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      Unassociated Document

             August 15, 2005

              Valerie
                Heusinkveld

              Direct
                (208) 287-6276

              Valh@extendedsystems.com

    VIA
      EDGAR

    Craig
      Wilson

    Senior
      Assistant Chief Accountant

    Securities
      and Exchange Commission

    100
      F
      Street, N.E.

    Washington,
      D.C. 20549

              Re:

              Extended
                Systems Incorporated

    Form
      10-K for Fiscal Year Ended June 30, 2004

    Filed
      September 29, 2004

    File
      No. 000-23597

    Form
      10-Q for Fiscal Quarter Ended September 30, 2004

    Filed
      November 15, 2004

    File
      No. 000-23597

    Form
      10-Q for Fiscal Quarter Ended December 31, 2004

    Filed
      February 14, 2005

    File
      No. 000-23597

    Form
      10-Q for Fiscal Quarter Ended March 31, 2005

    Filed
      May 16, 2005

    File
      No. 000-23597

    Dear
      Mr.
      Wilson:

    This
      letter is the response of Extended Systems Incorporated (the “Company” or “ESI”)
      to the Staff’s comments to the above-referenced Form 10-K and Forms 10-Q (the
“Filings”). The Company has included each of the Staff’s comments from its
      comment letter dated June 29, 2005 and the Company’s responses
      below.

    Form
      10-K for the Fiscal Year Ended June 30, 2004

    Item
      9A. Controls and Procedures, page 47

              1.

              We
                note your statement 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

          Securities
            and Exchange Commission
August 15, 2005
Page 2

                the
                  cost-benefit relationship of possible controls and procedures.” We further
                  note that the conclusions of your principal executive and principal
                  financial officer do not indicate that the disclosure controls
                  and
                  procedures are effective at the “reasonable assurance” level. Please
                  explain to us how your disclosures comply with Section II.F.4 of
                  SEC
                  Release No. 33-8238, “Management’s Reports on Internal Control Over
                  Financial Reporting and Certification of Disclosure in Exchange
                  Act
                  Periodic Reports,” available on our website at http://www.sec.gov/rules/final/33-8238.htm.
                  We noted similar controls and procedures disclosures in the Form
                  10-Q for
                  each of the three fiscal quarters in fiscal year
                  2005.

    Response:
      Because
      the Company’s principal executive and principal financial officer did conclude
      that, as of the end of the reporting period for each of the Filings, the
      Company’s disclosure controls and procedures were effective at the “reasonable
      assurance” level, the Company acknowledges that, to comply with Section II.F.4
      of SEC Release No. 33-8238, “Management’s Reports on Internal Control Over
      Financial Reporting and Certification of Disclosure in Exchange Act Periodic
      Reports,” the conclusions of its principal executive and principal financial
      officer set forth in the Filings should have indicated that the disclosure
      controls and procedures are effective at the “reasonable assurance” level. In
      future periodic report filings, the Company will, if true, expressly provide
      that its principal executive and principal financial officer have concluded
      that
      the Company’s disclosure controls and procedures were effective at the
      reasonable assurance level for the relevant reporting period.

    Form
      10-Q for the Fiscal Quarter Ended March 31, 2005

    Part
      II. Other Information, page 41

    Item
      I. Legal Proceedings, page 41

              2.

              We
                note that you entered into a binding memorandum of understanding
                that
                resolved the litigation with Agilent and Samsung. Under the terms
                of the
                Resolution Agreement, ESI entered into a royalty-bearing license
                with
                Samsung for Samsung’s future
                use
                of ESI’s Ir Software. Explain why you believe that recognizing the $1.0
                million in the third quarter of 2005 and the other installments upon
                receipt as revenue is proper. Cite the accounting literature that
                supports
                your accounting. Indicate why the receipt of these funds should result
                in
                immediate revenue recognition instead of being deferred. Explain
                whether
                the payments are for past transactions instead of future licensing
                rights.
                Describe the relevant terms of the settlement including licensing
                rights,
                damages, and standstill agreements. Further, explain what consideration
                was given to allocating the
                settlement

          Securities
            and Exchange Commission
August 15, 2005
Page 3

                to
                  each of the “terms” or deliverables agreed to (e.g., settlement, future
                  licensing rights, unpaid royalties). In addition, explain why the
                  amounts
                  received are included in
                  revenue.

    Response:
      In
      connection with the Company’s lawsuit against Agilent Technologies Singapore
      Limited Pte Ltd, Samsung Electronics Co., Samsung Electronics America, Inc.
      and
      Samsung Telecommunications America, L.P., (together referred to as the
“Defendants”), the Company entered into a Standstill Agreement (the “Standstill
      Agreement”) with the Defendants in March 2005. The Standstill Agreement
      stipulated that an initial non-refundable payment of $1,000,000 would be made
      immediately to the Company. The Standstill Agreement also stipulated that the
      Defendants would deliver to the Company a report accounting for the number
      of
      units containing the Company’s software that were shipped by the Defendants
      under the authority of a July 2002 agreement executed between ESI and Agilent
      Technologies Singapore Limited Pte Ltd (the “July 2002 Agreement”). The
      Standstill Agreement further stipulated that if the litigation between the
      parties was not settled prior to April 15, 2005, an additional non-refundable
      payment of $500,000 would be made by the Defendants on or before that date.
      As
      of March 31, 2005, the last day of the Company’s fiscal third quarter, the
      Company had received the $1,000,000 payment and the Defendants’ report of units
      shipped under the authority of the July 2002 Agreement.

    Under
      SOP
      97-2, as amended by SOP 98-9, the Company established the
      following:

            ·

              persuasive
                evidence of an arrangement exists (the July 2002 Agreement between
                 the
                parties and the Standstill Agreement together comprise this element);

            ·

              delivery
                has occurred (units had already been shipped in preceding
                periods);

                ·

                  the
                    fee is fixed or determinable (a minimum payment of $1,000,000
                    was
                    assured); and

                ·

                  collection
                    of the resulting receivable was reasonably assured (the Company
                    received
                    the payment of $1,000,000 prior to the end of the fiscal quarter
                    ended
                    March 31, 2005).

    The
      allocation of the $1,000,000 payment to royalty revenue was determined to be
      proper, given the existence of the July 2002 Agreement, the March 2005 receipt
      of a royalty report for units shipped under the July 2002 Agreement, and the
      March 2005 receipt of an initial payment. After the end of ESI’s fiscal third
      quarter, two events transpired. First, as of April 15, 2005, ESI and the
      Defendants had not yet reached a settlement to the litigation, and the
      additional payment of $500,000 was made by the Defendants pursuant to the
      Standstill Agreement. Second, on April

        Securities
          and Exchange Commission
August 15, 2005
Page 4

    27,
      2005,
      ESI and the Defendants entered into a “Binding Memorandum of Understanding”
      effectively settling the litigation.

    The
      Binding Memorandum of Understanding stipulated that three additional payments
      will be made to ESI. The first installment of $1,250,000 was due and paid by
      May
      27, 2005, the second installment of $2,000,000 is to be paid by August 31,
      2005,
      and the third installment of $1,000,000 is to be paid by December 1, 2005.
      These
      satisfied the Company’s claims for payment of contractually agreed royalties
      owed on royalty-bearing products shipped prior to May 1, 2005. These payments
      are not for any other or future deliverables.

    Additionally,
      the Binding Memorandum of Understanding provided for a new license agreement
      (referred to on page 41 of ESI’s Form 10-Q for the fiscal quarter ended March
      31, 2005, as “a royalty-bearing license with Samsung for Samsung’s future use of
      the Company’s Ir Software”) between the Company and Samsung that was effective
      May 1, 2005, and which required quarterly royalty reporting and subsequent
      payments to be made by Samsung. No portion of the previous three payment
      installments provided by the Binding Memorandum of Understanding offset any
      payment obligation of Samsung under the May 1 2005 license for future use.

    Following
      the guidance of paragraphs 27 and 28 of SOP 97-2, the Company determined that
      the second and third payments stipulated under the Binding Memorandum of
      Understanding were not fixed and determinable because the majority of the
      payments were due more than 12 months after delivery of the software and the
      customer had a history of not adhering to contract terms. The Company recognizes
      that under TPA 5100.41, Effect of Prepayments on Software Revenue Recognition,
      if the Company were to receive payment prior to the specified due dates, revenue
      recognition would be appropriate since all other requirements of revenue
      recognition will have been met. Under paragraph 30 of SOP 97-2, however, the
      Company concluded, after considering business practices and the customer’s
      operating history as factors, that the arrangement will likely not meet the
      criteria for collectibility, given the Company’s history with the customer.
      Consequently, the Company has determined that revenue would be recognized in
      the
      fiscal quarter in which the payments are received.

        Securities
          and Exchange Commission
August 15, 2005
Page 5

    Notes
      to condensed Consolidated Financial Statements, page
      8

    Note
      2. Significant Accounting Policies, page 8

    Revenue
      Recognition, page 9

              3.

              We
                note your statement that when a “royalty report is not received by the
                desired date…and there exists the basis to make a fair and reasonable
                estimate of revenue related to that royalty report, this estimate
                will be
                recorded as revenue.” Explain to us your basis of determining how a fair
                and reasonable estimate exists and is determined. Provide an analysis
                for
                fiscal year ending June 30, 2004 and for each quarterly period during
                fiscal year 2005 showing the differences between actual results and
                estimates. Indicate whether any of the differences were material
                using SAB
                99. That is, explain why you believe that the revenue earned is
                determinable at the time it is
                recognized.

    Response:
      Revenue
      and royalty revenue for the year ended June 30, 2004 and for the quarterly
      periods ended in fiscal year 2005 were as follows:

              Period

              Total
                Revenue Reported

              (in
                1,000’s)

              Total
                Royalty Revenue Reported

              (in
                1,000’s)

              Royalty
                Amounts Estimated (included
                in previous column)

              (in
                1,000’s)

              Total
                Royalty Revenue Actual

              (in
                1,000’s)

              Variance
                in Reported Royalties to Actual

              (in
                1,000’s)

              FY
                2004

              $32,186

              $4,267

              $0

              $4,267

              $0

              Q1
                FY 2005

              $7,846

              $1,047

              $301

              $1,209

              $162

              Q2
                FY 2005

              $9,941

              $1,543

              $502

              $1,622

              $79

              Q3
                FY 2005

              $11,572

              $4,709

              $444

              $4,650

              ($59)

              Q4
                FY 2005

              $10,713

              $3,209

              $372

              $3,255
                A

              $46

              FY
                2005

              $40,072

              $10,508

              $1,619

              $10,736
                A

              $228

    (Note
      A:
      This amount and the corresponding sub-total still has one customer’s estimate in
      it of $200,000. At the time of this response, the royalty report had not yet
      been received. The methodology described herein has been used to make this
      estimate.)

        Securities
          and Exchange Commission
August 15, 2005
Page 6

    Greater
      than 85% of the estimated royalty revenue related to three customers. The
      following table sets forth the reporting pattern of those
      customers:

              Customer

              Reporting
                Frequency

              Days
                Report Arrives Following Period End

              Customer
                A

              Quarterly

              35
                to 45

              Customer
                B

              Quarterly

              15
                to 25

              Customer
                C

              Monthly

              15
                to 25

    The
      Company determines whether the basis for making a fair and reasonable estimate
      exists by analyzing several criteria, including the following
      items:

            ·

              the
                customer’s history and the range of their prior reports,

            ·

              guidance,
                estimates, and preliminary reports from the customer, if available,
                and

              ·

              the
                Company’s knowledge of the lifecycle of the customer’s product (into which
                the Company’s software i