original design manufacturers and from a number of
international distributors. Based on the region in which the customer resides,
the table below presents total net revenue by region and each region's
percentage of total net revenue for fiscal 2005, 2004 and 2003.

<TABLE><CAPTION>
                                                         FISCAL YEARS ENDED JUNE 30,
                                        ------------------------------------------------------------
                                          2005       % CHANGE       2004       % CHANGE       2003
                                        ------------------------------------------------------------
<S>                                     <C>          <C>          <C>          <C>          <C>
North America........................   $ 15,812        25%       $ 12,624        (7)%      $ 13,647
    % of total net revenue...........        39%                       39%                       50%
Europe...............................     17,739         7          16,586        42          11,657
    % of total net revenue...........        44%                       52%                       42%
Asia Pacific and Rest of World.......      6,522       119           2,976        33           2,230
    % of total net revenue...........        16%                        9%                        8%
                                        --------                  --------                  --------
Total net revenue....................   $ 40,073        25%       $ 32,186        17%       $ 27,534
                                        ========                  ========                  ========
</TABLE>

                                       24
<PAGE>

Sales to North American customers increased $3.2 million in fiscal 2005 compared
to fiscal 2004. The sales increase was primarily a result of license and royalty
revenue recorded in connection with a sale of our Bluetooth protocol stack and
profile suite to Texas Instruments and revenue from a significant OEM sale of
our enterprise XTNDConnect PC product for use in connection with a third party's
mail and messaging software. This increase was offset somewhat by declines in
our North American professional services revenue and license revenue for our
enterprise mobility products. Additionally, North American revenue from our
device manufacturer products declined in fiscal 2005 compared to fiscal 2004 due
to a shift in our customer base to customers located in Asia. Sales to North
American customers declined in fiscal 2004 compared to fiscal 2003 by $1.0
million. The decline was primarily a result of a shift in the location of
customers purchasing professional services. In fiscal 2003 a dominant portion of
the professional services revenue was performed for North American customers,
however in fiscal 2004, 45% of the professional services revenue was performed
for customers in Europe.

Sales to customers in Europe increased $1.2 million in fiscal 2005 compared
fiscal 2004. Over the past several years we have made significant investments in
our European-based pre-sales, sales, and technical support teams, and for fiscal
2005 these investments have resulted in both obtaining new customers and
increasing the amount of sales to existing customers. We believe the adoption
rate of mobile devices and wireless infrastructure in Europe is more advanced
than in North America and we are benefiting from our presence in this market. We
have also developed an extensive network of resellers in Europe that market our
products, particularly our OneBridge Mobile Groupware products, to a wide range
of companies. These increases were offset somewhat by the decline in the sales
of our mobile device solutions products to a major European handset
manufacturer. Revenue from European customers increased in fiscal 2004 compared
to fiscal 2003 by $4.9 million as a result of the factors discussed for the
increase in fiscal 2005. Additionally, in fiscal 2003, a major European handset
manufacturer incorporated our desktop synchronization technology into a very
successful mobile handset series and the quarterly royalty payments we received
from this customer were greater in fiscal 2004 than in fiscal 2003.

Also contributing to the increase in revenue from our European customers was the
weakening of the U.S. dollar compared to the euro and British pound sterling,
which resulted in revenue from sales to our European customers invoiced in local
currencies being greater in U.S. dollars than it would have been had the
exchange rate remained constant. Total reported revenue, including revenue from
our European customers invoiced in local currency, grew 25% between fiscal 2005
and fiscal 2004 and 17% between fiscal 2004 and fiscal 2003, but had the
exchange rate for the U.S. dollar remained constant between those years, revenue
would have grown only 21% and 12%, respectively. We expect that international
sales will continue to represent a substantial portion of our net revenue in the
foreseeable future.

Our revenue from Asia Pacific and the rest of the world is primarily from our
sales to OEM and ODM customers of our mobile device solution products. We also
sell our enterprise mobility products in these regions through distributors and
VARs. We sell most of our products in these regions in U.S. dollars and do not
have significant revenue derived from sales in foreign currencies from this
region. In fiscal 2005 revenue from these regions increased $3.5 million
compared to fiscal 2004. The increase was primarily the result of royalty
payments for our software products that have been included with handsets shipped
by Samsung. Additionally, the increase reflects the continued transition from
domestic customers purchasing our device manufacturer products to Asian-based
ODMs and Asian-based handset manufacturers purchasing these products. In fiscal
2004 revenue from the region increased $746,000 compared to fiscal 2003. This
increase reflects growth in the number of shipments of our product to OEM
customers from Asia Pacific for inclusion in handsets manufactured in the
region.

Cost of Revenue
---------------

The following table sets forth our costs of license fees and other royalties,
technical support and professional services for fiscal 2005, 2004 and 2003, and
dollar and percentage changes from the prior year:
<TABLE><CAPTION>
                                                                           FISCAL YEARS ENDED JUNE 30,
                                                          ------------------------------------------------------------
                                                            2005       % CHANGE       2004       % CHANGE       2003
                                                          ------------------------------------------------------------
<S>                                                       <C>          <C>          <C>          <C>          <C>
Cost of revenue:
Cost of license fees and royalties.....................   $    470        23%       $    382        (9)%      $    420
    % of license fees and royalty revenue .............         2%                        2%                        2%
Cost of technical support services.....................      1,856        (6)           1970       (16)          2,352
    % of support and maintenance revenue ..............        34%                       45%                       76%
Cost of professional services and other................      2,404        15            2089        15           1,814
    % of professional services and other revenue ......        69%                       76%                       67%
                                                          --------                  --------                  --------
Total cost of revenue..................................   $  4,730         7%       $  4,441        (3)%      $  4,586
                                                          ========                  ========                  ========
</TABLE>

COST OF LICENSE FEES AND ROYALTIES. The cost of license fees and royalty revenue
consists primarily of royalties for the use of third-party software. Although
license and royalty revenue increased 24% in fiscal 2005 compared to fiscal 2004
and 15% in fiscal 2004 compared to fiscal 2003, there was no significant change
in the cost of license fees and royalties due to the fixed cost nature of the
licensing agreements we have arranged with third parties.

COST OF TECHNICAL SUPPORT SERVICES. The cost of technical support services
consists primarily of compensation and benefits, third-party contractor costs
and related expenses incurred in providing customer support. The increase in
gross margin during fiscal

                                       25
<PAGE>

2005 and 2004 compared to prior years was due to an increase in support revenues
resulting from new support and maintenance contracts and renewals of previous
contracts. Additionally, we have reduced the cost to provide technical support
through more efficient processes and contracting with offshore third party
providers to perform some of the service requirements. Without taking into
account any changes to our business if Sybase's acquisition of us is completed,
we expect increases in our cost of technical support services as we add staff to
our technical services group to support the deployment of enterprise mobility
software solutions to new customers.

COST OF PROFESSIONAL SERVICES. The cost of professional services consists
primarily of compensation and benefits incurred in providing services for
building custom applications, training, consulting, installations and assisting
with customer deployments. Professional services gross margins were 31%, 24% and
33% in fiscal 2005, 2004 and 2003, respectively. The increase in gross margin
for professional services from fiscal 2004 to fiscal 2005 was due to the higher
level of professional services revenue in fiscal 2005 combined with an increase
in the amount of higher margin work delivered in connection with our mobile
device solutions products. Additionally, in the first quarter of fiscal 2005 we
substantially completed a significant professional services engagement for a
field services application that effectively optimized the resources of our
European professional services organization and was completed at a gross margin
higher than we have historically experienced.

Amortization of Identifiable Intangibles
----------------------------------------

The following table presents our amortization of identifiable intangibles for
fiscal 2005, 2004 and 2003 and the percentage change from the prior year.
<TABLE><CAPTION>
                                                                              FISCAL YEARS ENDED JUNE 30,
                                                             ------------------------------------------------------------
                                                               2005       % CHANGE       2004       % CHANGE       2003
                                                             ------------------------------------------------------------
<S>                                                          <C>          <C>          <C>          <C>          <C>
Amortization of identifiable intangibles..................   $    204       (67)%      $    621       (14)%      $    726
    as a % of net revenue.................................         1%                        2%                        3%
</TABLE>

Amortization decreased in fiscal 2005 compared to fiscal 2004 primarily as a
result of the intangibles related to our acquisition of Advance Systems Limited
( formerly Oval (1415) Limited) becoming fully amortized in the first quarter of
fiscal 2005. Amortization decreased in fiscal 2004 compared to fiscal 2003 as a
result of the intangibles related to our acquisition of Rand Software
Corporation becoming fully amortized in the second quarter of fiscal 2004.

We expect an insignificant decrease in amortization of other intangibles in
fiscal 2006 compared to fiscal 2005 because only a small portion of the Advance
Systems Limited intangibles were amortized in the first quarter of fiscal 2005.

Research and Development Expenses
---------------------------------

The following table presents our research and development expenses for fiscal
2005, 2004 and 2003, and the percentage change from the prior year.
<TABLE><CAPTION>
                                                                              FISCAL YEARS ENDED JUNE 30,
                                                             ------------------------------------------------------------
                                                               2005       % CHANGE       2004       % CHANGE       2003
                                                             ------------------------------------------------------------
<S>                                                          <C>          <C>          <C>          <C>          <C>
Research and development..................................   $  7,858        15%       $  6,858        (6)%      $  7,317
    as a % of net revenue.................................        20%                       21%                       27%
</TABLE>

Research and development ("R&D") expenses consist of compensation and benefits
for our software developers and development support personnel, including
software programmers, testing and quality assurance personnel, product managers
and writers of technical documentation, such as product manuals and installation
guides. These expenses also include consulting costs, facility and
communications costs, costs for software development tools and equipment and the
cost of training our outsourced quality assurance service provider. During the
fiscal years presented above, all software development costs were expensed.

R&D expenses increased by $1.0 million in fiscal 2005 compared to fiscal 2004
primarily due to increases in employee compensation for our current R&D team, as
well as the hiring of new R&D team members, and an increase in our contract R&D
services costs related to retaining additional services to assist with quality
assurance work and to advance product development. R&D expenses decreased
$459,000 in fiscal 2004 compared to fiscal 2003 primarily as a result of
reductions in personnel costs achieved through attrition and layoffs resulting
from restructurings undertaken for the most part in fiscal 2003 and completed in
early fiscal 2004. The number of R&D personnel decreased by 10% in fiscal 2004
compared to fiscal 2003. The restructurings had an objective of reducing the
overall R&D spending level while simultaneously increasing productivity. The
productivity improvements were based on a combination of improved processes,
elimination of unnecessary function, and clear ownership and focus of product
development initiatives between our separate development groups.

Assuming the proposed acquisition of us by Sybase is not completed prior to June
30, 2006, we expect R&D costs to increase in fiscal 2006 as we add resources to
complete projects that add new features and functionality to our products and
enhance usability and stability of our products. We expect to incur these
expenses through the recruiting and hiring of additional employees in our
engineering departments.

                                       26
<PAGE>

Marketing and Sales Expenses
----------------------------

The following table presents our marketing and sales expenses for fiscal 2005,
2004 and 2003, and the percentage change from the prior year.
<TABLE><CAPTION>
                                                                              FISCAL YEARS ENDED JUNE 30,
                                                             ------------------------------------------------------------
                                                               2005       % CHANGE       2004       % CHANGE       2003
                                                             ------------------------------------------------------------
<S>                                                          <C>          <C>          <C>          <C>          <C>
Marketing and sales.......................................   $ 15,096        13%       $ 13,391         5%       $ 12,783
    as a % of net revenue.................................        38%                       42%                       46%
</TABLE>

Marketing and sales expenses consist primarily of salaries for our sales, inside
sales, marketing and technical sales staff, sales-related commissions and
bonuses paid to our direct sales force, commissions to third party distributors
and other marketing-related expenses including trade shows, promotional
materials, public relations and advertising.

Marketing and sales expenses increased $1.7 million in fiscal 2005 compared to
fiscal 2004 primarily due to an increase of $1.1 million in third-party
commissions incurred for sales support provided by agents representing us in
sales of our mobile device solutions products to OEM and ODM customers.
Contributing to the increase in marketing and sales expenses in fiscal 2005 was
a $641,000 increase in personnel costs resulting mainly from a $247,000 increase
in commissions and payment of $171,000 in severance costs associated with the
termination of employment of two of our former executive officers. Marketing and
sales expenses increased $608,000 in fiscal 2004 compared to fiscal 2003. The
increased spending in fiscal 2004 is primarily due to an increase in salaries
and commissions of our sales personnel. Additionally, third-party commissions
related to sales of our mobile device solutions products increased $214,000 as a
result of an increase in revenue from these products and we incurred increased
travel and entertainment costs for our sales and marketing organization.
Partially offsetting these increases in fiscal 2004 was a decrease in our
marketing expenses achieved through a reduction in personnel and a reduction in
trade show participation and other marketing programs.

Assuming the proposed acquisition of us by Sybase is not completed prior to June
30, 2006, we expect marketing and sales expenses to increase in fiscal 2006
primarily due to increased sales compensation related to an expected increase in
revenue, although we expect these expenses to decrease as a percentage of net
revenue.

General and Administrative Expenses
-----------------------------------

The following table presents our general and administrative expenses for fiscal
2005, 2004 and 2003, and the percentage change from the prior year.
<TABLE><CAPTION>
                                                                              FISCAL YEARS ENDED JUNE 30,
                                                             ------------------------------------------------------------
                                                               2005       % CHANGE       2004       % CHANGE       2003
                                                             ------------------------------------------------------------
<S>                                                          <C>          <C>          <C>          <C>          <C>
General and administrative................................   $  6,480        22%       $  5,312        26%       $  4,223
    as a % of net revenue.................................        16%                       17%                       15%
</TABLE>

General and administrative expenses primarily consist of salaries and other
personnel costs for our executive management, finance and accounting, management
information systems, human resources and other administrative groups. Other
expenses included in general and administrative expenses are fees paid for
outside legal and accounting services, directors' and officers' insurance costs
and SEC and NASDAQ listing fees.

General and administrative expenses increased $1.2 million in fiscal 2005
compared to fiscal 2004. This increase was primarily due to an increase of
$753,000 in personnel costs resulting from an increase in salaries and the
implementation of a management bonus program in fiscal 2005 based on achieving
target profitability. Contributing to the increased spending in fiscal 2005 was
an increase of $374,000 in professional services costs, which includes legal
costs related to the proposed acquisition of us by Sybase and our disputes with
Agilent and Samsung and AppForge, Inc. General and administrative expenses
increased $1.1 million in fiscal 2004 compared to fiscal 2003 primarily due to
an increase in professional services costs in fiscal 2004 of $505,000 related to
increased external audit fees and costs for outside legal counsel. We also
incurred increased personnel costs in our accounting and finance group in fiscal
2004 primarily related to additional personnel engaged in activities for
compliance with the Sarbanes-Oxley Act of 2002 and an ongoing infrastructure
software implementation. General and administrative expense for fiscal 2004 also
includes $575,000 of legal and other professional services costs related to
failed acquisition activities and the reversal of $513,000 of accrued
professional services costs related to an uncompleted merger in 2001.

Restructuring Charges
---------------------

The following table presents our restructuring charges for fiscal 2005, 2004 and
2003, and the percentage change from the prior year.

                                       27
<PAGE>
<TABLE><CAPTION>
                                                                              FISCAL YEARS ENDED JUNE 30,
                                                             ------------------------------------------------------------
                                                               2005       % CHANGE       2004       % CHANGE       2003
                                                             ------------------------------------------------------------
<S>                                                          <C>          <C>          <C>          <C>          <C>
Restructuring charges.....................................   $     --      (100)%      $  1,446       142%       $    597
    as a % of net revenue.................................         --%                       4%                        2%
</TABLE>

We did not incur restructuring charges in fiscal 2005. We recorded $1.4 million
in workforce reduction costs during fiscal 2004. The restructuring charges
consisted of $791,000 of severance, benefits, and other costs related to the
resignation of our former President and Chief Executive Officer, and $162,000 of
severance, benefits and other costs related to the resignation of our former
Chief Financial Officer. Additionally, we recorded $498,000 of expenses for the
termination of 18 employees from our marketing and sales, research and
development, human resources, administration and operations groups. Of the
terminated employees, 14 were located in the United States and 4 were in Europe.
The restructuring charge includes $554,000 of non-cash compensation resulting
from the accelerated vesting of employee stock options that is not included in
the table below.

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. 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, 2005, all restructuring charges had been paid or reversed. A
summary of the restructuring costs incurred and paid in fiscal 2005, 2004 and
2003 is outlined below:
<TABLE><CAPTION>
                                                                  WORKFORCE     FACILITIES
                                                                  REDUCTION     AND OTHER
                                                                    COSTS         COSTS         TOTAL
                                                                  --------------------------------------
<S>                                                               <C>           <C>           <C>
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
Restructuring charges incurred in fiscal 2004 .................          897            --           897
Other adjustments .............................................          (13)(A)      (340)(B)      (353)
Cash payments .................................................         (956)         (194)       (1,150)
                                                                  ----------    ----------    ----------
Balance at June 30, 2004 ......................................          116            --           116
Cash payments .................................................         (116)                       (116)
                                                                  ----------    ----------    ----------
Balance at June 30, 2005 ......................................   $       --    $       --    $       --
                                                                  ==========    ==========    ==========
</TABLE>

(A)  An adjustment was made to the accrual for workforce reduction costs to
     account for amounts paid to certain former employees who were paid amounts
     less than originally provided.
(B)  As a result of the Brisbane, CA lease termination during the second quarter
     of fiscal 2004, the balance of restructuring charges related to this lease
     as of October 31, 2003 was reversed.

Patent Litigation Fees, License and Settlement
----------------------------------------------

The following table presents our patent litigation, license and settlement
expense for fiscal 2005, 2004 and 2003, and the percentage change from the prior
year.
<TABLE><CAPTION>
                                                                              FISCAL YEARS ENDED JUNE 30,
                                                             ------------------------------------------------------------
                                                               2005       % CHANGE       2004       % CHANGE       2003
                                                             ------------------------------------------------------------
<S>                                                          <C>          <C>          <C>          <C>          <C>
Patent litigation fees, license and settlement............   $     --      (100)%      $  3,425       176%       $  1,240
    as a % of net revenue.................................         --%                      11%                        4%
</TABLE>

In April 2002, Intellisync Corporation ("Intellisync") filed a patent
infringement action against us in the U.S. District Court in Northern
California. The action alleged that our XTNDConnect server and desktop
synchronization products infringed on seven of Intellisync's
synchronization-related patents. We incurred legal fees and other related costs
in connection with defending this action in fiscal 2004 and 2003. In March 2004
we agreed with Intellisync to settle the patent infringement lawsuit. In
connection

                                       28
<PAGE>
with the settlement, in fiscal 2004 we made a one-time payment to Intellisync of
$2.0 million and received a license to certain Intellisync patents. This payment
covered estimated past and future royalties on revenue related to our products
shipped and covered under Intellisync's licensed patents. Both companies agreed
there will be no further patent litigation actions for a period of five years
and Intellisync released all of our customers from any claims of infringement
relating to their purchase and future use of our products. Included in the
expense recorded for fiscal 2004 was $1.6 million of the $2.0 million one-time
payment that related to past sales of products covered by the license. The
remaining one-time payment balance of $430,000 was capitalized and is being
amortized based on sales of the related products.

Non-cash Stock-based Compensation
---------------------------------

The following table presents our non-cash stock-based compensation expense for
fiscal 2005, 2004 and 2003, and the percentage change from the prior year.
<TABLE><CAPTION>
                                                                              FISCAL YEARS ENDED JUNE 30,
                                                             ------------------------------------------------------------
                                                               2005       % CHANGE       2004       % CHANGE       2003
                                                             ------------------------------------------------------------
<S>                                                          <C>          <C>          <C>          <C>          <C>
Non-cash stock-based compensation.........................   $    515         5%       $    490       NM*%       $     --
    as a % of net revenue.................................         1%                        1%                        --%

    * percentage change not meaningful
</TABLE>

In fiscal 2004, we changed the compensation for members of our Board of
Directors to include annual grants of restricted stock. Additionally, we made
restricted stock grants to some of our employees in October 2003. Stock-based
compensation expense for fiscal 2005 reflects the charges related to amortizing
the related compensation expense for these grants over the period the stock
vests. Also included for fiscal 2005 is $214,000 of compensation expense for the
issuance of stock options to employees with an exercise price below the fair
market value of our stock on the date of grant. In the second quarter of fiscal
2005, our Employee Stock Purchase Plan was terminated. The Board of Directors
approved a grant of options to employees that had been participating in the plan
to replace the number of shares and the purchase price the employees expected
under the terms of the terminated plan. Stock-based compensation expense for
fiscal 2004 consisted of compensation amortization related to the restricted
stock grants described above and also included $55,000 of expense related to a
change in the terms of our 1998 Director Option Plan.

Stock-based compensation expense increased in fiscal 2005 compared to fiscal
2004 due primarily to the expense related to issuing the below fair market value
stock options to employees in fiscal 2005. This increase was partially offset by
a decrease in expense related to the employee restricted stock grants becoming
fully vested in the second quarter of fiscal 2005.

The initial grants made to directors vested in the second quarter of fiscal
2005; however, amortization expense related to additional annual grants of
restricted stock made to our directors will be recorded in fiscal 2006. Assuming
that the closing of Sybase's proposed acquisition of us does not occur in fiscal
2006, we expect amortization for director grants to be approximately $150,000 in
fiscal 2006. We do not expect any future grants of options to employees with
exercise prices below fair market value on the date of grant.

Other Income (Expense)
----------------------

The following table presents our other income and expense for fiscal 2005, 2004
and 2003, and the percentage change from the prior year.
<TABLE><CAPTION>
                                                                              FISCAL YEARS ENDED JUNE 30,
                                                             ------------------------------------------------------------
                                                               2005       % CHANGE       2004       % CHANGE       2003
                                                             ------------------------------------------------------------
<S>                                                          <C>          <C>          <C>          <C>          <C>
Foreign currency exchange gain (loss).....................   $   (616)     (199)%      $   (206)     (179)%      $    261
Interest income...........................................         25       (57)             58        49              39
Net rental income (loss)..................................        316        41             224        NM*            (30)
Other net income (expense), net...........................        (66)       48            (127)       NM*            (13)
                                                             --------                  --------                  --------
    Total other income (expense), net.....................   $   (341)      NM*%       $    (51)     (120)%      $    257
                                                             ========                  ========                  ========
    * percentage change not meaningful
</TABLE>

Other income (expense) consists primarily of foreign currency exchange gains or
losses related to the mark-to-market of intercompany payables denominated in
non-U.S. currencies in periods of currency volatility, rental income generated
from subleasing the excess space at our headquarters facility and interest
income earned on cash, cash equivalents and short-term investment balances.

We recognize foreign currency exchange gains or losses as a result of changes in
the exchange rate for the euro, Canadian dollar and the British pound sterling
as we translate temporary intercompany payables from our foreign subsidiaries
denominated in non-U.S. currencies to our functional currency of U.S. dollars.
Our foreign currency exchange loss increased in fiscal 2005 compared

                                       29
<PAGE>
to fiscal 2004 primarily because we did not enter into foreign currency forward
contracts to manage the fluctuations in currency values during the second half
of fiscal 2005 and because we recognized a foreign currency exchange gain in the
first quarter of fiscal 2004 as a result of the weakening of the U.S. dollar at
a time when we were not entering into foreign currency contracts. The change in
our foreign currency gain (loss) in fiscal 2004 compared to fiscal 2003 was
primarily due to the gain we recognized in fiscal 2003 as a result of the
decrease in the strength of the U.S. dollar in the fourth quarter of fiscal 2003
at a time when we were not entering into foreign currency forward contracts. For
additional information on our foreign currency exposure see Item 7A of this Form
10-K.

Interest income decreased in fiscal 2005 compared to fiscal 2004 as a result of
lower average cash balances in fiscal 2005 compared to fiscal 2004. Interest
income increased in fiscal 2004 compared to fiscal 2003 due to an increase of
invested cash in fiscal 2004 generated by the sale-and-leaseback of our
headquarters building and the sale of excess land.

In the fourth quarter of fiscal 2003, we began subleasing a portion of the
unused space at our headquarters facility in Boise, Idaho. The increase in net
rental income in fiscal 2005 compared to fiscal 2004 was due primarily to an
increase in rent received as a result of leasing additional unused space. The
increase in net rental income from fiscal 2003 to fiscal 2004 was due primarily
to our subleasing space for all of fiscal 2004. In addition, the rent we
received in fiscal 2003 was offset by the leasing commission we expensed when
earned.

The decrease in other expense in fiscal 2005 compared to fiscal 2004 was due
primarily to decreases in the amount of loss recorded on the disposition of
assets and the amount of sales and use tax expense recorded in connection with a
sales and use tax audit. The increase in other expense in fiscal 2004 compared
to fiscal 2003 was due primarily to recording the expense related to the sales
and use tax audit in fiscal 2004.

The amount of any foreign currency exchange gain or loss for fiscal 2006 will
depend upon currency volatility, the amount of our intercompany balances and our
ability to accurately predict such balances, and whether we decide to enter into
foreign currency forward contracts in fiscal 2006. Assuming that the closing of
Sybase's proposed acquisition of us does not occur in fiscal 2006, we expect
interest income to increase moderately in fiscal 2006 due to an expected
increase in invested cash and we expect net rental income in fiscal 2006 to
remain relatively constant to fiscal 2005 levels.

Gain on Sale of Land
--------------------

In the second quarter of fiscal 2004 we sold approximately 16 acres of vacant
land adjacent to our headquarters building in Boise, Idaho. We received net cash
proceeds of $1.5 million after deducting fees related to the transaction.

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

The following table presents our interest expense for fiscal 2005, 2004 and
2003, and the percentage change from the prior year.
<TABLE><CAPTION>
                                                                              FISCAL YEARS ENDED JUNE 30,
                                                             ------------------------------------------------------------
                                                               2005       % CHANGE       2004       % CHANGE       2003
                                                             ------------------------------------------------------------
<S>                                                          <C>          <C>          <C>          <C>          <C>
Interest expense..........................................   $    511        13%       $    453        48%       $    307
    as a % of net revenue.................................         1%                        1%                        1%
</TABLE>

Interest expense consists primarily of interest associated with the
sale-and-leaseback of our headquarters land and building, which is accounted for
as a financing transaction, interest paid on the term debt that we assumed in
connection with our acquisition of ViaFone in August 2002 and warrant expense
amortization related to entering into our line of credit agreement with Silicon
Valley Bank in January 2002.

Interest expense increased $58,000 in fiscal 2005 compared to fiscal 2004. This
increase was primarily a result of entering into the sale-and-leaseback
agreement for our headquarters building in the first quarter of fiscal 2004.
Partially offsetting this increase was a decline in interest expense in the
second half of fiscal 2005 due to our making the final payment on our term debt
in February 2005. Interest expense increased in fiscal 2004 compared to fiscal
2003 primarily due to an increase in interest expense of approximately $349,000
related to the sale-and-leaseback agreement. This increase was partially offset
by a $157,000 decrease in interest expense in fiscal 2004 related to the
cessation of the warrant expense amortization in fiscal 2003.

Income Tax Provision (Benefit)
------------------------------

The following table presents our income tax provision or benefit for fiscal
2005, 2004 and 2003, and the percentage change from the prior year.
<TABLE><CAPTION>
                                                                              FISCAL YEARS ENDED JUNE 30,
                                                             ------------------------------------------------------------
                                                               2005       % CHANGE       2004       % CHANGE       2003
                                                             ------------------------------------------------------------
<S>                                                          <C>          <C>          <C>          <C>          <C>
Income tax provision......................................   $    379       303%       $     94       147%       $   (200)
    as a % of income (loss) before income taxes...........        10%                        3%                        (5)%
</TABLE>

                                       30
<PAGE>
We recorded an income tax provision in fiscal 2005 and fiscal 2004 consisting
primarily of foreign withholding taxes for which no credit is currently
available against U.S. taxes due to our cumulative net loss position. Our income
tax provision increased $285,000 in fiscal 2005 compared to fiscal 2004 due
mainly to an increase in revenue from countries where there is an income tax
withholding requirement. The change in the income tax provision (benefit) from
fiscal 2003 to fiscal 2004 was primarily due to the tax benefit we recorded for
continuing operations in fiscal 2003 that offset the foreign withholding taxes.

Business Combinations
---------------------

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

Results of Discontinued Operations
----------------------------------

In the first quarter of fiscal 2003, we adopted a formal plan to exit our
infrared hardware business as a result of an expected decline in sales of these
products and our desire to increase our focus on our core software businesses.
Throughout fiscal 2003 and the first half of fiscal 2004, we continued to see
revenue from this business as customers placed final orders. All final orders
were shipped before December 31, 2003.

Results for our infrared hardware business have been reclassified as
discontinued operations for all periods presented and are reported, net of tax,
under "Income from discontinued operations" on our Statements of Operations.
<TABLE><CAPTION>
                                                                              FISCAL YEARS ENDED JUNE 30,
                                                             ------------------------------------------------------------
                                                               2005       % CHANGE       2004       % CHANGE       2003
                                                             ------------------------------------------------------------
<S>                                                          <C>          <C>          <C>          <C>          <C>
Net revenue...............................................   $     --        NM*%      $    169       (89)%      $  1,488
Income from discontinued operations, net of tax...........   $     --        NM*%      $     88       (81)%      $    458

    * percentage change not meaningful
</TABLE>

There was no revenue from discontinued operations in fiscal 2005. Revenue from
discontinued operations for fiscal 2004 and fiscal 2003 consisted primarily of
revenue from our infrared hardware business. Both net revenue and income from
discontinued operations declined in fiscal 2004 as compared to fiscal 2003
because final orders were shipped in the first half of fiscal 2004.


LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
----------------------------------------------------
<TABLE><CAPTION>
                                                                 FISCAL YEARS ENDED JUNE 30,
                                                             ----------------------------------
                                                               2005         2004         2003
                                                             ----------------------------------
<S>                                                          <C>          <C>          <C>
Net cash provided (used) by operating activities..........   $  5,913     $ (3,591)    $ (3,163)
</TABLE>

Net cash was provided by operating activities in fiscal 2005 compared to using
net cash for operating activities in fiscal 2004. The $9.5 million increase in
cash from operating activities was primarily due to the $5.4 million in net
income before consideration of non-cash items reported in fiscal 2005 compared
to the $1.6 million in net loss before consideration of non-cash items reported
in fiscal 2004. The increase in cash also resulted from an increase in accounts
payable and accrued expenses in fiscal 2005 compared to a reduction in the same
for fiscal 2004.

Net cash used by operating activities increased $428,000 in fiscal 2004 compared
to fiscal 2003. This increase was primarily due to a $599,000 increase in net
loss before consideration of non-cash items and an increase in accounts
receivable related to an increase in total net revenue and an increase in days
sales outstanding ("DSO") in the fourth quarter of fiscal 2004.

Accounts receivable, net of allowance, increased from $6.8 million at June 30,
2004 to $7.1 million at June 30, 2005. This increase in accounts receivable is
due to an increase in total net revenue offset in part by a decrease in DSO. Our
DSO for the quarter ended June 30, 2005 was 60 days compared to 79 days for the
quarter ended June 30, 2004. This decrease in DSO was a result of aggressive
collection efforts and the collection in the fourth quarter of fiscal 2005 of
amounts recorded as revenue in the same quarter related to the resolution of our
dispute with Agilent and Samsung. Assuming that the proposed acquisition of us
by Sybase is not completed in fiscal 2006, we expect that our accounts
receivable will increase in fiscal 2006 as a result of an expected increase in
net revenues, and we expect that our DSO will return to more historical levels
after we receive our final payment from Samsung.

<TABLE><CAPTION>
                                                                 FISCAL YEARS ENDED JUNE 30,
                                                             ----------------------------------
                                                               2005         2004         2003
                                                             ----------------------------------
<S>                                                          <C>          <C>          <C>
Net cash provided (used) by investing activities..........   $   (563)    $    724     $  1,248
</TABLE>

Net cash was used by investing activities in fiscal 2005, whereas net cash was
provided from these activities in fiscal 2004. The change of $1.3 million was
primarily due to our sale in fiscal 2004 of approximately 16 acres of vacant
land adjacent to our

                                       31
<PAGE>
headquarters building in Boise, Idaho. Partially offsetting this decrease in
cash provided was a decline of $296,000 in capital expenditures in fiscal 2005
compared to fiscal 2004.

Net cash provided by investing activities decreased by $524,000 in fiscal 2004
compared to fiscal 2003 primarily due to an increase of $813,000 in capital
expenditures, including $204,000 for tenant improvements we were contractually
required to make to the subleased portion of the unused space at our
headquarters building and $384,000 for software and other expenses related to a
project to upgrade our accounting and transactional infrastructure. The decrease
in cash related to capital expenditures was partially offset by the $1.5 million
in net cash proceeds we received in fiscal 2004 from the sale of vacant land
adjacent to our headquarters building compared to the $1.1 million we received
in fiscal 2003 in connection with the closing of our acquisition of ViaFone.
<TABLE><CAPTION>
                                                                 FISCAL YEARS ENDED JUNE 30,
                                                             ----------------------------------
                                                               2005         2004         2003
                                                             ----------------------------------
<S>                                                          <C>          <C>          <C>
Net cash provided (used) by financing activities..........   $  1,379     $  6,573     $   (123)
</TABLE>

Net cash provided by financing activities decreased by $5.2 million in fiscal
2005 compared to fiscal 2004 primarily due to the receipt in fiscal 2004 of $4.8
million in gross proceeds from the sale-and-leaseback of our headquarters
facility. Also contributing to the decrease was a $1.1 million decline from
fiscal 2004 to fiscal 2005 in cash received from the issuance of common stock
under our stock plans. These decreases in cash were offset partially by the
short-term financing of $579,000 of our directors and officers insurance premium
for the policy period ending in May 2006.

Net cash provided by financing activities increased by $6.7 million in fiscal
2004 compared to fiscal 2003 primarily due to the receipt in fiscal 2004 of $4.8
million in gross proceeds from the sale-and-leaseback of our headquarters
facility. In addition, proceeds received from the issuance of common stock under
our stock plans increased $1.9 million in fiscal 2004 compared to fiscal 2003.

In January 2002, we entered into a loan and security agreement with Silicon
Valley Bank ("SVB") and renewed and restructured this agreement effective as of
August 2004. Under this agreement we can borrow up to $2.5 million in the form
of a demand line of credit. Our borrowing capacity is limited to 80% of eligible
accounts receivable balances and is secured by certain of our assets. Interest
on any borrowings will be paid at prime. The line of credit agreement requires
us to maintain certain financial ratios and expires in August 2006. We are in
compliance with all financial covenants. There is no outstanding balance on this
facility at June 30, 2005.

Upon completion of our acquisition of ViaFone on August 30, 2002, we assumed
$1.1 million of term debt with SVB. We restructured that debt into a term loan
due in 30 equal monthly installments bearing interest at 8%. The term loan was
fully repaid at June 30, 2005.

Assuming that the proposed acquisition of us by Sybase is not completed in
fiscal 2006, we believe that our existing working capital, 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 12 months. We cannot be certain, however, that our
underlying assumed levels of revenue and expenses will be accurate. If our
operating results were to fail to meet our expectations or if accounts
receivable, or other assets were to require a greater use of cash than is
currently anticipated, we could be required to seek additional sources of
liquidity. If we were required to obtain additional financing to fund future
operations, sources of capital may not be available on terms favorable to us, if
at all.

Assuming that the proposed acquisition of us by Sybase is not completed in
fiscal 2006, 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 mobility product offerings. We
currently have no commitments or agreements regarding any material transaction
of this kind. Assuming that the proposed acquisition of us by Sybase is not
completed in fiscal 2006, at some point in the future we may require additional
funds for either operating or strategic purposes and may seek to raise
additional funds. 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.

Off-Balance Sheet Arrangements
------------------------------

As part of our on-going business, we do not participate in transactions that
generate relationships with unconsolidated entities or financial partnership
such as entities often referred to as structured finance or special purpose
entities, or SPE's, which would have been established for the purpose of
facilitating off-balance sheet arrangements or other contractually narrow or
limited proposes. As of June 30, 2005, we were not involved in any
unconsolidated SPE transactions.

Commitments and Contractual Obligations
---------------------------------------

We currently lease office space at our locations in Boise, Idaho; Herrenberg,
Germany; Toronto, Canada; Corvallis, Oregon; Paris, France; Bristol, England;
San Diego, California; American Fork, Utah; and `s-Hertogenbosch, the
Netherlands. We also lease

                                       32
<PAGE>
certain equipment under non-cancelable operating and capital leases. Lease
expense under operating lease agreements was $656,000, $578,000 and $894,000 for
fiscal 2005, 2004 and 2003, respectively.

In September 2003, we completed a transaction with Hopkins Financial Services
for the sale-and-leaseback of our headquarters building and land in Boise,
Idaho. Because we have a 10-year option to repurchase the building and land at
any time before September 2013 at a price of $5.1 million and we sublet more
than a small portion of the building space, the sale-and-leaseback was recorded
as a financing transaction. The gross proceeds we received of $4.8 million are
shown as long-term debt on our balance sheet at June 30, 2005. As part of the
agreement, we entered into a 10-year master lease for the building with annual
lease payments, which are recorded as interest expense, equal to 9.2% of the
sale price, or approximately $442,000. 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.

In June 2005 we entered into a loan agreement with Cananwill, Inc. to finance
$579,000 of our premium for directors and officers insurance for the policy
period ending in May 2006. The agreement provides for 11 equal monthly payments
including interest of 5.25%.

Upon completion of our acquisition of ViaFone in August 2002, we assumed $1.1
million of term debt with SVB. We restructured that debt into a term loan due in
30 equal monthly installments bearing interest at 8%. As of June 30, 2005, this
term loan had been fully repaid.

Our minimum future contractual commitments associated with our operational
indebtedness and lease obligations as of June 30, 2005 were as follows:
<TABLE><CAPTION>
                                                                   YEARS ENDING JUNE 30,
                                       --------------------------------------------------------------------------
                                         2006       2007       2008       2009       2010    THEREAFTER   TOTAL
                                       --------------------------------------------------------------------------
<S>                                    <C>        <C>        <C>        <C>        <C>        <C>        <C>
Payments pursuant to building
     sale-and-leaseback..............  $    442   $    442   $    442   $    442   $    442   $  1,435   $  3,645
Note payable (1).....................       579         --         --         --         --         --        579
Capital leases (1)...................        11          7         --         --         --         --         18
Operating leases.....................       565        445        333        283         94        114      1,834
Post-retirement benefits (1) (2).....        12         12         12         12          7         49        104
                                       --------------------------------------------------------------------------
                                       $  1,609   $    906   $    787   $    737   $    543   $  1,598   $  6,180
                                       ==========================================================================
</TABLE>

(1) These amounts are reported on the balance sheet as liabilities.
(2) Fiscal 2006 includes $12,000 of current commitments included in accrued
    expenses on the balance sheet.


Effects of Foreign Currency Exchange Rates
------------------------------------------

We derive a significant 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
subsidiary's local 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 OEMs 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 not qualify for hedge accounting
under SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," and, as such, the contracts are recorded in our 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, 2005 or June 30, 2003. As of June 30, 2004, we had forward contracts
with a nominal value of $10.8 million in place against the Canadian dollar, euro
and British pound sterling, which matured within 30 days. We recognized net
currency exchange losses of approximately $616,000 and $206,000 for fiscal 2005
and 2004, respectively, and a net currency exchange gain of approximately
$261,000 for fiscal 2003.

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

THE ANNOUNCEMENT OF OUR PROPOSED ACQUISITION BY SYBASE MAY HAVE A NEGATIVE
IMPACT ON OUR BUSINESS.

On July 28, 2005, we executed an agreement and plan of merger to be acquired by
Sybase. Under the terms of the agreement, each outstanding share of our common
stock will be converted into the right to receive $4.460847 in cash. The
announcement and pendency of the proposed acquisition may have a negative impact
on our ability to sell our products and attract new customers and partners and
may impact our future revenues. In particular, prospective customers and
partners could be reluctant to purchase our products or our services if they are
uncertain about the strategic direction of the combined company, the
continuation of our product offerings or the willingness of the combined company
to offer, support and maintain existing products. Uncertainty created by the
announcement of the acquisition may cause one larger customer, or a large number
of smaller customers, to delay their purchase decisions until the closing of the
merger, which could cause our financial results to be significantly below the
expectations of market analysts. Our results of operations have been and will
continue to be adversely affected by increased legal and professional fees
related to the proposed acquisition. The proposed acquisition may also have a
negative impact on our ability to retain employees and existing customers and
partners and maintain strategic relationships.

The acquisition is subject to approval by various regulatory agencies, and there
can be no assurance that the acquisition will be successfully completed. In the
event that the acquisition is not successfully completed, our results of
operations and common stock price would be materially adversely affected.

IF THE ACQUISITION IS NOT COMPLETED, OUR SHARE PRICE AND FUTURE BUSINESS AND
OPERATIONS COULD BE HARMED.

If the acquisition is not completed, we will be subject to a number of material
risks, including the following:

     o    our new customer pipeline and ability to close sales may be adversely
          affected;

     o    costs related to the proposed acquisition, such as legal, accounting
          and other professional fees, must be paid even if the acquisition is
          not completed and we have incurred and will continue to incur
          significant acquisition-related costs;

     o    our relationships with some of our customers and partners may be
          adversely affected as they may delay or defer purchasing decisions;

     o    our ability to attract and retain employees may be adversely affected;

     o    we may be required to pay Sybase a termination fee of $3 million
          and/or reimburse Sybase up to $500,000 of expenses under certain
          circumstances;

     o    the price of our common stock may decline to the extent that the
          current market price for our common stock reflects a market assumption
          that the proposed acquisition will be completed; and

     o    internal decisions we may make in response to the effects the proposed
          acquisition may have on our operations.

PROVISIONS OF THE MERGER AGREEMENT MAY DISCOURAGE OTHER COMPANIES FROM ENTERING
INTO A MERGER OR OTHER BUSINESS COMBINATION WITH US WHICH MIGHT OTHERWISE
BENEFIT OUR STOCKHOLDERS.

Under specified circumstances, we may be required to pay Sybase a termination
fee of $3.0 million. This restriction may discourage other companies from
entering into a merger or other business combination with us which might
otherwise benefit our stockholders. Further, if the acquisition is terminated
and our board of directors determines to seek another acquisition or business
combination, we may not be able to find a suitable partner. Any other partner
may not be willing to pay an equivalent, higher or more attractive merger
consideration than that which is proposed to be paid by Sybase in the
acquisition.

WE ARE ADVANCING OUR ENTERPRISE MOBILITY SOLUTIONS PRODUCT LINE, WHICH CURRENTLY
DERIVES ITS REVENUE PRIMARILY FROM PERSONAL INFORMATION MANAGEMENT AND E-MAIL
APPLICATIONS, BY INCREASING THE EMPHASIS ON MOBILE APPLICATIONS, INCLUDING LINE
OF BUSINESS APPLICATIONS FOR FIELD SERVICE, SALES FORCE AUTOMATION AND OTHER
CUSTOM APPLICATIONS. IF WE ARE UNABLE TO COMPLETE THIS PROGRESSION, OUR
OPERATING RESULTS COULD BE HARMED.

     o    CHANGES IN OUR PARTNERING AND GO-TO-MARKET STRATEGY. To effectively
          compete in mobile line of business applications, we need to partner
          with independent software vendors and system integrators that have
          knowledge of the specific industries and workflows for the targeted
          vertical applications. One of our core capabilities is our knowledge
          of how mobile access to corporate information can impact and improve
          the productivity of mobile workers. To achieve a successful partnering
          arrangement we must attract the business interests of these
          prospective partners and coordinate the efforts of our marketing,
          sales and professional services organizations. These tasks are
          complicated and involve many people and processes. If we fail to
          attract these partners or effectively coordinate these efforts we will
          not be able to broaden the acceptance of our mobile middleware
          platform into other applications and would remain dependent on revenue
          from PIM and e-mail applications, which we believe could be subject to
          price erosion in the marketplace.

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<PAGE>

     o    CHANGES IN THE SALES ORGANIZATION. We have many new sales
          representatives in our enterprise mobility solutions sales force,
          particularly in North America, that may take time to reach
          productivity. If new members of our sales team are unable to become
          fully productive in a reasonable time frame or we are unable to retain
          these new sales representatives, we may lose sales opportunities and
          market share, take longer to close anticipated sales and experience a
          shortfall in revenue.

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. We expect increasing price pressure for several of our
products, including our mobile PIM and e-mail applications and IrDA and
Bluetooth products, as these technologies become more commodity oriented and
less differentiated in the marketplace. 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.

DEFECTS IN OUR SOFTWARE PRODUCTS OR FUNCTIONALITY AND FEATURE SETS THAT LAG THE
MARKET LEADERS, INCLUDING OUR UPGRADED ONEBRIDGE PRODUCTS, COULD RESULT IN A
LOSS OF REVENUE, DECREASED MARKET ACCEPTANCE, INJURY TO OUR REPUTATION AND
PRODUCT LIABILITY CLAIMS.

The software products we offer, particularly our enterprise mobility software,
are inherently complex. Significant technical challenges arise with our products
because our customers purchase and deploy our products across a wide variety of
mobile device hardware types and operating systems, operate over various carrier
networks and interface into a wide variety of enterprise scale applications and
data configurations. This risk increases when we release new products or make
significant enhancements to our existing products or where we have limited
experience with new or complex customer environments. We have not experienced
substantial, unresolved problems to date; however, customers have in the past
and may in the future experience delays and difficulties when deploying our
products into large, complex and variable environments. Product deployment
issues can arise from a customer's configuration of their load balancing,
clustering, authentication profiles or the data structures of their IBM Lotus
Domino or Microsoft Exchange Server systems and may require professional
services to resolve these issues. Despite quality control processes and testing
by our current and potential customers and us, we cannot be sure that errors
will not be found in current versions, new products or enhancements of our
products after commencement of commercial shipments.

In the course of customer implementation activities for recently released
versions of our software, we have encountered what we believe to be errors of
the type and volume generally associated with a release of major software
programs. However, there is no assurance that significant defects will not be
detected as customers deploy the product in larger volumes into even more
complex environments. Software errors, if significant, or market perception that
our software is not fully ready for production use - whether accurate or not -
could result in:

     o    failure to achieve market acceptance;
     o    loss of customers;
     o    loss or delay in revenue;
     o    loss of market share;
     o    diversion of development resources;
     o    damage to our reputation;
     o    increased service and warranty costs; and
     o    claims or litigation for breach of contract or warranty.

OUR INCREASING FOCUS ON ENTERPRISE CUSTOMERS MAY LENGTHEN OUR SALES CYCLES AND
INCREASE FLUCTUATIONS IN OUR FINANCIAL RESULTS.

As we have sought to license our software to large enterprises and increase the
average value of each sales transaction through our varied channel approach, we
have experienced sales cycles that can be substantially more lengthy and
uncertain than sales to smaller organizations of less complex product offerings.
As we focus on large mobile application solutions that involve essential
business applications, our enterprise customers generally require us to expend
substantial time, effort and money in establishing the relationship and
educating them about our solutions and how our solutions can provide benefits to
their business. Also, sales to enterprise customers generally require an
extensive sales effort throughout the customer's organization and often require
final approval by the customer's chief information officer or other senior
executive employee. These factors substantially extend the sales cycle and
increase the uncertainty of whether a sale will be made in any particular
quarter, if at all. We have experienced and expect to continue to experience
delays and uncertainty in our sales cycle as well as increased up-front expenses
in connection with our enterprise sales efforts. The timing of the execution of
the enterprise volume licenses or the length of the contract negotiation process
could cause our revenue and results of operations to vary significantly from
quarter to quarter.

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<PAGE>

WE MAY INCUR SUBSTANTIAL COSTS TO COMPLY WITH THE REQUIREMENTS OF THE
SARBANES-OXLEY ACT OF 2002.

The Sarbanes-Oxley Act of 2002 (the "Act") introduced new requirements
applicable to us regarding corporate governance and financial reporting. Among
many other requirements is the requirement under Section 404 of the Act for
management to report on our internal controls over financial reporting and for
our registered public accountant to attest to this report. Assuming our
acquisition by Sybase does not occur early in fiscal 2006, we expect to dedicate
significant time and resources during fiscal 2006 to ensure compliance. There is
no assurance that we will be successful in our efforts to comply with Section
404 of the Act. Failure to do so could result in penalties and additional
expenditures to meet the requirements, which could affect the ability of our
auditors to issue an unqualified report.

WE HAVE A RECENT HISTORY OF OPERATING PROFITS, BUT A PRIOR HISTORY OF OPERATING
LOSSES. DECLINES IN OUR QUARTERLY REVENUE OR OTHER FACTORS COULD RETURN OUR
COMPANY TO REPORTING OPERATING LOSSES IN FUTURE QUARTERS.

For fiscal 2005 we reported income from operations in each quarter; however, for
the period from the third quarter of fiscal 1999 through our third quarter of
fiscal 2004, we reported operating losses. These losses were the result of
devoting significant financial resources to the research and development and
marketing and sales cost for our enterprise mobility software products in
addition to costs incurred in connection with defense of a patent infringement
suit and restructuring costs. Assuming that the acquisition of us by Sybase does
not occur, we intend to continue to devote significant financial resources to
product development and to marketing and sales activities. Our ability to
maintain income from operations 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    the impact of customer choices regarding competitive alternatives to our
     products in the marketplace;
o    buying patterns of our enterprise, application developer and OEM customers;
o    changes in customer demand for our products;
o    the timing of customer orders, which can be influenced by fiscal year-end
     buying patterns, seasonal trends or general economic conditions;
o    announcements or introductions of new products or services by our
     competitors;
o    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 effectiveness of the 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 OEMs;
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 to increased professional services from licensing
     revenue, which has historically had a lower gross margin.

BEGINNING JULY 1, 2005, WE ARE REQUIRED TO ACCOUNT FOR OUR EMPLOYEE STOCK OPTION
PLANS USING A FAIR-VALUE METHOD AND OUR NET INCOME AND EARNINGS PER SHARE COULD
BE REDUCED SIGNIFICANTLY.

The Financial Accounting Standards Board recently issued Statement of Financial
Accounting Standards ("SFAS") No. 123(R), "Share-Based Payment." SFAS No. 123(R)
requires companies to measure all stock-based compensation awards using a
fair-value method and record such expense in their consolidated financial
statements. SFAS No. 123(R) became effective for us as of July 1, 2005, the
first quarter of fiscal 2006. We plan to adopt the provisions of SFAS No. 123(R)
using the "modified prospective" method, in which compensation cost is
recognized beginning on the effective date based on the requirements of SFAS No.
123(R) for all stock-based payments granted after the effective date and based
on SFAS No. 123 for all awards granted to employees prior to the effective date
that remain unvested on the effective date. We expect to continue to grant
stock-based compensation to employees, which may significantly increase our
operating expenses and result in lower earnings per share. For example, in
fiscal 2005, had we accounted for stock-based compensation plans using the
fair-value method prescribed in SFAS No. 123(R), we would have recorded an
additional operating expense of approximately $4.5 million. In June 2005, we
accelerated the vesting of all employee stock options with an exercise price
greater than $4.82 in order to reduce this expense in fiscal 2006 to fiscal
2009, which accounts for approximately $2.0 million of the $4.5 million expense
we would have recorded in fiscal 2005 under SFAS No. 123. See Note 3 of "Notes
to Condensed Consolidated Financial Statements" for a more detailed presentation
of accounting for stock-based compensation plans. Because of the requirement to
treat all stock-based compensation as an expense, we may change both our cash
and stock-based compensation practices.

OUR QUARTERLY OPERATING RESULTS FLUCTUATE AND ARE DIFFICULT TO PREDICT. THE
TIMING OF LARGE ORDERS IS MORE UNPREDICTABLE. OUR EXPENSES ARE RELATIVELY FIXED
IN THE SHORT-TERM AND UNPREDICTABLE REVENUE SHORTFALLS COULD DISPROPORTIONATELY
AND ADVERSELY AFFECT OPERATING RESULTS.

Our quarterly operating results have fluctuated in the past and may continue to
do so in the future. As we increase our focus on sales to large enterprises and
increase our sales through independent software vendors, the lack of
predictability of our sales cycle will increase. The time required to close
orders remains difficult to accurately predict as a result of the overall
economic conditions, cautious capital spending by businesses and the
complexities of selling to large enterprises. We complete a majority of our
revenue-generating transactions in the last weeks of a quarter and cannot adjust
our expense levels for that quarter at such a late date. In contrast, our
expense levels are relatively fixed in the near term and based, in part, on our
revenue expectations. If

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<PAGE>
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 on a rapid
basis.

OUR STOCK PRICE IS VOLATILE. 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 stock price has been and is highly volatile. Our stock price is highly
influenced by current expectations of our future revenue, earnings and cash
flows from operations. If our operating results fall below the expectations of
securities analysts, prospective investors or current stockholders, 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 or create a negative change in our perceived long-term growth
prospects, which could result in a decline in the price of our stock.

Other factors that may have a significant impact on the market price of our
common stock include:

o    a delay in closing or failure to close the proposed acquisition of us by
     Sybase;
o    announcements of acquisitions by us or our competitors;
o    changes in our management team;
o    our ability to obtain financing when needed;
o    sales of significant numbers of shares within a short period of time;
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 or our customers.

CONSOLIDATION IN OUR INDUSTRY MAY IMPEDE OUR ABILITY TO COMPETE EFFECTIVELY.

Consolidation continues to occur among companies that compete in our markets as
firms seek to offer more extensive suites of mobility software products and to
take advantage of efficiencies and economies of scale. Our competitors completed
acquisitions including, but not limited to, the following examples: Intellisync
Corporation acquired Synchrologic, Sybase acquired AvantGo and XcelleNet, Inc.,
Good Technologies acquired JP Mobile, SEVEN acquired Smartner and was
subsequently acquired by Good Technologies and Broadcom Corporation acquired
Widcomm, Inc. Changes resulting from these and other consolidations may harm our
competitive position. In addition, as the trend toward consolidation continues,
if we remain a stand-alone company, we may encounter increased competition for
attractive acquisition targets and may have to pay higher prices for those
businesses or technologies we seek to acquire.

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

If we remain a stand-alone company, our future success will depend on our
ability to attract and retain experienced, qualified employees, particularly
highly skilled software engineers, effective enterprise sales representatives
and management personnel. To the extent the proposed acquisition of us by Sybase
is not completed, our plans include adding a number of new employees, mostly in
our research and development group. Competition for qualified personnel in the
computer software industry is growing as the software industry rebounds from the
technology downturn experienced in the past several years. We are not certain
that our efforts to retain our key employees will succeed or that we will be
successful in recruiting new qualified employees. Our ability to attract
personnel may be impaired. 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. New employees generally require substantial
training, which may require significant resources and management attention.

OUR BUSINESS RELIES ON ENTERPRISES IMPLEMENTING MOBILE APPLICATIONS AND DEVICES.
THE MARKET FOR THESE PRODUCTS IS DEVELOPING AND MAY BE HARMED IF CUSTOMERS ARE
SLOW TO OR DO NOT ADOPT OUR PRODUCTS OR IF THERE ARE DECLINES IN OVERALL
INFORMATION TECHNOLOGY SPENDING.

The enterprise mobile application market is still developing and enterprises are
exploring the benefits of mobilizing corporate information, including their
essential applications. Mobile contacts, calendar and e-mail are becoming more
generally accepted mobile applications; however, our customers and potential
customers have not traditionally mobilized their other enterprise applications.
Because this is a relatively new market, we cannot be certain that this market
will develop and grow. To the extent the proposed acquisition of us by Sybase is
not completed, we expect that we will continue to need to pursue intensive
marketing and selling efforts to educate prospective customers about the
benefits to their operations through use of our products. This could cause our
sales and marketing expenses to increase without a corresponding increase in
revenue.

The market for our products also depends on the broader economic climate and
spending on information technology, including mobile applications and devices.
The global economic downturn and the slower growth in the geographies
experiencing economic recovery 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 OEM
customers may also limit development of new products

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<PAGE>
that incorporate our products or reduce their level of purchases of our products
in the face of slower information technology spending by their customers. A
general weakening of the global economy and weakening of business conditions,
particularly in the information technology, telecommunications, financial
services and manufacturing industry sectors, could result in potential customers
experiencing declines in their revenue and operations. In such an environment,
customers may experience financial difficulty or cease operations.

Although we believe we have adequately factored the current economic conditions
into our revenue forecasts, if the global economy experiences another downturn,
demand for our products may be reduced as a result of enterprises reducing
information technology spending on our products and OEMs reducing their use of
our products in their own products. As a result, if we remain a stand-alone
company, our revenue may fail to grow or could decline, which would harm our
operating results. If there is another global economic downturn, we also may be
forced to reduce our operating expenses, which could result in our incurring
additional charges in connection with restructuring or other cost-cutting
measures we may implement. For example, in both fiscal 2003 and fiscal 2004, we
announced restructuring plans to replace or reduce personnel, reduce costs and
improve operating efficiencies and, as a result, incurred restructuring costs,
primarily for severance payments to terminated employees.

WE MAY NOT BE ABLE TO SUCCESSFULLY COMPETE AGAINST CURRENT AND POTENTIAL
COMPETITORS.

Our markets are increasingly competitive and our competitors are some of the
largest software providers in the world. As the markets for adaptive mobility
products grow, we expect competition from both existing and new competitors to
intensify. We compete with:

o    mobile solutions companies, including CommonTime, Good Technology, IBM,
     iAnywhere (a Sybase company), Microsoft, Intellisync, RIM, and Visto;
o    mobile application companies, including Dexterra, Everypath, iAnywhere,
     IBM, Microsoft, Oracle, SAP, TCS, and Wavelink;
o    client/server database providers, including Borland, Microsoft, MySQL,
     Oracle and Pervasive Software;
o    mobile device solutions companies, including IVT Corporation, Agilent,
     EMBEDnet, CSR, Broadcom, Stonestreet One, and Open Interface North America;
     and
o    internal research and development departments of OEMs, many of whom are our
     current customers.

To date, our solutions have been differentiated from those of our competitors
based on total cost of ownership, interoperability, performance and reliability.
We may not be able to maintain our competitive position against current and
potential competition, particularly competitors that have longer operating
histories and significantly greater financial, technical, marketing, sales and
other resources than we do and therefore may be able to respond more quickly
than us to new or changing opportunities, technologies and customer
requirements. Also, many current and potential competitors have greater name
recognition and more extensive customer bases that could be leveraged to gain
market share to our detriment. These competitors may be able to undertake more
extensive promotions activities, adopt more aggressive pricing policies and
offer more attractive terms to purchasers than we can. Current and potential
competitors have established or may establish cooperative relationships among
themselves or with third parties to enhance their products. 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. These and other competitive factors
could result in price reductions, reduced revenue and gross margins and lost
market share and an inability to expand into new markets and industries, any one
of which could materially affect our results of operations.

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.

From time to time, we may 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.

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

To the extent the proposed acquisition of us by Sybase is not completed in
fiscal 2006, we believe our existing working capital, 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 12 months. We cannot be certain, however, that our underlying assumed

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levels of revenue and expenses will be accurate. If our operating results were
to fail to meet our expectations, or if accounts receivable or other assets were
to require a greater use of cash than is currently anticipated, we could be
required to seek additional sources of liquidity. These sources of liquidity
could include 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 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 OEMs, we may be required to allocate additional internal
resources to OEMs' 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, 2005, the amount of goodwill and other identifiable intangibles
recorded on our books, net of accumulated amortization, was approximately $13
million. We ceased amortizing goodwill upon our adoption of SFAS No. 142 as of
the beginning of fiscal 2003, and we expect to amortize approximately $373,000
of net identifiable intangibles in fiscal 2006 through 2009. 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. Any impairment and resulting write-off could have a
negative impact on our results of operations in the period goodwill or other
identifiable intangibles are written off.

WE MAY NOT BE ABLE TO SUCCESSFULLY DEVELOP OR INTRODUCE NEW PRODUCTS OR UPGRADE
OUR EXISTING PRODUCTS WITH FUNCTIONALITY AND FEATURE SETS THAT ARE PREFERRED BY
OUR CUSTOMERS TO THE COMPETITIVE ALTERNATIVES.

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.

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 often resort to litigation over intellectual
property rights and there has been a substantial amount of litigation in the
software industry regarding intellectual property rights. During fiscal 2004 we
settled an intellectual property dispute that required a significant amount of
our resources. It is possible in the future that third parties may claim that
our current or potential future products infringe on their intellectual
property. 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

                                       39
<PAGE>
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 SIGNIFICANT PORTION OF OUR REVENUE.

In fiscal 2005, based on the region where the customer resides, approximately
61% of our revenue was generated from international sales. We expect that
international sales will continue to represent a significant portion of our
revenue for the foreseeable future. International sales are subject to a number
of risks, including:

o    changes in regulatory requirements and resulting costs;
o    export license requirements;
o    export restrictions, tariffs, taxes and other trade barriers;
o    potentially reduced or less certain protection for intellectual property
     rights than is available under the laws of the United States;
o    longer collection and payment cycles than those in the United States;
o    difficulty in staffing and managing international operations;
o    restrictive labor laws in the European Union that restrict working hours
     and constrain our ability to react quickly in certain situations; and
o    political and economic instability, including the threat or occurrence of
     military and terrorist actions and enhanced national security measures.

One or more of these risks could harm our future overseas research operations
and international sales and support. If we are unable to manage these risks of
doing business internationally, our results could suffer.

OUR BUSINESS MAY BE HARMED IF OUR PROFESSIONAL SERVICES ORGANIZATION DOES NOT
GENERATE AN ACCEPTABLE PROFIT LEVEL, INCURS COSTS IN EXCESS OF AMOUNTS BILLABLE
TO CUSTOMERS OR IF OUR PROFESSIONAL SERVICES REVENUE INCREASES AS A PERCENTAGE
OF TOTAL REVENUE.

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;
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;
o    we may enter into professional services engagements that are complex and
     for which it is difficult to estimate resource requirements and costs due
     to the nature and scope of the engagement and the need to integrate our
     work product with the products of other contractors retained by our
     customers; and
o    we have and may in the future enter into contractual arrangements with our
     professional services customers that subject us to damages and other
     liabilities if our work product does not conform to the agreed
     specifications.

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 would harm our business. In addition, we may enter into professional
services projects that charge customers a fixed fee for a defined deliverable.
We have at times in the past underestimated and may in the future underestimate
the amount of time or resources required to complete this work and receive
customer acceptance. If we do not correctly estimate the amount of time or
resources required for a large project or a significant number of projects, our
gross margins could decline, adversely affecting our operating results.

We realize lower margins on our professional services revenue than on license
revenue. As a result, if professional services revenue increases as a percentage
of total revenue, our gross margins may decline and our operating results may be
adversely affected.

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 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

                                       40
<PAGE>
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.

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

We have provisions in our certificate of incorporation and bylaws that 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 our common stock;
o    granting dividend and other rights superior to our common stock;
o    limiting the liability of, and providing indemnification to, directors and
     officers;
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 shareholders.

These provisions, alone or together, could deter or delay hostile takeovers,
proxy contests and changes in control or management of our company. 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, our Board of
Directors issued certain Preferred Share Purchase Rights, which were amended in
July 2005 to exclude the proposed acquisition of us by Sybase from the
definition of what constitutes a "triggering event". The Rights were not
intended to prevent a takeover of the company. However, the Rights may have the
effect of rendering more difficult or discouraging an acquisition of us deemed
undesirable by our Board of Directors. The Rights would cause substantial
dilution to a person or group that attempted to acquire the company 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.

IN THE EVENT THAT THE PROPOSED ACQUISITION OF US BY SYBASE DOES NOT CLOSE, 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 as a stand-alone company, 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    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.

WE MAY BE SUBJECT TO PENALTIES OR SANCTIONS WITH RESPECT TO OUR FAILURE TO
REGISTER OR QUALIFY SHARES UNDER OUR ESPP AND OUR FAILURE TO TIMELY DISCLOSE THE
SALE OF THE UNREGISTERED SHARES.

As described in Part II, Item 5, in December 2004, we determined that we had
inadvertently failed to register or qualify under the federal securities laws or
the securities laws of certain states the public sale of approximately 893,811
shares of our common stock pursuant to our Employee Stock Purchase Plan
("ESPP"). Although our failure to file a registration statement was inadvertent,
as a consequence of the failure to register or qualify the sales of our common
stock under the ESPP, certain ESPP participants may have had the right to
rescind their purchases under the ESPP prior to June 2005 or may have the right
to recover damages from us and others related to the unregistered or
nonqualified sale of the ESPP shares. Because purchasers no longer have the
right to rescind their purchases, we do not intend to undertake an offer to
rescind the purchases. Had we undertaken a rescission offer, our exposure for
any rescission rights would not have been material to our financial condition or
liquidity. Governmental regulatory

                                       41
<PAGE>
authorities may seek penalties or other sanctions against us with respect to the
failure to register or qualify the ESPP sales or our failure to timely disclose
such failure to register or qualify the ESPP shares.

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, 2005, 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
subsidiary's local currency. Fluctuations in exchange rates between the U.S.
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 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, 2005 or
June 30, 2003. As of June 30, 2004, we had forward contracts with a nominal
value of $10.8 million in place against the Canadian dollar, euro and British
pound sterling, which matured within 30 days. We recognized net currency
exchange losses of approximately $616,000 and $206,000 for fiscal 2005 and 2004,
respectively, and a net currency exchange gain of approximately $261,000 for
fiscal 2003.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The response to this item is submitted in Item 16 of this Annual Report on Form
10-K.


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

None.


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 our 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 at the reasonable assurance
level.

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.


ITEM 9B.  OTHER INFORMATION.

None.

                                       42
<PAGE>
                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

DIRECTORS
---------

RAYMOND A. SMELEK; AGE 70. Mr. Smelek has served as chairman of our Board of
Directors since June 1995 and has been a director since June 1994. Since 1999,
Mr. Smelek has served as Chairman of the Board of Directors of The Network
Group, which provides information technology services to enterprises. He also
served as Chief Executive Officer of The Network Group from 1999 to 2003. Since
1998, he has been a Vice President of Smelek & Associates, which provides
management consultant services to enterprises. From June 1994 to February 1996,
he was our President and Chief Executive Officer. Before joining us, Mr. Smelek
was employed by Hewlett-Packard and held a number of positions, the last of
which was Vice President and General Manager of the Mass Storage Group.

JAMES R. BEAN; AGE 55. Mr. Bean has served as a director of our company since
August 2003. Since May 1997, Mr. Bean has been employed by Preco Electronics,
Inc., an industry leader in vehicle warning systems and custom electronic
products, and currently holds the position of President and Chief Executive
Officer. Mr. Bean has more than 25 years of operational experience with Fortune
500 companies, including National Semiconductor Corporation, Apple Computer,
Inc. and Sun Microsystems, Inc. While at Sun, he was part of the executive team
that took the company public and had responsibility for manufacturing and
distribution worldwide.

ARCHIE CLEMINS; AGE 61. Admiral Clemins has served as a director of our company
since October 2003. Since January 2003 and November 2001, respectively, Admiral
Clemins has served as the owner and president of Caribou Technologies, Inc., and
co-owner of TableRock International LLC, both international consulting firms.
Admiral Clemins retired from active duty in the United States Navy in 1999, and
his final assignment was as the 28th Commander in Chief of the United States
Pacific Fleet. He is currently a member of the Board of Directors of Global
Crossing Limited, Vector Intersect Security Acquisition Corp. and several
privately held companies.

ROBERT J. FRANKENBERG; AGE 58. Mr. Frankenberg has served as a director of our
company since October 2003. Since December 1999, Mr. Frankenberg has served as
the Chairman of Kinzan, Inc., a provider of Internet services platforms, and
from May 2001 to December 2003 he was Chairman of PowerQuest, Inc., a supplier
of storage management software. From May 1997 to July 2000, he served as
President and Chief Executive Officer of Encanto Networks, Inc. and from April
1994 to August 1996, he served as the Chairman, President and Chief Executive
Officer of Novell, Inc. Mr. Frankenberg is a member of the Board of Directors of
ElectroGlas, Inc., National Semiconductor Corporation, ScanSoft, Inc. and Secure
Computing Corporation.

RALPH B. GODFREY; AGE 65. Mr. Godfrey has served as one of our directors since
October 2003. Since September 2000 Mr. Godfrey has been retired. From July 1990
to September 2000, Mr. Godfrey served in various business operations and sales
roles at 3Com Corporation, a provider of networking products, services and
solutions for enterprises, the most recent of which was as a Senior Vice
President and a member of the executive committee. He had previously managed
3Com's sales organization for the Americas. Before joining 3Com in July 1990,
Mr. Godfrey served as President of sales and marketing for a division of Unisys
Corporation. He currently serves as a member of the Board of Directors of
Rockford Corporation.

KLAUS-DIETER LAIDIG; AGE 63. Mr. Laidig has served as a director of our company
since April 2004. Mr. Laidig has served as a management consultant with Laidig
Business Consulting GmbH since 1998. From 1984 to 1997, Mr. Laidig served as
General Manager of Hewlett Packard GmbH, where he was employed since 1967. Mr.
Laidig currently serves as a director of Agile Software Corporation, Aldata
Solution Oyj, Bauerfeind AG, Heiler Software AG and several privately held
companies.

JODY B. OLSON; AGE 58. Mr. Olsen has served as one of our directors since August
2003. Since July 2000 Mr. Olson has been Of Counsel at Hawley Troxell Ennis &
Hawley LLP, a law firm in Boise, Idaho. Mr. Olson served in many roles over 20
years at Trus Joist, a building products company, now a Weyerhaeuser Business.
He retired as Vice President of Corporate Development. Mr. Olsen is currently
Chairman of the Board of Public Employer Retirement System of Idaho (PERSI). He
is also a member of the Board of Advisors of Galen Associates, a venture capital
fund.

EXECUTIVE OFFICERS
------------------

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."

CODE OF ETHICS
--------------

We have adopted a Code of Business Conduct and Ethics for all employees and
directors, which specifically applies to our Chief Executive Officer, Chief
Financial Officer and persons performing similar functions. A copy of the code
of ethics is available on our website at www.extendedsystems.com under the
"Company-Corporate Governance" link. You can also obtain a copy by writing to
our Corporate Secretary at 5777 North Meeker Avenue, Boise, Idaho 83713.

                                       43
<PAGE>
We intend to post on our website any amendment to, or waiver from, a provision
of our Code of Business Conduct and Ethics within five business days following
the date of an amendment or waiver.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
-------------------------------------------------

Directors, executive officers and holders of more than 10% of our outstanding
shares of common stock are required to file reports with the Securities and
Exchange Commission indicating the number of shares of our common stock they
beneficially own and any changes in their beneficial ownership. To the best of
our knowledge, based solely on review of the copies of such reports furnished to
us or otherwise in our files and on written representations from our directors
and executive officers, our officers, directors and 10 percent shareholders
complied with all applicable Section 16(a) filing requirements except as noted
below.

Ms. Heusinkveld and Messrs. Doust and Jepson each failed to timely file a Form 4
related to the exercise of stock options. Mr. Jepson failed to timely file a
Form 4 related to the sale of our common stock. Messrs. Benz, Pappas and
Pendleton each have a delinquent Form 3 related to their appointments as
executive officers. Messrs. Bean, Clemins, Frankenberg, Godfrey, Laidig, Olson
and Smelek each have delinquent Form 4s related to an award of restricted stock
and a grant of options to purchase our stock.

AUDIT COMMITTEE
---------------

The Audit Committee oversees the integrity of our financial statements and our
accounting and financial reporting processes, including the system of internal
controls and disclosure processes. The Audit Committee also oversees the
independence, performance and qualifications of our independent auditors and
assists the Board with legal and regulatory requirement compliance. In addition,
the Committee discharges the functions of the Audit Committee imposed by all
regulatory requirements. The Audit Committee has a written charter, a copy of
which can be viewed on our website at www.extendedsystems.com.

The Audit Committee consists of Messrs. Olson (Chairman), Bean and Laidig, none
of whom are employees of our company. Our Board of Directors has determined that
Jody B. Olson, the Chairman of our Audit Committee, is an audit committee
financial expert as defined in Item 401(h) of Regulation S-K and is independent
within the meaning of Item 7(d)(3)(iv) of Schedule 14A of the Exchange Act. The
Audit Committee met 10 times during the last fiscal year.


ITEM 11. EXECUTIVE COMPENSATION.

SUMMARY OF EXECUTIVE COMPENSATION
---------------------------------

We have included in the following table all compensation earned during the last
three years by our Chief Executive Officer and our four other most highly
compensated executive officers whose total compensation during fiscal 2005
exceeded $100,000 (the "Named Executive Officers").










                                       44
<PAGE>
<TABLE><CAPTION>
                                                                                           LONG-TERM
                                                             ANNUAL COMPENSATION      COMPENSATION AWARDS
                                                            ---------------------   -----------------------
                                                                                    RESTRICTED   SECURITIES
                                                    FISCAL                             STOCK     UNDERLYING    ALL OTHER
NAME AND POSITION                                    YEAR    SALARY     BONUS (1)   AWARDS (2)    OPTIONS (#) COMPENSATION
--------------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>    <C>         <C>         <C>          <C>          <C>
Charles W. Jepson.................................   2005   $ 235,000   $ 100,000           --        5,261   $         --
     President and Chief Executive Officer........   2004     202,831          --           --      253,333         20,852(3)
                                                     2003      38,829          --           --      180,000             --

Nigel S. Doust....................................   2005     190,650     145,827           --        1,175         20,088(4)
     Vice President of Worldwide Mobility.........   2004     152,631     189,810        6,483       48,530         18,798(4)
                                                     2003      24,385      16,147           --       70,000          3,457(4)

Valerie A. Heusinkveld............................   2005     171,250      50,000           --          801             --
     Vice President of Finance, Chief Financial      2004     105,875          --           --      100,000             --
     Officer and Corporate Secretary..............   2003          --          --           --           --             --

Gregory T. Pappas.................................   2005     143,182      30,000           --       85,000         25,000(5)
     Vice President of Human Resources............   2004          --          --           --           --             --
                                                     2003          --          --           --           --             --

Mark A. Willnerd..................................   2005     132,516      30,000           --           --             --
     Vice President of Business Development.......   2004     118,746          --       11,554       37,380             --
                                                     2003     101,148          --           --       15,000          1,673(6)
</TABLE>

(1)  Includes quarterly sales commissions.
(2)  Represents the value of restricted shares granted based on the closing
     price of common stock on the grant date. On October 31, 2003, restricted
     stock grants were made to Mr. Doust for 1,470 shares and Mr. Willnerd for
     2,620 shares. The restrictions on these shares lapsed on October 31, 2004,
     the one-year anniversary of the grant date.
(3)  Consists of reimbursed moving expenses.
(4)  Consists of a monthly car allowance.
(5)  Consists of a hiring bonus.
(6)  Consists of contributions to our defined contribution plan.


OPTION GRANTS IN FISCAL 2005 FOR NAMED EXECUTIVE OFFICERS

The following table includes information on grants of options to purchase shares
of our common stock that we made to the Named Executive Officers during fiscal
2005. The options granted to Mr. Pappas vest over a four-year period and have a
10-year term. The remaining options set forth in the following table were vested
on the grant date of December 31, 2004 and had an expiration date of February
15, 2005. We calculated the potential realizable value based on the following:

o    the term of the option on its grant date;
o    the assumption that the stock price on the date of grant appreciates at the
     indicated annual rate compounded annually for the entire term of the
     option; and
o    the assumption that the option is exercised and sold on the last day of its
     term for the appreciated price.

Actual gains, if any, on stock option exercises are dependent on the future
performance of our common stock and overall stock market conditions.


                                       45
<PAGE>
<TABLE><CAPTION>
                           NUMBER OF    % OF TOTAL                                             POTENTIAL REALIZABLE VALUE AT
                            SHARES       OPTIONS                                               ASSUMED ANNUAL RATES OF STOCK
                          UNDERLYING    GRANTED TO     EXERCISE     MARKET                  PRICE APPRECIATION FOR OPTION TERM
                            OPTIONS    EMPLOYEES IN     PRICE      PRICE ON    EXPIRATION   ----------------------------------
NAME AND POSITION           GRANTED    FISCAL 2005    PER SHARE   GRANT DATE      DATE          0%         5%           10%
------------------------------------------------------------------------------------------------------------------------------
<S>                       <C>          <C>            <C>         <C>          <C>          <C>          <C>          <C>
Charles W. Jepson.........     5,261         *         $ 2.091      $ 2.460     02/15/05      1,941       2,021        2,098

Nigel S. Doust............     1,175         *         $ 2.091      $ 2.460     02/15/05       434         451          469

Valerie A. Heusinkveld....       801         *         $ 2.091      $ 2.460     02/15/05       296         308          319

Gregory T. Pappas.........    85,000        9%         $ 3.751      $ 3.751     07/26/14        0        200,514      508,141

   * Less than 1%
</TABLE>


OPTION EXERCISES IN FISCAL 2005 FOR NAMED EXECUTIVE OFFICERS
------------------------------------------------------------

The following table includes information regarding the number of shares acquired
through the exercise of stock options during fiscal 2005 by each of the Named
Executive Officers and the value of unexercised options as of June 30, 2005. We
have also included the values of "in-the-money" options that represent the
positive "spread" between the respective exercise prices of outstanding stock
options and the fair market value of our common stock as of June 30, 2005.
<TABLE><CAPTION>
                                                      NUMBER OF SECURITIES         VALUE OF UNEXERCISED
                                                     UNDERLYING UNEXERCISED        IN-THE-MONEY OPTIONS
                            SHARES                OPTIONS AT FISCAL YEAR END        AT FISCAL YEAR END
                          ACQUIRED ON    VALUE    ---------------------------   ---------------------------
NAME AND POSITION          EXERCISE    REALIZED   EXERCISABLE   UNEXERCISABLE   EXERCISABLE   UNEXERCISABLE
--------------------------------------- -------------------------------------------------------------------
<S>                       <C>          <C>        <C>           <C>             <C>           <C>
Charles W. Jepson.........     5,261   $  8,728       358,332          75,001   $   173,249   $     123,752

Nigel S. Doust............     1,175      1,832        53,807          64,723            --              --

Valerie A. Heusinkveld....       801      1,249        41,708          58,292            --              --

Gregory T. Pappas.........        --         --            --          85,000            --              --

Mark A. Willnerd..........        --         --        51,813          25,076        10,913             787
</TABLE>


COMPENSATION OF DIRECTORS
-------------------------

Our directors do not receive cash fees as compensation for their services as
directors. Our directors are, however, reimbursed for travel and other expenses
incurred in attending our Board of Directors meetings and meetings of committees
of the Board of Directors. The directors are eligible to participate in our 1998
Director Option Plan (the "Director Plan"). Under the Director Plan, option
grants and restricted stock grants are automatic and non-discretionary and the
exercise price of an option grant is 100% of the fair market value of our common
stock on the grant date. Each option granted from the Director Plan has a term
of 10 years, unless the director ceases to be a director. Upon ceasing to serve
as a director, the former director has one year from the date of termination as
a director to exercise a vested option, and only then to the extent that the
director was entitled to exercise the option on the date of termination.

Under the Director Plan each director receives an initial grant of an option to
purchase 20,000 shares of common stock on the date that he or she first becomes
a director. One-third of the shares from this initial grant vests and becomes
exercisable on the first anniversary of the date of grant and the remaining
shares vest and become exercisable at a rate of 1/36th per month of the total
shares. After the initial grant, each director is automatically granted an
option to purchase 10,000 shares of our common stock on the date of our annual
meeting of stockholders each year, if the director has served on our Board of
Directors for at least six months. The shares from the director's subsequent
annual option vest and become exercisable in full on the earlier of the first
anniversary of the date of grant of that option or the date of the next annual
meeting of stockholders.

Under the Director Plan each director is also automatically granted a number of
shares of restricted stock on the date of our annual meeting of stockholders
each year. The number of shares of restricted stock is determined by dividing
$16,000 by the fair market value of a share on the date of our annual meeting of
stockholders. One-third of the shares of this restricted stock grant are
released from our option to repurchase the shares on the anniversary date of
grant and remaining shares are released from our option to repurchase the shares
as to one-third of the shares in each of the following two years. Our option to
repurchase the

                                       46
<PAGE>
shares lapses in full on the earlier of the anniversary date of the grant or the
date of the next annual meeting of stockholders if the director has attended at
least 75% of all board meetings held during the last year.

The Chairman of our Board of Directors is automatically granted an additional
number of shares of restricted stock on the date of our annual meeting of
stockholders each year in excess of the annual grant to all directors set forth
above. The number of shares that the Chairman of our Board of Directors receives
is determined by dividing $20,000 by the fair market value of a share on the
date of our annual meeting of stockholders. The Chairman of our Audit Committee
and the Chairman of our Compensation Committee are also automatically granted an
additional number of shares of restricted stock on the date of our annual
meeting of stockholders each year. The number of shares that the Chairman of our
Audit Committee receives is determined by dividing $12,500 by the fair market
value of a share on the date of our annual meeting of stockholders. The number
of shares that the Chairman of our Compensation Committee receives is determined
by dividing $7,500 by the fair market value of a share on the date of our annual
meeting of stockholders. For each of the grants to the Chairman of our Board of
Directors, the Chairman of our Audit Committee and the Chairman of our
Compensation Committee, our option to repurchase the shares lapses with respect
to one-third of the shares of these grants on the anniversary date of grant and
the remaining option to repurchase the shares lapses as to one-third of the
shares in each of the following two years. Our right to repurchase the shares
lapses in its entirety on the earlier of the anniversary date or the date of the
next annual meeting of stockholders if the director has attended at least 75% of
all board meetings held during the last year in the case of the Chairman of the
Board of Directors, 75% of all Audit Committee meetings in the case of the
Chairman of the Audit Committee or 75% of all Compensation Committee meetings in
the case of the Chairman of the Compensation Committee.

EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
------------------------------------------------------------------------
ARRANGEMENTS
------------

We have entered into employment agreements with our executive officers and
certain key employees. We agreed that if the individual is terminated without
cause or constructively terminated, as those terms are defined below, he or she
will be entitled to receive six months of his or her then base salary, $3,000 in
lieu of fringe benefits ((pound)6,500 for Mr. Doust), all salary, vacation time
and other benefits earned and accrued before the date of termination, and a pro
rata bonus for the year in which the termination without cause or constructive
termination occurs, assuming that the individual would have received a bonus.
The individual must execute a mutually agreeable release of claims in order to
receive the benefits described in the preceding sentence.

We also have entered into agreements with certain of our executive officers and
certain key employees that provide certain severance and other benefits in
connection with a change in control of our company, each of which (with the
exception of Mr. Doust's employment agreement) was amended in connection with
the execution of the merger agreement with Sybase. Pursuant to the employment
agreements, as amended, if the employment of any such individual is terminated
other than for cause, death or disability, or any such individual terminates his
or her employment for good reason, each such individual will be entitled to the
following benefits:

     o    A payment, in 18 equal monthly installments, of an amount equal to (i)
          any unpaid annual base salary through the date of termination, (ii)
          the product of such individual's annual bonus amount and a fraction,
          the numerator of which is the number of days in the then current
          fiscal year through the date of termination, and the denominator of
          which is 365, (iii) any previously deferred compensation, (iv) any
          accrued vacation pay and (v) an amount equal to 1.5 times the sum of
          such individual's annual base salary and annual bonus amount;

     o    Pursuant to the terms of the amendment to the employment agreement, a
          one-time payment of $36,000 to assist in the payment of such
          individual's medical, dental and vision insurance. With respect to Mr.
          Doust, the continuation of benefits for 18 months after his
          termination at least equal to those which are provided in accordance
          with his then current welfare benefit plans, or, if more favorable to
          Mr. Doust, benefits as in effect at any time thereafter with respect
          to other peer executives of our company and its affiliated companies;
          provided that if Mr. Doust is reemployed and eligible for medical or
          other welfare benefits under another employer-provided plan, the
          medical and other welfare benefits described under the employment
          agreement will terminate; and

     o    The reimbursement of customary outplacement benefits and other
          expenses in connection with the termination of employment of up to
          $10,000.

The amendment to the employment agreement also provides that each of the above
individuals would waive rights included in their original employment agreements
to have our company pay the costs of any legal proceedings between the parties
related to the employment agreements. Pursuant to the employment agreement we
entered into with Mr. Doust, we have agreed to pay the costs reasonably incurred
by Mr. Doust of any legal proceedings (regardless of outcome) between the
parties related to Mr. Doust's employment agreement.

For purposes of each covered individual's employment agreement, as amended, a
change in control would occur if:

     o    a person acquires 50% or more of either (A) the outstanding common
          stock of the company or (B) the combined voting power of the then
          outstanding voting securities of the company entitled to vote in the
          election of directors;

                                       47
<PAGE>
     o    we merge with or are consolidated into any other corporation or entity
          where our stockholders immediately before the merger or consolidation
          do not hold at least 50% of the voting power of the resulting
          corporation immediately after the merger or consolidation;

     o    there is a change in the make-up of the Board of Directors whereby the
          current incumbent members cease to constitute a majority of the Board
          and the new Board members were not approved by at least a majority
          vote of the current incumbent Board members;

     o    there is a business combination and the board of directors of the
          resulting combined corporation is not made up of a majority of the
          company's incumbent members of the Board of Directors before the
          business combination; or

     o    there is a complete liquidation or dissolution of the company.

In connection with the execution of the merger agreement with Sybase, we entered
into an employment separation and release agreement (the "separation agreement")
with Charles Jepson, which will become effective as of the closing of the
acquisition. Pursuant to the separation agreement, we agreed to make a lump-sum
severance payment of $505,000 to Mr. Jepson upon his termination of employment
at the closing of the acquisition and Mr. Jepson agreed to: (i) accept a
one-time payment of $36,000 in lieu of continuation of benefits after
termination, (ii) waive rights to have us provide a gross up in the event that
Mr. Jepson should be subject to excise taxes pursuant to Section 4999 of the
Internal Revenue Code of 1986, as amended, (iii) waive rights to have us pay the
costs of any legal proceedings between the parties related to his employment
agreement and (iv) provide a release of claims to us in connection with his
termination of employment.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
---------------------------------------------------------------------------
DECISIONS
---------

During fiscal 2005, the Compensation Committee of our Board of Directors
consisted of Messrs. Clemins, Frankenberg (Chairman) and Godfrey, none of whom
are or have been an officer or employee of our company. No interlocking
relationship exists between our Board of Directors or Compensation Committee and
the Board of Directors or compensation committee of any other company.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
         RELATED STOCKHOLDER MATTERS.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------

The following table sets forth the beneficial ownership of shares of our common
stock owned as of September 9, 2005, by (1) each person or entity known by us to
beneficially own more than 5% of the shares of our common stock, (2) each
director and named executive officer individually and (3) all of our directors
and executive officers as a group.

Beneficial ownership has been determined in accordance with SEC rules. Unless
otherwise indicated, all shares of our common stock are owned directly and the
indicated owner has sole voting and dispositive power with respect to such
shares. Shares of common stock subject to options currently exercisable or
exercisable within 60 days of September 9, 2005 are deemed outstanding for the
purpose of computing the number of shares beneficially owned and the percentage
ownership of the person holding the options, but are not deemed outstanding or
beneficially owned for the purpose of computing the percentage ownership of any
other person. Percentage of beneficial ownership is based on 15,633,354 shares
outstanding as of September 9, 2005. Beneficial ownership calculations for 5%
stockholders are based solely on publicly-filed Schedule 13Ds or 13Gs, which 5%
stockholders are required to file with the SEC and which generally set forth
ownership interests as of September 9, 2005. Unless otherwise noted, the address
of each of the beneficial owners listed in this table is: c/o Extended Systems
Incorporated, 5777 North Meeker Avenue, Boise, Idaho 83713.







                                       48
<PAGE>
<TABLE><CAPTION>
                                                                   NUMBER OF SHARES      PERCENT OF SHARES
                                                                  BENEFICIALLY OWNED    BENEFICIALLY OWNED
                                                                  ------------------    ------------------
<S>                                                               <C>                   <C>
Beneficial Owners
-----------------
5% STOCKHOLDERS:
Diker Management LLC (1)........................................             962,411                   6.2%
  745 Fifth Avenue, Suite 1409
  New York, York 10151
Douglas B. Winterrowd (2).......................................           1,072,503                   6.9%
Charles M. Jopson (3)...........................................             991,164                   6.3%


DIRECTORS AND NAMED EXECUTIVE OFFICERS:
Charles W. Jepson...............................................             382,276                   2.5%
Raymond A. Smelek (4)...........................................             213,249                   1.4%
Neal J. Benz....................................................                  --                    --
Mark A. Willnerd (5)............................................              65,762                     *
Nigel S. Doust (6)..............................................              66,015                     *
Jody B. Olson (7)...............................................              32,399                     *
Robert J. Frankenberg (8).......................................              29,076                     *
James R. Bean (9)...............................................              25,133                     *
Archie Clemins (10).............................................              24,717                     *
Ralph B. Godfrey (11)...........................................              24,717                     *
Valerie A. Heusinkveld (12).....................................              48,791                     *
Klaus-Dieter Laidig (13)........................................              16,416                     *
Nathan L. Pendleton (14)........................................              36,951                     *
Gregory T. Pappas (15)..........................................              26,561                     *
All directors and executive officers as a group (14 persons)....             992,063                   6.4%
</TABLE>

(1)  Reflects ownership of 962,411 shares of our common stock as reported on
     Schedule 13G dated February14, 2005 and filed with the SEC.

(2)  Includes 1,000 shares of common stock underlying stock options exercisable
     within 60 days. Also includes 130,000 shares held of record by the Doug and
     Eileen Winterrowd Education Trust.

(3)  Includes 373,332 shares of common stock underlying stock options
     exercisable within 60 days.

(4)  Includes 72,854 shares of common stock underlying stock options exercisable
     within 60 days. Includes 13,186 shares which are subject to a right of
     repurchase by us. Also includes 15,866 shares held of record by the Smelek
     Family Foundation and 1,942 shares held of record by Smelek & Associates, a
     business owned by Mr. Smelek's spouse.

(5)  Includes 55,199 shares of common stock underlying stock options exercisable
     within 60 days. Also includes 97 shares held of record by Mr. Willnerd's
     spouse.

(6)  Includes 62,015 shares of common stock underlying stock options exercisable
     within 60 days.

(7)  Includes 15,833 shares of common stock underlying stock options exercisable
     within 60 days. Also includes 10,438 shares which are subject to a right of
     repurchase by us.

(8)  Includes 15,417 shares of common stock underlying stock options exercisable
     within 60 days. Also includes 8,607 shares which are subject to a right of
     repurchase by us.

(9)  Includes 15,833 shares of common stock underlying stock options exercisable
     within 60 days. Also includes 5,860 shares which are subject to a right of
     repurchase by us.

(10) Includes 15,417 shares of common stock underlying stock options exercisable
     within 60 days. Also includes 5,860 shares which are subject to a right of
     repurchase by us.

(11) Includes 15,417 shares of common stock underlying stock options exercisable
     within 60 days. Also includes 5,860 shares which are subject to a right of
     repurchase by us.

                                       49
<PAGE>
(12) Includes 47,542 shares of common stock underlying stock options exercisable
     within 60 days.

(13) Includes 10,556 shares of common stock underlying stock options exercisable
     within 60 days. Also includes 10,438 shares which are subject to a right of
     repurchase by us.

(14) Includes 35,000 shares of common stock underlying stock options exercisable
     within 60 days.

(15) Includes 26,562 shares of common stock underlying stock options exercisable
     within 60 days.


SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
------------------------------------------------------------------
<TABLE><CAPTION>
                                                                                                             NUMBER OF SECURITIES
                                                                                                            REMAINING AVAILABLE FOR
                                                             NUMBER OF SECURITIES TO    WEIGHTED-AVERAGE     FUTURE ISSUANCE UNDER
                                                             BE ISSUED UPON EXERCISE   EXERCISE PRICE OF   EQUITY COMPENSATION PLANS
                                                             OF OUTSTANDING OPTIONS,  OUTSTANDING OPTIONS,   (EXCLUDING SECURITIES
                                                               WARRANTS AND RIGHTS    WARRANTS AND RIGHTS  REFLECTED IN COLUMN (A))
                                                             -----------------------------------------------------------------------
Plan Category                                                          (A)                    (B)                     (C)
                                                             -----------------------------------------------------------------------
<S>                                                          <C>                       <C>                 <C>
Equity compensation plans approved by shareholders...........              2,802,267       $    7.18                1,113,493
Equity compensation plans not approved by shareholders (1)...                 35,000       $    7.35                       --
                                                             -----------------------                       -------------------------
     Total ..................................................              2,837,267       $    7.18                1,113,493
                                                             =======================                       =========================
</TABLE>

     (1) On January 15, 2002, in connection with obtaining our line of credit
     with Silicon Valley Bank, we issued stock warrants to purchase 35,000
     shares of our 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.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information required by this item is incorporated by reference to the
information contained in Part III, Item 11 of this Form 10-K under the heading
entitled "Employment Contracts and Termination of Employment and
Change-in-Control Agreements"


ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.

The following table sets forth the aggregate fees plus reimbursed expenses
billed to us or to be billed for our fiscal 2005 and fiscal 2004 audit and
audit-related services and fees billed to us for other services that were
performed in fiscal 2005 and fiscal 2004 by our independent registered public
accounting firm, Grant Thornton LLP, and by PricewaterhouseCoopers, our former
independent registered public accounting firm:

                                               FOR THE YEAR ENDED JUNE 30,
                                               --------------------------
                                                 2005              2004
                                               --------          --------
Audit Fees (1) ..............................  $488,847          $287,448
Audit-Related Fees (2).......................    11,225                --
Tax Fees (3) ................................        --                --
All Other Fees (4) ..........................     3,195            66,000
                                               --------          --------
                                               $503,267          $353,448
                                               ========          ========


(1)  Audit Fees consist of fees billed for professional services rendered for
     the audit of our annual consolidated financial statements and review of
     interim consolidated financial statements included in our Form 10-Q
     quarterly reports and services that are normally provided in connection
     with statutory and regulatory filings or engagements. In fiscal 2005 all
     fees relate to services rendered by Grant Thornton LLP and in fiscal 2004
     all fees relate to services rendered by PricewaterhouseCoopers LLP.

(2)  Audit-Related Fees consist of fees billed for assurance and related
     services that are reasonably related to the performance of the audit or
     review of our consolidated financial statements and are not reported under
     "Audit Fees." In fiscal 2005 these services relate to $3,500 of services
     rendered by PricewaterhouseCoopers LLP in connection with the filing of a
     Form S-8 registration statement and $7,725 of services rendered by Grant
     Thornton LLP in connection with the filing of a Form S-8 registration
     statement.

(3)  Tax Fees consist of fees billed for professional services rendered for tax
     compliance, tax advice and tax planning.

                                       50
<PAGE>

(4)  All Other Fees consist of fees for products and services other than the
     services reported above. In fiscal 2004 fees were charged for due diligence
     services rendered by PricewaterhouseCoopers LLP pertaining to a potential
     acquisition.  In fiscal 2005 fees were charged by Grant Thornton LLP for
     services rendered in connection with the proposed acquisition of us by
     Sybase.


PRE-APPROVAL POLICIES AND PROCEDURES
------------------------------------

The Audit Committee meets with our independent registered accounting firm to
approve the annual scope of accounting services to be performed, including all
audit, audit-related, and non-audit services, and the related fee estimates. The
Audit Committee also meets with our independent registered accounting firm, on a
quarterly basis, following completion of their quarterly reviews and annual
audit before our earnings announcements, to review the results of their work. As
appropriate, management and our independent registered accounting firm update
the Audit Committee with material changes to any service engagement and related
fee estimates as compared to amounts previously approved.

Under its charter, the Audit Committee has the authority and responsibility to
review and approve, in advance, any audit and proposed permissible non-audit
services to be provided to us by our independent registered public accounting
firm.


















                                       51
<PAGE>

                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

(A)  1. FINANCIAL STATEMENTS

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

     Consolidated financial statements as of June 30, 2005 and 2004 and for each
     of the three years in the period ended June 30, 2005:

Reports of Independent Registered Public Accounting Firms ................    55
Consolidated Balance Sheets...............................................    57
Consolidated Statements of Operations.....................................    58
Consolidated Statements of Comprehensive Income (Loss)....................    59
Consolidated Statements of Stockholders' Equity...........................    60
Consolidated Statements of Cash Flows.....................................    61
Notes to Consolidated Financial Statements................................    62

     2. FINANCIAL STATEMENT SCHEDULE

Schedule II - Valuation and Qualifying Accounts...........................    78

     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. (9)
   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             1998 Directors Stock Option Plan (Restated 10/21/03) (10)
   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          ommercial/Investment Real Estate Purchase and Sale Agreement
                    dated September 3, 2003 between Extended Systems of Idaho,
                    Incorporated and C Hopkins Real Estate Investment #I, LLC.
                    (8)
   10.10.2          ommercial Lease Agreement dated September 26, 3003 between
                    Extended Systems of Idaho, Incorporated and Hopkins Real
                    Estate Investments, LLC. C (8)
   10.10.3          Option Agreement dated September 26, 2003 between Extended
                    Systems of Idaho, Incorporated and Hopkins Real Estate
                    Investments, LLC. (8)
   10.11            Real Estate Purchase Agreement dated September 2, 2003
                    between Extended Systems of Idaho, Incorporated and Brighton
                    Investments, LLC. (9)
   10.20            Form of Change in Control Agreement for U.S. officers
                    including Charles Jepson, Valerie Heusinkveld, Gregory
                    Pappas, Kerrin Pease, Jeffrey Siegel, David Willis and Mark
                    Willnerd. (12)
   10.21            Employment Agreement between the Company and Steven D.
                    Simpson. (1)
   10.22            Employment Agreement between the Company and Raymond A.
                    Smelek. (8)
   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. (8)
   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.
                    (8)
   10.30.2          Amendment to Employment Agreement between the Company and
                    Kerrin Pease. (8)

                                       52
<PAGE>

   10.31.1          Employment Agreement between the Company and Mark A.
                    Willnerd. (8)
   10.31.2          Amendment to Employment Agreement between the Company and
                    Mark A. Willnerd. (8)
   10.32.1          Employment Agreement between the Company and Nigel Doust.
                    (8)
   10.32.2          Amendment to Employment Agreement between the Company and
                    Nigel Doust. (8)
   10.33            Employment Agreement between the Company and Charles W.
                    Jepson. (8)
   10.34            Employment Agreement between the Company and David L. Willis
                    (10)
   10.35            Employment Agreement between the Company and Valerie A.
                    Heusinkveld (10)
   10.36            Employment Agreement between the Company and Jeffrey M.
                    Siegel (12)
   10.50            Separation Agreement between the Company and Donald J.
                    Baumgartner. (8)
   10.51            Separation Agreement between the Company and Bradley J.
                    Surkamer. (8)
   10.52            Separation Agreement between the Company and Fernando
                    Ruarte. (8)
   10.53            Separation Agreement between the Company and Raphael Auphan.
                    (8)
   10.54            Separation Agreement between the Company and Steven D.
                    Simpson. (8)
   10.55            Separation Agreement between the Company and Karla K. Rosa
                    (10)
   10.56            Separation Agreement between the Company and David Willis
                    (13)
   10.57            Separation Agreement between the Company and Kerrin Pease
                    (14)
   10.58            Separation Agreement between the Company and Jeffrey Siegel
                    (15)
   10.70            Settlement and License Agreement dated March 4, 2004 by and
                    between the Company and Intellisync Corporation (11)
   10.80            Agreement and Plan of Merger by and among Sybase, Inc.,
                    Ernst Acquisition Corporation and Extended Systems
                    Incorporated dated as of July 28, 2005 (16)
   10.81            Form of Company Voting Agreement for Directors and Executive
                    Officers (16)
   10.82            Form of Company Voting Agreement for Founders (16)
   10.83            Form of Amendment to Change of Control Employment Agreement
                    (16)
   10.84            Employment Separation and General Release Agreement between
                    the Company and Charles W. Jepson dated as of July 28, 2005
                    (16)
   10.85            Non-Competition Agreement between Charles W. Jepson and
                    Sybase, Inc. dated as of July 28, 2005 (16)
   10.86            Letter of Contingent Employment Offer to Mark A. Willnerd
                    from Sybase, Inc. dated as of July 27, 2005 (16)
   10.87            Amendment to Preferred Stock Rights Agreement dated as of
                    July 28, 2005 (16)
   21.1             List of Subsidiaries.*
   23.1             Consents of Independent Registered Public Accounting Firms.*
   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.*

--------------------
(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.

(8)  Incorporated by reference from our Annual Report on 10-K filed with the
     Securities and Exchange Commission on September 29, 2003.

(9)  Incorporated by reference from our Quarterly Report on Form 10-Q filed with
     the Securities and Exchange Commission on November 14, 2003.

(10) Incorporated by reference from our Quarterly Report on Form 10-Q filed with
     the Securities and Exchange Commission on February 17, 2004.

                                       53
<PAGE>

(11) Incorporated by reference from our Quarterly Report on Form 10-Q filed with
     the Securities and Exchange Commission on May 17, 2004.

(12) Incorporated by reference from our Annual Report on 10-K filed with the
     Securities and Exchange Commission on September 29, 2004.

(13) Incorporated by reference from our Quarterly Report on Form 10-Q filed with
     the Securities and Exchange Commission on November 15, 2004.

(14) Incorporated by reference from our Quarterly Report on Form 10-Q filed with
     the Securities and Exchange Commission on February 14, 2005.

(15) Incorporated by reference from our Quarterly Report on Form 10-Q filed with
     the Securities and Exchange Commission on May 16, 2005.

(16) Incorporated by reference from our Current Report on Form 8-K filed with
     the Securities and Exchange Commission August 1, 2005.

* Filed herewith.






















                                       54
<PAGE>

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders of Extended Systems Incorporated

We have audited the accompanying consolidated balance sheet of Extended Systems
Incorporated and subsidiaries as of June 30, 2005 and the related consolidated
statement of operations, stockholders' equity, comprehensive income, and cash
flow for the year ended June 30, 2005. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also 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, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Extended Systems Incorporated and subsidiaries as of June 30, 2005 and the
consolidated results of their operations and their consolidated cash flows for
the year then ended, in conformity with accounting principles generally accepted
in the United States of America.

We have also audited Schedule II of Extended Systems Incorporated for the year
ended June 30, 2005. In our opinion, this schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information therein.


/s/ Grant Thornton LLP

Salt Lake City, Utah
September 30, 2005


                                       55
<PAGE>

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Extended Systems Incorporated

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, changes in owner's net
investment/stockholders' equity and cash flows present fairly, in all material
respects, the financial position of Extended Systems Incorporated and its
subsidiaries at June 30, 2004, and the results of their operations and their
cash flows for each of the two years in the period ended June 30, 2004 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 15(a)(2) on page 78 presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
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
September 29, 2004












                                       56
<PAGE>
EXTENDED SYSTEMS INCORPORATED

CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
<TABLE><CAPTION>
                                                                               JUNE 30,        JUNE 30,
                                                                                 2005            2004
                                                                             ------------    ------------
<S>                                                                          <C>             <C>
ASSETS
Current:
     Cash and cash equivalents ...........................................   $     13,617    $      7,225
     Receivables, net of allowances of $549 and $425 .....................          7,058           6,772
     Prepaid and other ...................................................          1,620           1,449
                                                                             ------------    ------------
         Total current assets ............................................         22,295          15,446

Non-Current:
     Property and equipment, net .........................................          4,703           4,331
     Construction in progress ............................................             12             384
     Goodwill ............................................................         12,489          12,489
     Intangibles, net ....................................................            373             576
     Other long-term assets ..............................................            114             130
                                                                             ------------    ------------
         Total non-current assets ........................................         17,691          17,910
                                                                             ------------    ------------
     Total assets ........................................................   $     39,986    $     33,356
                                                                             ============    ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current:
     Accounts payable ....................................................   $      1,835    $      1,639
     Accrued expenses ....................................................          5,346           3,556
     Deferred revenue ....................................................          3,543           3,569
     Accrued restructuring ...............................................             --             116
     Note payable ........................................................            579              --
     Current portion of long-term debt ...................................             --             325
     Current portion of capital leases ...................................             11              25
                                                                             ------------    ------------
         Total current liabilities .......................................         11,314           9,230
Non-current:
     Long-term debt ......................................................          4,800           4,800
     Capital leases ......................................................              7              17
     Other long-term liabilities .........................................             92             153
                                                                             ------------    ------------
         Total non-current liabilities ...................................          4,899           4,970
                                                                             ------------    ------------
     Total liabilities ...................................................         16,213          14,200

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;
         15,623 and 15,078 shares issued and outstanding .................             16              15
     Additional paid-in capital ..........................................         49,501          48,005
     Treasury stock; $0.001 par value per share; 4 and 0 common shares ...             --              --
     Accumulated deficit .................................................        (23,175)        (27,134)
     Unamortized stock-based compensation ................................            (63)           (231)
     Accumulated other comprehensive loss ................................         (2,506)         (1,499)
                                                                             ------------    ------------
         Total stockholders' equity ......................................         23,773          19,156
                                                                             ------------    ------------
         Total liabilities and stockholders' equity ......................   $     39,986    $     33,356
                                                                             ============    ============
</TABLE>

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

                                       57
<PAGE>
EXTENDED SYSTEMS INCORPORATED

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)

<TABLE><CAPTION>
                                                                                     FOR THE YEARS ENDED JUNE 30,
                                                                             --------------------------------------------
                                                                                 2005            2004            2003
                                                                             ------------    ------------    ------------
<S>                                                                          <C>             <C>             <C>
Revenue:
     License fees and royalties ..........................................   $     31,148    $     25,028    $     21,733
     Services and other ..................................................          8,925           7,158           5,801
                                                                             ------------    ------------    ------------
         Total net revenue ...............................................         40,073          32,186          27,534
Costs and expenses:
     Cost of license fees and royalties ..................................            470             382             420
     Cost of services and other ..........................................          4,260           4,059           4,166
     Amortization of identifiable intangibles ............................            204             621             726
     Research and development ............................................          7,858           6,858           7,317
     Acquired in-process research and development ........................             --              --             430
     Marketing and sales .................................................         15,096          13,391          12,783
     General and administrative ..........................................          6,480           5,312           4,223
     Restructuring charges ...............................................             --           1,446             597
     Patent litigation fees, license and settlement ......................             --           3,425           1,240
     Non-cash stock-based compensation ...................................            515             490              --
                                                                             ------------    ------------    ------------
         Total costs and expenses ........................................         34,883          35,984          31,902
                                                                             ------------    ------------    ------------
         Income (loss) from operations ...................................          5,190          (3,798)         (4,368)
     Other income (expense), net .........................................           (341)            (51)            257
     Gain on sale of land ................................................             --           1,058              --
     Interest expense ....................................................           (511)           (453)           (307)
                                                                             ------------    ------------    ------------
         Income (loss) before income taxes ...............................          4,338          (3,244)         (4,418)
     Income tax provision (benefit) ......................................            379              94            (200)
                                                                             ------------    ------------    ------------
         Income (loss) from continuing operations ........................          3,959          (3,338)         (4,218)
     Discontinued operations, net of tax:
         Income from discontinued operations .............................             --              88             458
                                                                             ------------    ------------    ------------
         Net income (loss) ...............................................   $      3,959    $     (3,250)   $     (3,760)
                                                                             ============    ============    ============

     Basic earnings (loss) per share:
         Earnings (loss) from continuing operations ......................   $       0.26    $      (0.23)   $      (0.31)
         Earnings from discontinued operations ...........................             --              --            0.03
                                                                             ------------    ------------    ------------
     Net earnings (loss) per share .......................................   $       0.26    $      (0.23)   $      (0.28)
                                                                             ============    ============    ============

     Diluted earnings (loss) per share:
         Earnings (loss) from continuing operations ......................   $       0.25    $      (0.23)   $      (0.31)
         Earnings from discontinued operations ...........................             --              --            0.03
                                                                             ------------    ------------    ------------
     Net earnings (loss) per share .......................................   $       0.25    $      (0.23)   $      (0.28)
                                                                             ============    ============    ============

     Number of shares used in per share calculations:
         Basic ...........................................................         15,313          14,370          13,376
         Diluted .........................................................         15,546          14,370          13,376
</TABLE>

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

                                       58
<PAGE>
EXTENDED SYSTEMS INCORPORATED

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)


<TABLE><CAPTION>
                                                                                     FOR THE YEARS ENDED JUNE 30,
                                                                             --------------------------------------------
                                                                                 2005            2004            2003
                                                                             ------------    ------------    ------------
<S>                                                                          <C>             <C>             <C>
     Net income (loss)....................................................   $      3,959    $     (3,250)   $     (3,760)
     Change in currency translation.......................................         (1,007)           (144)           (503)
                                                                             ------------    ------------    ------------
         Comprehensive income (loss)......................................   $      2,952    $     (3,394)   $     (4,263)
                                                                             ============    ============    ============
</TABLE>



























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

                                       59
<PAGE>
EXTENDED SYSTEMS INCORPORATED

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)

<TABLE><CAPTION>
                                                                                                        ACCUMULATED
                                            COMMON STOCK     ADDITIONAL                 UNAMORTIZED        OTHER           TOTAL
                                           ---------------     PAID-IN    ACCUMULATED   STOCK-BASED    COMPREHENSIVE   STOCKHOLDERS'
                                           SHARES   AMOUNT     CAPITAL      DEFICIT     COMPENSATION       LOSS           EQUITY
                                           ----------------------------------------------------------------------------------------
<S>                                        <C>      <C>      <C>          <C>           <C>            <C>             <C>
Balance at July 1, 2002 .................. 11,208   $   11   $   34,053   $   (20,124)  $         --   $        (852)  $     13,088
Net Income (loss) ........................     --       --           --        (3,760)            --              --         (3,760)
Translation adjustment ...................     --       --           --            --             --            (503)          (503)
Notes issued/payments received ...........     --       --          158            --             --              --            158
Stock issued in business combinations ....  2,550        3        9,894            --             --              --          9,897
Stock issued from stock option exercises
   and ESPP purchases ....................    219       --          376            --             --              --            376
                                           ----------------------------------------------------------------------------------------
Balance at June 30, 2003 ................. 13,977       14       44,481       (23,884)            --          (1,355)        19,256

Net Income (loss) ........................     --       --           --        (3,250)            --              --         (3,250)
Translation adjustment ...................     --       --           --            --             --            (144)          (144)
Notes issued/payments received ...........     --       --           19            --             --              --             19
Stock issued from stock option exercises
   and ESPP purchases ....................    928        1        2,228            --             --              --          2,229
Compensatory options .....................     --       --          598            --             --              --            598
Restricted stock grants ..................    173       --          777            --           (764)             --             13
Restricted stock amortization ............     --       --           --            --            460              --            460
Restricted stock repurchase ..............     --       --          (98)           --             73              --            (25)
                                           ----------------------------------------------------------------------------------------
Balance at June 30, 2004 ................. 15,078       15       48,005       (27,134)          (231)         (1,499)        19,156

Net Income (loss) ........................     --       --           --         3,959             --              --          3,959
Translation adjustment ...................     --       --           --            --             --          (1,007)        (1,007)
Stock issued from stock option exercises..    493        1        1,148            --             --              --          1,149
Compensatory options .....................     --       --          214            --             --              --            214
Restricted stock grants ..................     56       --          152            --           (152)             --             --
Restricted stock amortization ............     --       --           --            --            301              --            301
Restricted stock repurchase ..............     (4)      --          (18)           --             19              --              1
                                           ----------------------------------------------------------------------------------------
Balance at June 30, 2005 ................. 15,623   $   16     $ 49,501   $   (23,175)  $        (63)  $      (2,506)  $     23,773
                                           ========================================================================================
</TABLE>
                   The accompanying notes are an integral part
                   of these consolidated financial statements

                                       60
<PAGE>
EXTENDED SYSTEMS INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)


<TABLE><CAPTION>
                                                                               FOR THE YEARS ENDED JUNE 30,
                                                                       --------------------------------------------
                                                                           2005            2004            2003
                                                                       ------------    ------------    ------------
<S>                                                                    <C>             <C>             <C>
Cash flows from operating activities:
     Net income (loss) .............................................   $      3,959    $     (3,250)   $     (3,760)
     Adjustments to reconcile net income (loss) to net cash
     provided (used) by operating activities:
         Provision for bad debts ...................................            180             166              85
         Provision for (benefit from) obsolete inventory ...........             --             (80)             86
         Depreciation and amortization .............................            765           1,516           1,905
         Stock-based compensation ..................................            515           1,046             250
         Acquired in-process research and development ..............             --              --             430
         Post-retirement benefits ..................................            (61)             --              --
         Gain on sale of property and equipment ....................             --          (1,001)             --
         Changes in assets and liabilities:
             Receivables ...........................................           (510)           (841)             33
             Prepaid and other assets ..............................           (165)           (444)           (386)
             Accounts payable and accrued expenses .................          1,165          (1,275)         (2,032)
             Deferred revenue ......................................             65             572             226
                                                                       ------------    ------------    ------------
     Net cash provided (used) by operating activities ..............          5,913          (3,591)         (3,163)

CASH FLOWS FROM INVESTING ACTIVITIES:
     Capital expenditures ..........................................           (563)           (859)            (46)
     Proceeds from sale of property and equipment ..................             --           1,564              15
     Acquisitions:
         ViaFone, net of cash acquired .............................             --              --           1,119
     Other investing activities ....................................             --              19             160
                                                                       ------------    ------------    ------------
     Net cash provided (used) by investing activities ..............           (563)            724           1,248

CASH FLOWS FROM FINANCING ACTIVITIES:
     Proceeds from sale-and-leaseback of building ..................             --           4,800              --
     Proceeds from the issuance of common stock ....................          1,149           2,229             376
     Proceeds from short-term debt .................................            579              --              --
     Payments on long-term debt and capital leases .................           (349)           (456)           (499)
                                                                       ------------    ------------    ------------
     Net cash provided (used) by financing activities ..............          1,379           6,573            (123)

Effect of exchange rates on cash ...................................           (337)             17             101
                                                                       ------------    ------------    ------------
Net increase (decrease) in cash and cash equivalents ...............          6,392           3,723          (1,937)

CASH AND CASH EQUIVALENTS:
     Beginning of year .............................................          7,225           3,502           5,439
                                                                       ------------    ------------    ------------
     End of year ...................................................   $     13,617    $      7,225    $      3,502
                                                                       ============    ============    ============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
     Interest paid .................................................   $        474    $        393    $         91
     Income taxes paid, net ........................................   $        185    $        105    $         26
     Stock issued in business combinations .........................   $         --    $         --    $      9,894
</TABLE>

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

                                       61
<PAGE>
EXTENDED SYSTEMS INCORPORATED

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

NOTE 1. BASIS OF PRESENTATION

The accompanying consolidated financial statements include Extended Systems
Incorporated ("we", "us", "our"), a Delaware corporation, and its subsidiaries.
All significant intercompany accounts and transactions have been eliminated in
consolidation. Tabular amounts are in thousands, except years, percentages and
per share amounts.

The preparation of financial statements in conformity with U.S. generally
accepted accounting principles (GAAP) 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.
Significant estimates include those relating to revenue recognition, income
taxes, intangible assets, our allowance for doubtful accounts, restructuring,
business combinations, litigation and other contingencies. Our actual results
could differ from those estimates.

We have a history of incurring losses from operations and have an accumulated
deficit of approximately $23.2 million as of June 30, 2005. However, for the
fiscal year ended June 30, 2005, we recorded income from operations of
approximately $5.2 million and operating activities provided $5.9 million of
cash. At June 30, 2005, we had cash and cash equivalents of $13.6 million.

We believe our existing cash and cash equivalents and borrowing capacity will be
sufficient to fund our anticipated working capital and capital expenditure
requirements through at least June 30, 2006. We cannot be certain, however, that
the underlying assumed levels of revenues and expenses will be achieved. If
operating results were to fail to meet our 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

REVENUE RECOGNITION. We apply the provisions of Statement of Position 97-2,
SOFTWARE REVENUE RECOGNITION (SOP 97-2), as amended by SOP 98-9, and recognize
software 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.

We assess whether the fee associated with a transaction is fixed or determinable
at the time of the transaction, based on the payment terms associated with the
transaction. If payment terms are extended for a significant portion of the fee
or if there is a risk that the customer will expect a concession, we do not
consider the fee fixed or determinable. In these cases, we recognize revenue as
the fee becomes due and payable. If we were to assess the fixed or determinable
criterion differently, the timing and amount of our revenue recognition might
differ 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 were to assess our ability to collect
differently, the timing and amount of our revenue recognition might differ
materially from that reported.

For arrangements with multiple obligations (for instance, license, service and
maintenance and support), we allocate revenue to each component of the
arrangement based on fair value and 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 us. For example,
the vendor-specific objective evidence of fair value for maintenance and support
is based upon separate sales of renewals to other customers 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 had 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, patches, bug
fixes and other modifications to ensure that the products comply with their
warranty provisions. Accordingly, we allow for warranty costs for these products
at the time the product revenue is recognized.

When a contractual relationship with one of our customers stipulates the
submission of a royalty report to us, revenue is generally recorded when the
royalty report is received and recognized in the period that the report covers.
If a royalty report is not received by the desired date to facilitate the
closing of the books for a given fiscal period and there exists the basis to
make a fair and reasonable estimate of the revenue related to that royalty
report, this estimate will be recorded as revenue. Estimated royalty fees and
revenues are subsequently adjusted based upon actual amounts realized. If the
actual amount realized differs materially from

                                       62
<PAGE>
the recorded estimate and is reported to us after an estimate has been recorded
and before financial results are announced externally, the recorded amount will
be adjusted to reflect the actual amount realized. If the amount differs and is
reported after financial results are announced externally and does not differ
materially, the adjustment will be made in the subsequent fiscal period. In
cases where the arrangement with our customer provides for a prepaid
nonrefundable royalty, we recognize revenue when persuasive evidence of an
arrangement exists, 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 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. We recognize no
more than 90% of the total contract amount until project acceptance is obtained.
In cases where our professional services involve customizations for which the
amount of customization effort cannot be reasonably estimated, or where
significant uncertainty about the project completion or customer acceptance
exists, we defer the contract revenue under the completed contract method of
accounting until the uncertainty is sufficiently resolved or the contract is
complete and accepted by the customer. If we were to make different judgments or
use 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 gross profit margins, might differ materially
from that reported.

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. Also included in comprehensive income
or loss are adjustments that result from the translation of U.S. dollar
denominated intercompany loans that are considered to be permanent in nature. We
translate revenue and expenses into U.S. dollars using a weighted average
exchange rate for the period.

From time to time, we enter into foreign currency forward contracts, typically
with respect to the euro, Canadian dollar and British pound sterling to manage
fluctuations in the value of foreign currencies on transactions with our
international subsidiaries, thereby limiting the risk that would otherwise
result from changes in currency exchange rates. Although 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 Statement of
Financial Accounting Standards ("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. We had
no forward contracts in place as of June 30, 2005. As of June 30, 2004, we had
forward contracts with a nominal value of $10.8 million in place against the
Canadian dollar, euro and British pound sterling, which matured within 30 days.
We recognized net currency exchange losses of approximately $616,000 and
$206,000 for the fiscal years ended June 30, 2005 and 2004, respectively, and a
net currency exchange gain of approximately $261,000 for the fiscal year ended
June 30, 2003.

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 stock options and warrants that could potentially dilute
earnings per share. We exclude stock options and warrants from diluted earnings
or loss per share to the extent that their effect on the computation is
antidilutive.  The following shows the computation of basic and diluted earnings
(loss) per share at June 30:
<TABLE><CAPTION>
                                                              -----------------------------------------
                                                                 2005           2004            2003
                                                              -----------------------------------------
<S>                                                           <C>              <C>               <C>
Net income (loss) ..........................................  $    3,959     $   (3,250)     $   (3,760)

Shares used in computing basic earnings (loss) per share....      15,313         14,370          13,376
Effect of dilutive securities - stock options ..............         233             --              --
                                                              ----------     ----------      ----------
Shares used in computing diluted earnings (loss) per share..      15,546         14,370          13,376

Basic earnings (loss) per share ............................  $     0.26     $    (0.23)     $    (0.28)
Diluted earnings (loss) per share ..........................  $     0.25     $    (0.23)     $    (0.28)
</TABLE>


Our diluted earnings or loss per share computations exclude the following common
stock equivalents, as the affect of their inclusion would have been antidilutive
for the following periods:
<TABLE><CAPTION>
                                                              -----------------------------------------
                                                                 2005           2004            2003
                                                              -----------------------------------------
<S>                                                           <C>              <C>               <C>
Stock options...............................................       2,192          3,214           3,269
Warrants....................................................          35             35              35
</TABLE>


RECLASSIFICATIONS. We have reclassified certain prior year amounts to conform to
the current year presentation, including a reclassification between components
of income (loss) from operations, between components of current assets and
between components of current liabilities. These reclassifications had no impact
on net income (loss), income (loss) from operations, total costs and expenses,
total current assets or total current liabilities for the periods presented.

SOFTWARE DEVELOPMENT COSTS. Under SFAS 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 short in duration and therefore, no costs have
been capitalized.

ADVERTISING COSTS. We expense advertising costs as incurred. Our advertising
costs were approximately $700,000 in fiscal 2005, $1.3 million in fiscal 2004
and $1.0 million in fiscal 2003.

                                       63
<PAGE>
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 SFAS No. 107, "Disclosures about Fair Value of Financial
Instruments." We based the fair value estimates on market information available
to us as of June 30, 2005 and June 30, 2004. 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
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. 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 $560,000 in fiscal 2005,
$893,000 in fiscal 2004 and $1.2 million in fiscal 2003. 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. At June 30, 2005 and 2004, the cost of assets acquired under capital
leases had been fully depreciated.

VALUATION OF LONG-LIVED AND INTANGIBLE ASSETS. We assess the impairment of
identifiable intangibles, property and equipment 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. 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. No
assets were considered impaired at June 30, 2005, 2004 or 2003.

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 future costs. Warranty costs are reflected in our statement of
operations as a cost of services.

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, 2005 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.

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.

RESTRUCTURING. We report costs associated with employee terminations and other
exit activity in accordance with SFAS No. 112, "Employers' Accounting for
Postemployment Benefits - an amendment of FASB Statements No. 5 and 43," and
SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities." We record employee termination benefits as an operating expense
when the benefit arrangement is communicated to the employee and no significant
future services are required. We recognize facility lease termination
obligations, net of estimated sublease income, and other exit costs when we have
future payments with no future economic benefit or a commitment to pay the
termination costs of a prior commitment. These termination and other exit costs
are reported at fair value.

BUSINESS COMBINATIONS AND ACQUIRED INTANGIBLE ASSETS. We account for purchases
of acquired companies in accordance with SFAS No. 141, "Business Combinations,"
and account for the related acquired intangible assets in accordance with SFAS
No. 142, "Goodwill and Other Intangible Assets." In accordance with SFAS No.
141, we allocate the cost of the acquired companies to the identifiable tangible
and intangible assets acquired and liabilities assumed, with the remaining
amount being classified as goodwill. Certain intangible assets, such as
"developed technologies," are amortized to expense over time, while in-process

                                       64
<PAGE>

research and development costs ("IPR&D"), if any, are immediately expensed in
the period the acquisition is completed. Identifiable intangible assets are
currently amortized over a five-year period using the straight-line method.

RECENTLY ISSUED ACCOUNTING STANDARDS. On December 16, 2004, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 123(R), "Share-Based
Payment." SFAS No. 123(R) requires companies to measure all stock-based
compensation awards using a fair value method and record such expense in their
consolidated financial statements. In addition, the adoption of SFAS No. 123(R)
will require additional accounting related to the income tax effects and
additional disclosure regarding the cash flow effects resulting from share-based
payment arrangements. 123(R) is effective beginning the first quarter of our
fiscal year ending June 30, 2006.

SFAS No. 123(R) provides for adoption using one of two methods: (1) a "modified
prospective" method in which compensation cost is recognized beginning on the
effective date based on the requirements of SFAS No. 123(R) for all stock-based
payments granted after the effective date and based on SFAS No. 123 for all
awards granted to employees prior to the effective date that remain unvested on
the effective date or (2) a "modified retrospective" method that includes the
requirements of the modified prospective method, but also permits entities to
restate all periods presented or prior interim periods of the year of adoption
based on the amounts previously recognized under SFAS 123 for purposes of pro
forma disclosures. We will adopt the provisions of SFAS No. 123(R) using the
"modified prospective" method.

Our current policy is to account for stock-based compensation under the
intrinsic value method; however, we disclose the effect of this item as
currently required by SFAS No. 123, see Note 3 - Stock-Based Compensation. We
expect that the requirement to expense stock options and other equity interests
that have been or will be granted to employees will significantly increase our
operating expenses and result in lower earnings per share but we do not expect
the requirement to have a significant impact on our financial position or
liquidity.

NOTE 3.  STOCK-BASED COMPENSATION

We apply Accounting Principles Board Opinion No. 25 ("APB No. 25"), "Accounting
for Stock Issued to Employees" and its related interpretations to measure
compensation expense for stock-based compensation plans. Because we usually make
these grants and issues at prices equal to the current fair value of the
underlying stock, under APB No. 25, we generally recognize no compensation
expense with respect to stock option grants and shares issued under our employee
stock purchase plan before termination. We will adopt SFAS No. 123(R) effective
with our fiscal year beginning July 1, 2005. Our stock option plans allow for
the issuance of restricted stock awards, under which shares of our common stock
are issued at par value to employees or directors, subject to vesting
restrictions, and for which compensation expense equal to the fair market value
of the stock on the date of grant less par value paid is amortized over the
vesting period.

Had we elected to recognize stock-based employee compensation expense based on
the grant date fair value as prescribed by SFAS No. 123, our net income (loss)
would have been equal to the pro forma amounts indicated below for the years
ended June 30:
<TABLE><CAPTION>
                                                                         2005         2004         2003
                                                                      ------------------------------------
<S>                                                                   <C>          <C>          <C>
Net income (loss), as reported....................................... $    3,959   $   (3,250)  $   (3,760)
Add:  Stock-based compensation included in reported
      net income (loss)...(1)........................................        516        1,046           --
Less: Stock-based compensation determined under SFAS No. 123 (2).....     (4,982)      (5,600)      (5,652)
                                                                      ----------   ----------   ----------
Pro forma net income (loss)                                           $     (507)  $   (7,804)  $   (9,412)
                                                                      ==========   ==========   ==========


Basic earnings (loss) per share:
     As reported..................................................... $     0.26   $    (0.23)  $    (0.28)
     Pro forma....................................................... $    (0.03)  $    (0.54)  $    (0.70)

Diluted earnings (loss) per share:
     As reported..................................................... $     0.25   $    (0.23)  $    (0.28)
     Pro forma....................................................... $    (0.03)  $    (0.54)  $    (0.70)
</TABLE>

(1)  For fiscal 2004, this amount includes $490,000 of non-cash stock-based
     compensation expense related to the amortization of restricted stock and a
     change in the terms of our 1998 Director Option Plan and $556,000 of
     restructuring charges related to the accelerated vesting of employee stock
     options and restricted stock.

(2)  For fiscal 2005, this amount includes approximately $2.0 million of expense
     for the fourth quarter of fiscal 2005 related to the acceleration of
     vesting of employee stock options with an exercise price greater than $4.82
     on June 30, 2005.


We estimated the fair value of shares and options issued pursuant to our
stock-based compensation plans at the date of grant using the Black-Scholes
option-pricing model, which was developed for use in estimating the fair value
of traded options that have no vesting restrictions and are fully transferable.
Option valuation models require the input of assumptions, including the expected

                                       65
<PAGE>

stock price volatility. Our options have characteristics significantly different
from those of traded options, and changes in the input assumptions can
materially affect the fair value estimates. The following weighted-average
assumptions and weighted-average fair values were used in determining our
stock-based compensation under SFAS No. 123 for the options granted during the
fiscal years ended June 30:
<TABLE><CAPTION>
                                                2005             2004             2003
                                           --------------   --------------   --------------
<S>                                        <C>              <C>              <C>
Risk-free interest rate:
     Option plans.......................   3.88% to 4.13%   3.75% to 4.51%        4.60%
     Purchase plan......................         N/A        3.84% to 4.42%        3.30%

Expected life in years:
     Option plans.......................       7.1-7.6        7.7 to 7.6           7.6
     Purchase plan......................         N/A          0.5 to 1.4           0.5

Volatility factor:
     Option plans.......................   96.2% to 99.1%   101.4% to 103.1%     103.0%
     Purchase plan......................         N/A          -- % to 103.1%     103.0%

Dividend yield..........................         -- %         -- %                 -- %

Weighted average fair value:
     Option plans.......................        $2.55            $3.61            $2.37
     Purchase plan......................         N/A             $1.17            $0.83
</TABLE>


NOTE 4. DISCONTINUED OPERATIONS

We exited our infrared hardware business in the quarter ended September 30, 2002
and we sold our wholly owned subsidiary, Extended Systems Singapore Pte Limited,
in the quarter ended June 30, 2002. The results of these operations have been
accounted for as discontinued operations for all periods presented in accordance
with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets," and Accounting Principles Board Opinion No. 30, "Reporting the Results
of Operations--Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual, and Infrequently Occurring Events and Transactions."
Operating results for discontinued operations are reported, net of tax, under
"Income from discontinued operations" on our Statements of Operations.

The following summarizes the results of discontinued operations for the fiscal
years ended June 30:

                                              2005         2004         2003
                                           ------------------------------------
Net revenue.............................   $       --   $      169   $    1,488
Gross profit............................   $       --   $      145   $      696
Income tax provision....................   $       --   $       52   $      273
Income, net of tax......................   $       --   $       88   $      458

Earnings per share:
     Basic and diluted..................   $       --   $       --   $     0.03



NOTE 5. RESTRUCTURING CHARGES

We did not incur restructuring charges in fiscal 2005. We recorded $1.4 million
in workforce reduction costs during fiscal 2004. The restructuring charges
consist of $791,000 of severance, benefits, and other costs related to the
resignation of our former President and Chief Executive Officer, and $162,000 of
severance, benefits and other costs related to the resignation of our former
Chief Financial Officer. Additionally, we recorded $498,000 of expenses for the
termination of 18 employees from our marketing and sales, research and
development, human resources, administration and operations groups. Of the
terminated employees, 14 were located in the United States and 4 were in Europe.
The restructuring charge includes $554,000 of non-cash compensation resulting
from the accelerated vesting of employee stock options that is not included in
the table below.

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 whom 24 were located in the United States, 3 in Canada
and 4 in Europe. 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

                                       66
<PAGE>

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, 2005, all restructuring charges have been paid or reversed. A
summary of the restructuring costs payable for fiscal 2005, 2004 and 2003 is
outlined below:
<TABLE><CAPTION>
                                                                   WORKFORCE   FACILITIES
                                                                   REDUCTION    AND OTHER
                                                                     COSTS        COSTS        TOTAL
                                                                   ---------   ----------   ----------
<S>                                                                <C>         <C>          <C>
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
Restructuring charges incurred in fiscal 2004..................          897           --          897
Other adjustments..............................................          (13)(A)     (340)(B)     (353)
Cash payments..................................................          956)        (194)      (1,150)
                                                                   ---------   ----------   ----------
Balance at June 30, 2004.......................................          116           --          116
Cash payments..................................................         (116)                     (116)
                                                                   ---------   ----------   ----------
Balance at June 30, 2005.......................................    $      --   $       --   $       --
                                                                   =========   ==========   ==========
</TABLE>
(A)  An adjustment was made to the accrual for workforce reduction costs to
     account for amounts paid to certain former employees who were paid amounts
     less than originally provided.
(B)  As a result of the Brisbane, CA lease termination during the second quarter
     of fiscal 2004, the balance of restructuring charges related to this lease
     as of October 31, 2003 was reversed.

NOTE 6. GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS

Goodwill and other identifiable intangible assets relate to our acquisitions of
Rand Software Corporation in 1998, Oval (1415) Limited in 1999, and AppReach and
ViaFone Inc. in 2002.

Goodwill is reviewed annually for impairment or more frequently if indicators of
impairment arise. We completed our annual impairment assessment in the quarter
ended June 30, 2005 and concluded that goodwill was not impaired. The carrying
amount of goodwill as of June 30, 2005 and 2004 was approximately $12.5 million.

Other identifiable intangible assets consist of the following:
<TABLE><CAPTION>
                                             AS OF JUNE 30, 2005                 AS OF JUNE 30, 2004
                                      --------------------------------    --------------------------------
                                       GROSS                               GROSS
                                      CARRYING  ACCUMULATED               CARRYING  ACCUMULATED
                                       AMOUNT   AMORTIZATION     NET       AMOUNT   AMORTIZATION     NET
                                      --------    --------    --------    --------    --------    --------
<S>                                   <C>         <C>         <C>         <C>         <C>         <C>
Purchased technology ..............   $  3,691    $ (3,353)   $    338    $  3,691    $ (3,165)   $    526
Customer relationships.............         80         (45)         35          80         (30)         50
Non-compete covenants .............          6          (6)         --           6          (6)         --
Other .............................          5          (5)         --           5          (5)         --
                                      --------    --------    --------    --------    --------    --------
                                      $  3,782    $ (3,409)   $    373    $  3,782    $ (3,206)   $    576
                                      ========    ========    ========    ========    ========    ========
</TABLE>

Amortization of identifiable intangible assets was $204,000, $621,000 and
$726,000 for the years ended June 30, 2005, 2004 and 2003, respectively. The
purchased technology and customer relationship assets are being amortized over
five years. Based on the identified intangible assets recorded at June 30, 2005,
the estimated future amortization expense for fiscal years 2006, 2007 and 2008
is $172,000, $172,000 and $29,000, respectively.

                                       67
<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 expected to benefit from the licensing of ViaFone's software
technology and from the addition of an experienced professional services
organization. We also expected 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 our common stock (2,550,000 shares issued based on the average
stock price for the five trading days surrounding May 28, 2002) and $700,000 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 our 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 our 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 of
     fiscal 2003, a net adjustment of $346,000 in the third quarter of fiscal
     2003 and a net adjustment of $17,000 in the fourth quarter of fiscal 2003
     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 and, $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
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, 2005, 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 fiscal year 2003 include the operations of ViaFone
from August 31, 2002. The following unaudited pro forma consolidated results of
continuing operations for fiscal 2003 assume the ViaFone acquisition occurred at
the beginning of fiscal 2003:

                                       68
<PAGE>

Net revenue from continuing operations.............................   $ 27,884
Loss from continuing operations....................................   $ (7,498)
Loss per share from continuing operations, basic and diluted.......   $  (0.56)

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 2003, nor is it indicative of
results of operations for any future period.

NOTE 8. RECEIVABLES

                                          AS OF JUNE 30,     AS OF JUNE 30,
                                               2005               2004
                                           -------------------------------
Accounts receivable.....................   $      7,607              7,197
Allowance for doubtful accounts.........           (549)              (425)
                                           ------------       ------------
                                           $      7,058       $      6,772
                                           ============       ============


NOTE 9. PROPERTY AND EQUIPMENT

                                          AS OF JUNE 30,     AS OF JUNE 30,
                                               2005               2004
                                           -------------------------------
Land and land improvements..............   $        533       $        533
Buildings...............................          5,927              5,927
Computer equipment......................          4,961              4,480
Furniture and fixtures..................          1,772              1,835
                                           ------------       ------------
                                                 13,193             12,775
Less accumulated depreciation...........         (8,490)            (8,444)
                                           ------------       ------------
                                           $      4,703       $      4,331
                                           ============       ============


NOTE 10. ACCRUED EXPENSES

                                          AS OF JUNE 30,     AS OF JUNE 30,
                                               2005               2004
                                           -------------------------------
Accrued payroll and related benefits....   $      1,741       $      1,036
Accrued third-party commissions.........          1,594                587
Other accrued expenses..................          2,011              1,933
                                           ------------       ------------
                                           $      5,346       $      3,556
                                           ============       ============


NOTE 11. COMMITMENTS AND CONTINGENCIES

LEASE AND DEBT OBLIGATIONS. We currently lease office space at our locations in
Boise, Idaho; Herrenberg, Germany; Toronto, Canada; Corvallis, Oregon; Paris,
France; Bristol, England; San Diego, California; American Fork, Utah; and
`s-Hertogenbosch, the Netherlands. We also lease certain equipment under
non-cancelable operating and capital leases. Lease expense under operating lease
agreements was $656,000, $578,000 and $894,000 for the fiscal years ended June
30, 2005, 2004 and 2003, respectively.

In September 2003, we completed a transaction with Hopkins Financial Services
for the sale-and-leaseback of our headquarters building and land in Boise,
Idaho. Because we have a 10-year option to repurchase the building and land at
any time before September 2013 at a price of $5.1 million and we sublet more
than a small portion of the building space, the sale-and-leaseback was recorded
as a financing transaction. The gross proceeds we received of $4.8 million are
shown as long-term debt on our balance sheet at June 30, 2005. 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, or approximately $442,000, which
are recorded as interest expense. 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.

In June 2005 we entered into a loan agreement with Cananwill, Inc. to finance
$579,000 of our premium for directors and officers insurance for the policy
period ending in May 2006. The agreement provides for 11 equal monthly payments
including interest of 5.25%.

Upon completion of our acquisition of ViaFone in August 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%. As
of June 30, 2005, this term loan had been fully repaid.

Our minimum future contractual commitments associated with our operational
indebtedness and lease obligations as of June 30, 2005 are as follows:

                                       69
<PAGE>
<TABLE><CAPTION>
                                                                 YEARS ENDING JUNE 30,
                                     --------------------------------------------------------------------------
                                       2006       2007       2008       2009       2010    THEREAFTER   TOTAL
                                     --------------------------------------------------------------------------
<S>                                  <C>        <C>        <C>        <C>        <C>        <C>        <C>
Payments pursuant to building
  sale-and-leaseback ..............  $    442   $    442   $    442   $    442   $    442   $  1,435   $  3,645
Note payable (1)...................       579         --         --         --         --         --        579
Capital leases (1) ................        11          7         --         --         --         --         18
Operating leases ..................       565        445        333        283         94        114      1,834
Post-retirement benefits (1) (2)...        12         12         12         12          7         49        104
                                     --------------------------------------------------------------------------
                                     $  1,609   $    906   $    787   $    737   $    543   $  1,598   $  6,180
                                     ==========================================================================
</TABLE>

(1)  These amounts are reported on the balance sheet as liabilities.
(2)  Fiscal 2006 includes $12,000 of current commitments included in accrued
     expenses on the balance sheet.


Capital lease obligations are as follows:
<TABLE><CAPTION>
                                                                            AS OF
                                                                        JUNE 30, 2005
                                                                        -------------
<S>                                                                     <C>
Gross capital lease obligations......................................   $          20
Less:  Imputed interest..............................................              (2)
                                                                        -------------
Present value of net minimum lease payments..........................              18
Less:  Current portion...............................................             (11)
                                                                        -------------
Non-current capital lease obligations................................   $           7
                                                                        =============
</TABLE>
INDEMNIFICATIONS. The software license agreements we enter into in our ordinary
course of business contain indemnification provisions for losses suffered or
incurred by the indemnified party in connection with any U.S. patent, copyright
or other intellectual property infringement claim by third parties with respect
to our products. The term of our indemnification obligations 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. To date, we have not incurred costs to
defend lawsuits or settle claims related to these indemnification agreements.

As permitted under Delaware law, we have agreements to 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 may enable 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, under which we agree to indemnify the 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 is unlimited.
To date, we have not incurred costs to defend lawsuits or settle claims related
to these indemnity obligations.

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 fiscal
2004 and fiscal 2005:
<TABLE><CAPTION>
<S>                                                                     <C>
Balance at July 1, 2003..............................................   $         141
Net changes in warranty accrual for the year ended June 30, 2004.....              15
                                                                        -------------
Balance at June 30, 2004.............................................             156
Net changes in warranty accrual for the year ended June 30, 2005.....              (6)
                                                                        -------------
Balance at June 30, 2005.............................................   $         150
                                                                        =============
</TABLE>

LINE OF CREDIT. We have a demand line of credit with SVB under which we can
borrow up to $2.5 million. Our borrowing capacity is limited to 80% of eligible
accounts receivable. Interest on any borrowings is payable at prime and certain
of our assets secure the line of credit. We are required to maintain certain
financial ratios under the terms of the agreement, which will expire on August
30, 2006. As of June 30, 2005, we had no outstanding borrowings on the line of
credit, and we were in compliance with all financial covenants required under
the line of credit.

                                       70
<PAGE>
LITIGATION. On June 29, 2004 AppForge, Inc. ("AppForge") filed a complaint
against us in the United States District Court for the District of Delaware (the
"Court"). An amended complaint was filed on August 12, 2004 joining Extended
Systems of Idaho, Inc. ("ESI-Idaho") and four of our European subsidiaries.
ESI-Idaho and AppForge had entered into a reseller agreement and incorporation
license agreement related to certain AppForge software. AppForge alleges that we
have used AppForge's technology, copyrighted material, and trademarks in a
manner not authorized by the parties' agreements. We believe that our use and
distribution of our products that interface with AppForge's software,
copyrighted material, and trademarks has been within the scope of the parties'
agreements.

We filed a motion with the Court seeking to compel arbitration and to dismiss or
stay the case pending the outcome of arbitration. On March 28, 2005 the Court
ordered the parties to arbitrate, stayed the case pending arbitration, and
ordered that our four European subsidiaries be bound by any factual
adjudications in the arbitration. ESI-Idaho had filed a demand for arbitration
with the American Arbitration Association seeking a declaration of the parties'
respective rights and obligations. AppForge has filed counterclaims reasserting
the charges first made in its court complaint and also asserting breach of
contract. The hearing in the arbitration commenced in late September 2005, but
no order has yet been issued by the arbitrators. We believe that we have
meritorious defenses against AppForge's counterclaims, and we will continue to
vigorously defend against them. As of June 30, 2005, we have recorded no
liability related to this complaint, because in management's judgment any
potential loss is not probable,

In April 2002, Intellisync Corporation ("Intellisync") filed a patent
infringement action against us in the U.S. District Court in Northern
California. The action alleged that our XTNDConnect server and desktop
synchronization products infringed on seven of Intellisync's
synchronization-related patents. We incurred legal fees and other related costs
in connection with defending this action in fiscal 2004 and 2003. On March 4,
2004 we mutually agreed with Intellisync to settle the patent infringement
lawsuit. In connection with the settlement, in fiscal 2004 we made a one-time
payment to Intellisync of $2.0 million and received a license to certain
Intellisync patents. This payment covered estimated past and future royalties on
revenue related to our products shipped and covered under Intellisync's licensed
patents. Both companies agreed there will be no further patent litigation
actions for a period of five years and Intellisync released all of our customers
from any claims of infringement relating to their purchase and future use of our
products. Included in the expense recorded for fiscal 2004 is $1.6 million of
the $2.0 million one-time payment that related to past sales of products covered
by the license. The remaining one-time payment balance of $430,000 was
capitalized and is being amortized based on sales of the related products.

On December 2, 2004, ESI-Idaho, one of our a wholly owned subsidiaries, filed a
complaint in the United States District Court for the District of Idaho against
Agilent Technologies Singapore Pte., Ltd. ("Agilent") for failure to pay
royalties due under a license agreement and for contributing to infringement of
ESI-Idaho's registered copyrights in ESI-Idaho's IrDA software. Subsequently,
based on factual representations from Agilent concerning the alleged conduct of
Samsung Electronics Co., Ltd. ("Samsung"), on February 3, 2005, ESI-Idaho filed
an Amended Complaint joining Samsung, Samsung Electronics America, Inc. and
Samsung Telecommunication America, L.P. (collectively, the "Samsung Defendants")
on copyright infringement claims alleging, based on Agilent's representations,
that the Samsung Defendants have infringed certain of ESI-Idaho's registered
copyrights in IrDA software by knowingly copying the software into Samsung
phones with non-royalty bearing Agilent transceivers and importing and selling
those cell phones in the United States without the permission of ESI-Idaho.

The claims in the lawsuit related to a business arrangement entered into by
ESI-Idaho with Agilent and Samsung in 2002 whereby Agilent agreed to sell
certain royalty-bearing transceivers to Samsung for use by Samsung with our
ESI-Idaho software in Samsung cell phones. Agilent agreed to pay ESI-Idaho
royalties based on Samsung's use of the ESI-Idaho software with royalty-bearing
Agilent transceivers and Samsung was licensed to use ESI-Idaho software only
with Agilent royalty-bearing transceivers. ESI-Idaho alleged that Samsung
knowingly used ESI-Idaho software with non-royalty bearing Agilent transceivers
outside the scope of its license from ESI-Idaho and that Agilent aided and
abetted Samsung's conduct and has failed and refused to pay royalties to
ESI-Idaho for Samsung's use of ESI-Idaho software with Agilent transceivers.

ESI-Idaho sought payments in accordance with the agreed contractual royalty
rates for all uncompensated use of its software by Samsung and sought a full
accounting from Agilent and Samsung as to the number of Agilent transceivers
shipped to Samsung that were compatible with ESI-Idaho software and as to the
number of Samsung cell phones in which ESI-Idaho software has been copied.

ESI-Idaho also filed a motion for preliminary injunction asking the Court to
restrain Agilent from shipping transceivers to Samsung for use with ESI-Idaho
software without payment of agreed royalties and to restrain Samsung from
selling or importing in the United States any cell phones incorporating
unauthorized copies of ESI-Idaho software.

Shortly after joining Samsung as a party to the lawsuit, the parties entered
into a Standstill Agreement, which has subsequently been amended, under which
ESI-Idaho agreed to temporarily set over the scheduled hearing on its
preliminary injunction. Under the Standstill Agreement, ESI-Idaho was paid $1.5
million toward ESI-Idaho's claims against Agilent and Samsung. Shortly prior to
the expiration of the Standstill Agreement, as amended, the parties entered into
a Binding Memorandum of Understanding (the "Resolution Agreement"), effective
April 27, 2005 that resolved the lawsuit. Under the terms of the Resolution
Agreement, ESI-Idaho entered into a royalty-bearing license with Samsung for
Samsung's future use of ESI-Idaho's IrDA software. ESI-Idaho also granted
Samsung an option to purchase for a lump sum a two-year license to use
ESI-Idaho's IrDA Software and its XTNDConnect PC software in Samsung cell
phones. At the conclusion of the two-year paid up licenses, Samsung would have
the option to continue to license the software at royalty rates not greater than
those set out in the Resolution Agreement. On May 6, 2005, Samsung notified
ESI-Idaho that Samsung would not exercise its option for the two year license.
In addition to the $1.5 million received by ESI-Idaho under the Standstill
Agreement in March and April 2005, the Resolution Agreement provides for
additional payments. Samsung and Agilent paid ESI-Idaho $1.25 million and $2.0
million in May 2005 and August 2005, respectively, and a final payment of $1.0
million is due in December 2005.

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

WARRANTS. In connection with entering into a line of credit agreement with SVB
in January 2002, we issued warrants to purchase 35,000 shares of our 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 was amortized and
reported as interest expense. These warrants had been fully amortized as of June
30, 2005.

STOCKHOLDER RIGHTS PLAN. In June 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 the company without offering a fair price to
all of our stockholders. The plan was amended in July 2005 to exclude the
proposed acquisition of us by Sybase from the definition of what constitutes a
"triggering event" (see Note 16).

Each right will entitle holders of our common stock to buy a fraction of a share
of our 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, our common stock 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, we may also exchange one share of common stock for
each right outstanding. In addition, if the company 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.

We 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.

                                       71
<PAGE>
STOCK OPTION 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 and options are granted at the discretion of our Board
of Directors. 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 ratably per month for 36 months
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 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 849,762 at June 30, 2005.

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 lapsed ten years after issuance or upon the date the option holder
ceased 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 amortized unearned compensation over the periods during which the
restrictions lapsed. This plan terminated in September 1997.

We adopted a director stock plan in 1998 and amended the provisions of this plan
in December 2003. Only 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 20,000 shares per director will vest over a period of
three years, vesting one-third on the first anniversary of the option and
ratably per month for 24 months thereafter. Subsequent grants of 10,000 shares
will be automatically granted to directors each year on the date of our annual
stockholders meeting provided that such directors have served on the Board of
Directors for at least six months. These subsequent options will vest in full on
the earlier of the first anniversary of the date of grant or the date of the
next annual meeting. Unexercised options lapse ten years after issuance or one
year after the date the option holder ceases to be a director. Our director
stock plan also provides for an automatic annual grant of restricted stock on
the date of our annual stockholders meeting. The number of restricted shares
granted is determined by dividing $16,000 by the fair market value of a share on
the date of our annual meeting. Our director plan also provides for additional
annual grants of restricted stock to the Chairman of our Board of Directors, the
Chairman of our Audit Committee and the Chairman of our Compensation Committee
in an amount determined by dividing $20,000, $12,500 and $7,500, respectively,
by the fair market value of a share on the date of annual meeting. One-third of
the shares of restricted stock grants are released from our option to repurchase
the shares on the anniversary date of grant and remaining shares are released
from our option to repurchase the shares as to one-third of the shares in each
of the following two years. Our option to repurchase lapses in full on the
earlier of the anniversary date of the grant or the date of the next annual
meeting of stockholders if the outside director has attended at least 75% of all
Board of Directors meetings or Committee meetings, as applicable, held during
the last year. Shares available for grant under this plan totaled 263,731 at
June 30, 2005.

The following table summarizes option activity for our stock option plans:


                                      OPTIONS OUTSTANDING     WEIGHTED AVERAGE
                                       NUMBER OF SHARES        EXERCISE PRICE
                                      ----------------------------------------

As of June 30, 2002.................         2,787                $ 13.44
  Granted...........................         1,299                   2.37
  Exercised.........................           (30)                  3.64
  Cancelled/Expired.................          (787)                 11.78
                                      -------------------

As of June 30, 2003.................         3,269                   9.54
  Granted...........................         1,820                   4.72
  Exercised.........................          (451)                  5.41
  Cancelled/Expired.................        (1,424)                 11.83
                                      -------------------

As of June 30, 2004.................         3,214                   8.11
  Granted...........................           888                   3.25
  Exercised.........................          (493)                  2.33
  Cancelled/Expired.................          (807)                 13.57
                                      -------------------
As of June 30, 2005.................         2,802                $  6.01
                                      ===================


At June 30, 2005, options to purchase 2,076,838 shares from these stock plans
were exercisable at prices ranging from $1.33 to $66.00 with a weighted-average
per share exercise price of $6.86. At June 30, 2004, options to purchase
1,569,298 shares from these stock plans were exercisable at prices ranging from
$1.33 to $66.00 with a weighted-average per share price of $11.89. At June 30,
2003, options to purchase 2,070,816 shares from these stock plans were
exercisable at prices ranging from $2.24 to $66.00 with a weighted-average per
share price of $11.48.

                                       72
<PAGE>
The following table summarizes information about stock options outstanding at
June 30, 2005:
<TABLE><CAPTION>
                                    OPTIONS OUTSTANDING            OPTIONS EXERCISABLE
                            -----------------------------------   ---------------------
                                         WEIGHTED-
                                          AVERAGE     WEIGHTED-               WEIGHTED-
                                         REMAINING     AVERAGE                 AVERAGE
RANGE OF STOCK OPTION       NUMBER OF   CONTRACTUAL   EXERCISE    NUMBER OF    EXERCISE
EXERCISE PRICES              SHARES        LIFE         PRICE      SHARES       PRICE
---------------------------------------------------------------------------------------
<C>                         <C>         <C>           <C>         <C>         <C>
$1.33 to $2.73...........       511         7.69        $ 2.16        349      $ 2.17
$2.79 to $4.06...........       479         8.40        $ 3.64        156      $ 3.97
$4.125 to $4.83..........       721         8.31        $ 4.63        505      $ 4.67
$4.89 to $6.04...........       470         7.48        $ 5.10        446      $ 5.07
$6.13 to $10.89..........       481         4.03        $ 7.28        481      $ 7.28
$13.19 to $66.00.........       140         5.08        $33.90        140      $33.90
                            ---------                             ---------
$1.33 to $66.00..........     2,802         7.18        $ 6.01      2,077      $ 6.86
                            =========                             =========
</TABLE>

EMPLOYEE STOCK PURCHASE PLAN. We adopted an employee stock purchase plan
("ESPP") in 1998. The plan was 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 contained up to four purchase periods of six
months duration. The ESPP generally permitted 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 could accrue
at a rate that exceeded $25,000 each calendar year. The price of stock purchased
under the ESPP was 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 could end their participation at any time during a
purchase period and be paid their payroll deduction withheld within that
purchase period. The ESPP was terminated on December 31, 2004 and there were no
shares available for purchase under this plan at June 30, 2005. The final
purchase of shares under this plan was made on June 30, 2004.

In December 2004, we determined that we had inadvertently failed to register or
qualify under the federal securities laws or the securities laws of certain
states the public sale of approximately 893,811 shares of our common stock
pursuant to our ESPP. Although our failure to file a registration statement was
inadvertent, as a consequence of the failure to register or qualify the sales of
our common stock under the ESPP, certain ESPP participants may have had the
right to rescind their purchases under the ESPP prior to June 2005 or may have
the right to recover damages from us and others related to the unregistered or
nonqualified sale of the ESPP shares. Because purchasers no longer have the
right to rescind their purchases, we do not intend to undertake an offer to
rescind the purchases. Had we undertaken a rescission offer, our exposure for
any rescission rights would not have been material to our financial condition or
liquidity. Governmental regulatory authorities may seek penalties or other
sanctions against us with respect to the failure to register or qualify the ESPP
sales or our failure to timely disclose such failure to register or qualify the
ESPP shares.

RESTRICTED STOCK. The issuance of restricted stock grants results in unamortized
stock-based compensation based on the closing price of our common stock on the
date of the stock grants. We amortize these non-cash stock compensation charges
on a straight-line basis over the vesting period as the restrictions lapse. The
restricted stock awards granted to employees vest 100% on the first anniversary
of the grant date. The restricted stock awards granted to directors vest in the
amount of one-third on the first anniversary of the grant date and one-third in
each of the following two years. If the director attends the required number of
board meetings held during the year, the restrictions on his awards will lapse
in full on the first anniversary of the grant date. If an employee or director
terminates service before vesting is complete, the restricted stock is
repurchased from the individual and any compensation expense previously
recognized is reversed, thereby reducing the amount of stock-based compensation
amortization during the period.

On October 31, 2003, we granted 134,941 shares of restricted stock to certain
employees with a purchase price equal to $0.001. Of the restricted stock
granted, 22,151 shares were repurchased prior to vesting and the remaining
shares vested on October 31, 2004. We recognized $497,000 of stock-based
compensation related to these shares over the vesting period.

On December 11, 2003 and January 29, 2004, we granted 32,681 and 2,688 shares,
respectively, of restricted stock to directors with a purchase price equal to
$0.001. Of the restricted stock granted, 6,128 shares were repurchased prior to
vesting and the remaining shares vested on December 9, 2004. We recognized
$140,000 of stock-based compensation related to these shares over the vesting
period.

On December 9, 2004, we granted 55,671 shares of restricted stock to directors
with a purchase price equal to $0.001. The issuance of the restricted stock
grants to directors resulted in an aggregate of $152,000 of unamortized
stock-based compensation, which is being amortized over a one-year period as the
restrictions are expected to lapse.

                                       73
<PAGE>
NOTE 13. INCOME TAXES

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


                                            FOR THE YEARS ENDED JUNE 30,
                                           ------------------------------
                                             2005       2004       2003
                                           ------------------------------
Current:
     Federal............................   $     75   $     --   $     --
     State..............................          8         --         --
     Foreign............................        296        145         73
Deferred:
     Federal............................         --         --         --
     State..............................         --         --         --
     Foreign............................         --         --         --
                                           ------------------------------
Total income tax provision (benefit)....   $    379   $    145   $     73
                                           ==============================


                                            FOR THE YEARS ENDED JUNE 30,
                                           ------------------------------
                                             2005       2004       2003
                                           ------------------------------
Continuing operations...................   $    379   $     94   $   (200)
Discontinued operations.................         --         51        273
                                           ------------------------------
Total income tax provision (benefit)....   $    379   $    145   $     73
                                           ==============================


Significant components of deferred income tax assets and liabilities are as
follows:

                                          AS OF JUNE 30,     AS OF JUNE 30,
                                               2005               2004
                                           -------------------------------

Intangible asset amortization...........   $      1,287       $      1,489
Federal and state loss carryforwards....         32,951             34,158
Foreign loss carryforwards..............         11,589             11,323
Other...................................          1,117              1,141
Valuation allowance.....................        (46,944)           (48,111)
                                           -------------------------------
  Net deferred tax assets...............   $         --       $         --
                                           ===============================


We recorded net deferred tax assets and liabilities of approximately $23.8
million upon the acquisition of ViaFone in fiscal 2003. 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, 2005, we had available federal, state and foreign net operating loss
carryforwards of approximately $82.1 million, $76.5 million and $27.3 million,
respectively. We also had unused research credit, foreign tax credit and
alternative minimum tax credit carryforwards of approximately $1.0 million,
$217,000 and $75,000, respectively. If not utilized, the federal net operating
loss and research credit carryforwards will expire in fiscal 2020 to 2024 and
the state net operating loss carryforwards will expire between fiscal 2006 and
fiscal 2024. The alternative minimum tax credit can be carried forward
indefinitely. Of the $27.3 million of foreign net operating loss carryforwards,
approximately $4.0 million will expire between fiscal 2006 and 2010 and the
balance can be utilized indefinitely. The available foreign tax credits expire
in fiscal 2009 and 2010. 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 $12.8 million as of June 30, 2005 pertain
to certain net operating loss carryforwards and credit carryforwards resulting
from the exercise of employee stock options. When these assets are recognized
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, 2005 were reduced by valuation
allowances of $46.9 million as a result of management having concluded that
sufficient 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 decreased by $1.2
million in fiscal 2005 and increased by $900,000 in fiscal 2004.

We have not provided U.S. 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.

                                       74
<PAGE>
Our effective income tax rate varies from the U.S. federal statutory rate as
follows:
<TABLE><CAPTION>
                                                                             FOR THE YEARS ENDED JUNE 30,
                                                                            ------------------------------
                                                                              2005       2004       2003
                                                                            ------------------------------
<S>                                                                         <C>        <C>        <C>
Federal tax rate.........................................................      (34.0)%    (34.0)%    (34.0)%
State taxes, net of federal benefit......................................      (10.2)      (3.4)      (4.4)
Earnings taxed in both U.S. and foreign jurisdictions....................         --       (2.5)       8.6
Earnings of subsidiaries taxed at different rates than U.S. rates........       (0.4)      (1.3)      (2.7)
In-process research and development......................................         --         --        4.0
Valuation allowance......................................................       41.5       30.7       23.2
Other, net...............................................................       (5.6)       6.0        3.3
                                                                            ------------------------------
     Effective income tax rate...........................................       (8.7)%     (4.5)%     (2.0)%
                                                                            ==============================
</TABLE>

Income (loss) before income taxes consists of the following:
<TABLE><CAPTION>
                                                                             FOR THE YEARS ENDED JUNE 30,
                                                                            ------------------------------
                                                                              2005       2004       2003
                                                                            ------------------------------
<S>                                                                         <C>        <C>        <C>
Subject to tax in:
     United States.......................................................   $  6,106   $  1,220   $ (2,973)
     Foreign Jurisdictions...............................................     (1,768)    (4,324)      (714)
                                                                            ------------------------------
     Total income (loss) before income taxes.............................   $  4,338   $ (3,104)  $ (3,687)
                                                                            ==============================
</TABLE>

NOTE 14. BUSINESS SEGMENT AND GEOGRAPHIC DATA

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. As of June 30, 2005, we have
classified our product offerings into one operating segment, the mobility
segment, which consists of products and services that extend enterprise
applications to mobile and wireless environments. The products in our mobility
segment include enterprise mobility solutions, mobile device solutions and
enterprise database solutions. We sell our mobility products primarily to
enterprise customers, original equipment manufacturers and original device
manufacturers, VARs, distributors, application developers and systems
integrators.

The following tables present a summary of operating information and certain
year-end balance sheet information by geographic region. Our geographic revenue
information is based on the location of the selling entity. Long-lived assets
consist primarily of property and equipment.
<TABLE><CAPTION>
                                                                             FOR THE YEARS ENDED JUNE 30,
                                                                            ------------------------------
                                                                              2005       2004       2003
                                                                            ------------------------------
<S>                                                                         <C>        <C>        <C>
Net revenue from continuing operations:
North  America...........................................................   $ 23,496   $ 16,075   $ 16,762
Germany..................................................................      8,823      7,481      4,864
Other countries..........................................................      7,754      8,630      5,908
                                                                            ------------------------------
     Total net revenue...................................................   $ 40,073   $ 32,186   $ 27,534
                                                                            ==============================


                                                                            AS OF JUNE 30,   AS OF JUNE 30,
                                                                                2005             2004
                                                                            -------------    -------------
Long-lived assets:
North America............................................................   $       4,434    $       4,366
Germany..................................................................             169              190
Other Countries..........................................................             112              159
                                                                            -------------    -------------
   Total                                                                    $       4,715    $       4,715
                                                                            =============    =============
</TABLE>

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 or her annual pretax
compensation. We made no matching contributions to the plan in fiscal 2005 or
fiscal 2004 and our matching contributions were $140,000 in fiscal 2003.

                                       75
<PAGE>
NOTE 16. SUBSEQUENT EVENTS

We entered into an agreement and plan of merger with Sybase, Inc. ("Sybase") and
Ernst Acquisition Corporation, a wholly owned subsidiary of Sybase, dated as of
July 28, 2005 pursuant to which we agreed to be acquired by Sybase in an all
cash transaction for $4.460847 per share. Subject to approval by our
stockholders and receipt of various regulatory approvals and other specified
closing conditions, we expect the consummation of the merger to occur during the
fourth quarter of calendar 2005.


































                                       76
<PAGE>
NOTE 17.  QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE><CAPTION>
                                                                FIRST     SECOND      THIRD     FOURTH
                                                               QUARTER    QUARTER    QUARTER    QUARTER
                                                               ----------------------------------------
<S>                                                            <C>        <C>        <C>        <C>
FOR THE YEAR ENDED JUNE 30, 2005:

Net revenue.................................................   $ 7,846    $ 9,941    $11,572    $10,713
Cost of license fees and royalties..........................        67        129        102        173
Cost of services and other..................................       885      1,060      1,197      1,116
Income (loss) from continuing operations....................        47      1,096      2,178        636
Income (loss) from discontinued operations, net of tax......        --         --         --         --
Net income (loss)...........................................        47      1,096      2,178        636

Earnings (loss) per share from continuing operations:
    Basic...................................................   $    --    $  0.07    $  0.14    $  0.04
    Diluted.................................................   $    --    $  0.07    $  0.14    $  0.04

Earnings per share from discontinued operations:
    Basic...................................................   $    --    $    --    $    --    $    --
    Diluted.................................................   $    --    $    --    $    --    $    --

Earnings (loss) per share:
    Basic...................................................   $    --    $  0.07    $  0.14    $  0.04
    Diluted.................................................   $    --    $  0.07    $  0.14    $  0.04



FOR THE YEAR ENDED JUNE 30, 2004:

Net revenue.................................................   $ 7,555    $ 8,507    $ 8,307    $ 7,817
Cost of license fees and royalties..........................        82        144        132         24
Cost of services and other..................................     1,103      1,033      1,062        860
Income (loss) from continuing operations....................    (1,477)       412     (2,085)      (188)
Income (loss) from discontinued operations, net of tax......        41         47         --         --
Net income (loss)...........................................    (1,436)       459     (2,085)      (188)

Earnings (loss) per share from continuing operations:
    Basic...................................................   $ (0.11)   $  0.03    $ (0.14)   $ (0.01)
    Diluted.................................................   $ (0.11)   $  0.03    $ (0.14)   $ (0.01)

Earnings per share from discontinued operations:
    Basic...................................................   $    --    $    --    $    --    $    --
    Diluted.................................................   $  0.01    $    --    $    --    $    --

Earnings (loss) per share:
    Basic...................................................   $ (0.11)   $  0.03    $ (0.14)   $ (0.01)
    Diluted.................................................   $ (0.10)   $  0.03    $ (0.14)   $ (0.01)
</TABLE>

                                       77
<PAGE>

                                   SCHEDULE II

                          EXTENDED SYSTEMS INCORPORATED

                        VALUATION AND QUALIFYING ACCOUNTS
                                 (IN THOUSANDS)
<TABLE><CAPTION>
                                                                        -----------------------------------------------------
                                                                        BALANCE AT      CHARGED      DEDUCTIONS     BALANCE
                                                                        BEGINNING      TO PROFIT        FROM         AT END
                                                                        OF PERIOD      AND LOSS      ALLOWANCE      OF PERIOD
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>            <C>           <C>            <C>
Amount deducted in balance sheet from the asset to which it applies:

Year ended June 30, 2005:
      Allowance for doubtful accounts...............................    $      425     $     180     $      (56)    $     549
      Allowance for product returns.................................            21           (21)            --            --
      Allowance for obsolete inventory..............................           259           (26)          (233)           --
      Warranty reserve..............................................           156            (6)            --           150

Year ended June 30, 2004:
      Allowance for doubtful accounts...............................           793           166           (534)          425
      Allowance for product returns.................................            38            --            (17)           21
      Allowance for obsolete inventory..............................           360           (80)           (21)          259
      Warranty reserve..............................................           141            15             --           156

Year ended June 30, 2003:
      Allowance for doubtful accounts...............................           892            85           (184)          793
      Allowance for product returns.................................            22            17             (1)           38
      Allowance for obsolete inventory..............................           380            86           (106)          360
      Warranty reserve..............................................           175           (34)            --           141
</TABLE>




















                                       78
<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 October 17, 2005.



                                       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 Valerie A. Heusinkveld, 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 October 17, 2005.

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

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


/S/ VALERIE A. HEUSINKVELD        Vice President of Finance, Chief Financial
----------------------------      Officer and Corporate Secretary (Principal
VALERIE A. HEUSINKVELD            Financial and Accounting Officer)


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


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


/s/ ARCHIE CLEMINS               Director
----------------------------
ARCHIE CLEMINS


/s/ ROBERT J. FRANKENBERG        Director
----------------------------
ROBERT FRANKENBERG


/s/ RALPH B. GODFREY             Director
----------------------------
RALPH GODFREY


/s/ KLAUS-DIETER LAIDIG          Director
----------------------------
KLAUS-DIETER LAIDIG


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


                                       79