KONTRON MOBILE COMPUTING INC - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

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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 December 31, 2002

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 000-22221

KONTRON MOBILE COMPUTING, INC.

MINNESOTA 41-1731723
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

7631 ANAGRAM DRIVE, 55344
EDEN PRAIRIE, MINNESOTA (Zip Code)
(Address of principal executive offices)

(952) 974-7000
(Registrant's telephone number, including area code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

COMMON STOCK, $.001 PAR VALUE
(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 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. [X]

The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based upon the closing sale price of the Common Stock as of June
28, 2002 (i.e., the last business day of the Registrant's most recently
completed second fiscal quarter), as reported on the Over The Counter Bulletin
Board, was approximately $4,382,150. Shares of Common Stock held by each officer
and director and by each person who owns 5% or more of the outstanding Common
Stock have been excluded in that such persons may be deemed to be affiliates.
The determination of affiliate status for purposes of this paragraph is not
necessarily a conclusive determination for other purposes.

The number of shares of the registrant's Common Stock, $.001 par value,
outstanding as of March 5, 2003 was 14,952,926.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the Registrant's 2003 Annual Meeting of
Shareholders held May 29, 2003 are incorporated by reference in Part III.

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PART I

ITEM 1. BUSINESS

THE COMPANY. Kontron Mobile Computing, Inc. ("Kontron Mobile Computing" or
"the Company"), was incorporated in Minnesota in 1992 under its former name of
FieldWorks, Incorporated and is dedicated to the development and sale of rugged
portable computing solutions. The Company is part of the worldwide group of
Kontron companies, owned or principally owned by Kontron AG ("Kontron"). Over
the past several years, the Company has evolved its strategy to focus on
designing and providing industry-specific field technology solutions. The
Company believes that this focus represents the strongest opportunity for growth
and differentiation.

The Company has a history of designing and delivering hardware platforms
for extreme environments and will continue to capitalize on its strong product
reputation and value added reseller network. The Company's focus will be on
markets that require rugged computers for harsh environment applications.

Kontron Mobile Computing computer platforms are designed for demanding
field environments, meeting military test standards for shock, vibration,
moisture and temperature extremes. Features include outdoor-readable
high-resolution color displays, sealed pointing devices and integrated
technology protected for use in extended temperatures and isolated for shock and
vibration. The Company also offers a high level of expandability and
upgradability within each product platform. Expansion paths include desktop
ISA/PCI computer card expansion slots, PC card slots, serial ports, universal
serial bus and custom modules. As a result, all platforms are flexible
"electronic toolboxes" that integrate the user's application-specific tools and
technologies into one custom, rugged mobile solution. Upgrade paths include
central processing units (CPU), random access memory (RAM), hard drive
capacities, display and peripheral technologies, such as wireless communication.
Such upgradability contributes to a longer useful life which reduces the total
cost of ownership for the end-customer. Longer product life sets the Company's
products and solutions higher on the value scale with customers as their initial
investment is in many ways "protected" by technology enhancements or
improvements over a period of time.

THE RUGGED COMPUTING MARKET. Technological advances have increased
customers' dependence on mobile computing and communications devices, such as
portable computers, pagers and smart phones, to enhance workforce productivity.
The rugged computing market has increasing needs for reliability, operability in
extreme conditions, portability, security and compatibility with a variety of
communication interfaces and standard desktop computer technology. Organizations
are increasingly seeking to connect field personnel to information through
computerization. Enterprise-wide networking can provide sophisticated field
diagnostic and analytic capabilities, enhance field access to data and on-line
information, eliminate paperwork, improve communication and reduce costs.

The markets for the Company's products consist of those businesses, armed
forces, national and local governmental agencies and other entities that are
seeking reliable mobile computing for field personnel and functions. The
Company's rugged mobile computing platforms are used in a variety of industries
whose demands vary widely and which include: (i) public service and field
service organizations for improved productivity, efficiency and real time,
remote data access (ii) military and government contractors for situational
awareness, flight-line communications and real time, highly reliable data
acquisition in extreme conditions and (iii) transportation OEMs and
full-solution integrators for wireless data transfer, maintenance and diagnostic
testing.

STRATEGY. The Company's vision remains to become "the worldwide rugged-
mobile-computing solutions provider for niche markets". The Company's strategy
consists of the following key components:

FURTHER PENETRATION OF KEY VERTICAL MARKETS. The Company continues to
target key vertical markets, including government, military, public services,
utilities and other field service organizations. The Company develops product
features and functions to address the needs of a particular vertical market and
provides application-engineering services to support the specific requirements
of those customers when necessary. The Company's strategy is to be a key
provider of tools and services to facilitate field data acquisition, test and
measurement, telemetry, mobile computing and communication applications through
the partnership with value-added resellers. Custom applications addressed by the
Company are typically characterized by the opportunity to sell a significant
quantity of units over a period of time based on a single application solution.

CONTINUED REDUCTION IN PRODUCT COSTS AND TIME TO MARKET. The Company has
taken advantage of its relationship with the other worldwide Kontron companies
by outsourcing the design and manufacturing of some of its products. This is
consistent with the strategy of maintaining rugged mobile design strength at the
architectural level, while utilizing inter-company resources to reduce costs and
add incremental expertise. This change has been well received by the Company's
customers and value-added

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resellers. Additionally, the Company continues to be focused on further cost
reductions through on-going product re-design initiatives through Kontron
worldwide mobile design teams.

PRODUCTS. The Company's products are rugged mobile computers designed and
manufactured for field applications, including data acquisition, mobile data
processing and communications, and test and measurement. Part of the Company's
growth strategy is to introduce new products that will further penetrate
existing markets as well as penetrate new and growing markets. In 2002, the
Company introduced three new products: an enhanced EnVoy with a Kontron-designed
faster CPU module, the FieldWorks 8500 (FW8500) with enhanced features and
performance based on another Kontron-designed CPU module, and a
higher-brightness, lower-cost display for the EnVoy and 2000 Series III product
lines. Additional new products will replace older products and allow for growth
through 2003.

ReVolution: The Company expended significant personnel resources during
2002 to develop the ReVolution, a rugged, convertible, notebook computer. This
product marks the re-entry of the Company into the rugged notebook market,
following cessation of production of the FW5000 in fiscal year 2000. The
ReVolution is based on a custom CPU module developed jointly by the Company and
a Kontron affiliate in Taiwan. The introduction of the ReVolution creates a new
category of computing devices for the Company. The ReVolution is a fully
Windows-capable computer that converts from notebook to tablet with a quick flip
of the rugged, 180-degree display hinge. With the added benefits of ruggedness,
upgradability and integrated wireless communication features, the ReVolution is
in a class by itself. The ReVolution's full magnesium construction design is
tested to U.S. military and NEMA standards for resistance to shock, vibration,
water, temperature and dust. The ReVolution is targeted to commercial and
industrial markets that include utilities, telecommunications, government,
military, and other areas requiring rugged mobile computers in field service
applications. Demonstration units of ReVolution were available in 2002 with
initial shipment in March 2003. Production will be handled by one of the Kontron
affiliates in Taiwan, with final test, custom integration and repair being
performed by the Company. The Company retains exclusive rights to market and
sell the ReVolution in North America. Kontron has the exclusive rights to market
and sell ReVolution in all other countries.

FieldWorks 8000 Series: The FieldWorks 8000 (FW8000) is based on a
high-strength cast magnesium alloy external housing. Internal components that
are sensitive to shock and vibration are contained within this housing and
isolated with special tuned shock absorbing polymers, while a shock absorbing
bushing system suspends all drives. The FW8000 incorporates the Company's
backplane/card cage design, which provides up to six ISA/PCI expansion card
slots within the housing permitting the integration of instrumentation, data
acquisition, test and measurement and communications capabilities. Also
contained within the housing is a PCMCIA expansion card slot, integrated AC/DC
power supply, uninterruptible power supply capability, full-length desktop
ISA/PCI expansion card slots, integrated CD-ROM, CD-RW and floppy diskette
drives, and several optional features such as dual removable hard drives,
Sunlight Readable display and XGA display options. The FW8000 is the Company's
flagship product.

The FW8500, introduced in 2002, provides six PCI card slots, a minimum of
1.06Ghz CPU using the Intel Pentium III M processor, up to 640MB of RAM, a 40GB
or 60GB hard drive (1 or 2 drives), and RAID 0 or 1 support for the two hard
drive configuration. This product targets FW8000 class customers who are moving
their applications to all PCI hardware and who need much faster processor
speeds.

EnVoy Mobile Data Server (MDS): The EnVoy is a three-piece onboard vehicle
computer system that includes a Server component, a high-bright Display and a
backlit Keyboard. The EnVoy can be customized by adding wireless technology,
Global Positioning (GPS) technology, data radios and other devices through two
embedded PC card slots, USB ports and three open serial ports. The floppy and
CD-ROM devices can be connected to the Server by cables that can then be mounted
in a remote location such as the vehicle trunk. A wide variety of standard
vehicle mounting systems are available to meet customer-specific needs. The
EnVoy is ideally suited for fixed in-vehicle computing and communication
applications including logistics management, computer-aided dispatch and
Geographic Information Systems/Global Positioning System mapping. The primary
market for the Envoy is public services (Police, Fire, EMS and Utility). New
EnVoy models introduced in 2002 provide faster processing, increased memory, and
greater storage capacity. Other enhancements to the EnVoy product line include a
10.4", 1200-nit display with touch screen.

FieldWorks 2000 Series Mobile Data Server (MDS): The FieldWorks 2000 Series
MDS was developed for mission critical communication applications. The
FieldWorks 2000 Series MDS is the communication interface to deployed personnel
in remote locations in all types of vehicles. The Graphical Information System
(GIS) allows personnel to graphically and numerically identify precisely where
they are on a map and provide the same visual and data information for superiors
in a real-time secure basis. Real time reliable communication of logistical,
mission status, location and movement is paramount to the success of the
application for which this product was designed and is used.

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Power Lite: The Power Lite is similar to the FW8000 and FW8500, with less
rugged features and less expansion capability. The Power Lite is intended for
light industrial applications like manufacturing plant floors,
telecommunications test and in-plant data collection. The Power Lite offers a
single ISA/PCI expansion card capability with a 14.1" XGA display. It is ideally
suited for applications that display schematics and graphical information
databases.

Field Lite: The Field Lite handheld computer provides users full PC
performance and connectivity in a small lightweight, rugged package. The Field
Lite is used by field communication personnel for sending and receiving secure
text messages, maps and collecting critical data. When connected to a GPS
receiver, the Field Lite can identify location points and communicate that
information wirelessly to assist in safe, expeditious navigation of mission
objectives. The Field Lite is used in a variety of logistical and data
collection applications where rugged, daylight readable and full PC technology
is required by users.

The Field Lite and Power Lite are products of Kontron and are marketed and
sold exclusively in North America by the Company. Both of these products began
shipping in the second quarter of 2001.

PROFESSIONAL SERVICES. The Company provides Professional Services along
with its products to gain a competitive advantage in the rugged mobile computing
market. Programs offered by the Company include consulting services relating to
product application, technical support, project management, product
implementation and troubleshooting on post-installation questions. The Company
provides a one-year warranty program including free telephone technical support
as well as warranty extensions and custom hardware and software service/support
offerings. The Company offers optional, advance exchange, replacement unit pools
for large volume customers to maximize performance. Software integration
services, including loading and testing of multiple software applications, can
be provided to relieve end users of the burden of installing software. On-site
product training and consultation services tailored to customer requirements can
also be provided.

MANUFACTURING. The Company initiated the outsourcing of some of its
manufacturing activities to Kontron affiliates during 2001. This has improved
inventory management, reduced product and production costs, and enhanced product
quality. Further outsourcing may occur as opportunities to reduce costs and
improve product quality are identified. The FW8000 Series assembly, all platform
repair and final integration work continue to be performed at the Company.
Kontron manufactures parts for the EnVoy MDS and the FieldWorks 2000 Series MDS
in Germany, with final assembly performed at the Company. The Power Lite and
Field Lite are manufactured in Germany by Kontron.

QUALITY MANAGEMENT. The Company employs comprehensive quality control
systems. The Company received ISO 9001 quality assurance certification in March
1996 and was re-certified in May 2002. The Company is currently updating its
quality system to meet the ISO9000-2000 standard and expects to be certified to
this new standard during September of 2003.

SALES AND MARKETING / CUSTOMERS. The Company's direct sales force focuses
its efforts on establishing and maintaining relationships with key and strategic
accounts. Specific territories have been assigned to the sales force located
throughout the United States. Other segments of the market are addressed by
sales through value-added resellers and systems integrators that typically sell
systems that have been configured for specific end-user applications through the
addition of hardware, software or services. Resellers and integrators generally
target large- to mid-size accounts, with the exception of military integrators,
or prime contractors, which target large military accounts. Additionally, the
Company sells platforms to the United States Government via the General Services
Administration (GSA) schedule.

Sales to the United States Army represented 15% of net sales in 2002 and
28% of net sales in 2001. For the year ended December 31, 2000, sales to John
Deere Information Systems represented 11% of net sales. The amount of revenue
contributed by each product line is set forth under "Management's Discussion and
Analysis of Financial Condition and Results of Operation" below.

BACKLOG. The Company believes that backlog is not a meaningful indicator of
its future business prospects due to the potentially long customer sales cycle
and significant variations in the size and delivery schedules of orders received
by the Company. As a result, the Company does not believe that backlog at any
particular date is necessarily indicative of future results.

COMPETITION. The Company's products face direct competition from companies
producing portable computers intended for field use such as Dolch Computer
Systems; Getac Corp.; Itronix Corp.; Paravant Computer Systems, Inc.; Motorola,
Inc.; Data 911; Northrup Grumman; and Panasonic Personal Computer Company. The
Company believes its primary competitive factors relate to product design and
feature differentiation, product pricing, functionality, product dimensions,
technology enhancements and responsiveness to customer requirements. The mobile
computer market continues to mature. To the extent the Company and its direct
competitors expand and develop this market niche, other manufacturers may turn
their attention to this niche and begin to develop products and services
directly competitive with those offered by the Company. The Company's computing
platforms also

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face indirect competition from a variety of different companies and products,
including consumer portable personal computers, customized portable personal
computers, tablet personal computers and single-purpose diagnostic and data
collection instruments.

RESEARCH AND DEVELOPMENT. In conjunction with Kontron engineering teams
from around the world, the Company designs mobile computer systems, subsystems
and application specific custom systems. The Company believes that its efforts
in this area have improved time-to-market and reduced development costs. The
Company intends to continue to expand its products and services by providing a
greater range of expandability and features in existing products. The Company
has successfully developed new products with the Kontron companies maximizing
the technological expertise within all companies. Through the use of these
resources, the Company has access to a wide variety of specialized and/or
lower-cost design talent, and gained new relationships with key technology
suppliers. The use of non-Kontron design contractors was significantly reduced
in 2001 resulting in reduced R&D costs. Research and development expenses were
$1.0 million in 2002, $1.2 million in 2001, and $4.2 million in 2000.

INTELLECTUAL PROPERTY. The Company uses the following marks in connection
with its products: Field MousePad, Field Workstation, Technology Module, EnVoy,
Field Lite, Power Lite, IN Rave, ReVolution, Kontron and the Kontron Logo. The
Company has federal trademark registrations with respect to Field MousePad,
Field WorkStation and Technology Module. These registrations are registered on
the Supplemental Register. Supplemental Registrations do not confer the same
rights as Principal Registrations. Specifically, Supplemental Registrations do
not serve as prima facie evidence of the validity of the registration, the
registrant's ownership of the mark, or the registrant's exclusive right to use
the mark. In addition, the filing date of the application does not confer any
right of priority. The Company is aware that there are third parties that have
claimed and may claim superior rights, in certain territories in the United
States, to the use of certain of the marks in which the Company claims rights.
Kontron and Kontron Logo are registered trademarks of Kontron Instruments
Holding N.V. and Kontron Electronik GmbH, respectively. Kontron Electronik GmbH
has filed a federal trademark application with respect to the Field Lite Mark.
Power Lite and IN Rave are unregistered trademarks of Kontron Electronik GmbH.
The Company has full unconditional licenses to use the Field Lite, Power Lite,
IN Rave, Kontron and Kontron Logo trademarks in all sales and marketing
activities.

EMPLOYEES. As of December 31, 2002, the Company employed 40 full-time
employees and 2 part-time employees, of whom 17 were engaged primarily in
operations, 11 were engaged primarily in sales and marketing, 8 were engaged
primarily in engineering and research and development, and 6 were engaged
primarily in administration. The Company also employs temporary employees and
contract employees, as necessary. No employees are represented by any labor
union or other collective bargaining unit. The Company believes that its
relations with its employees are good.

ASSETS. All of the Company's long-lived assets are located in the United
States.

ITEM 2. DESCRIPTION OF PROPERTY

The Company's main operations are conducted in Eden Prairie, Minnesota, at
a leased site of approximately 53,000 square feet. The lease term is November
1998 through November 2004. The Company has subleased two portions of the site:
12,422 square feet of office space has been subleased for the period of
September 1, 2000 to November 30, 2004 and 4,728 square feet of warehouse space
has been subleased with an original ending date of June 30, 2001 that has now
become month-to-month and is cancelable by either party with a 60-day notice.

As of August 2002, the sublessee in the larger space notified the Company
that it was unable to meet its full rent obligation. The Company agreed to
accept a demand promissory note for each month that the sublessee paid short,
bearing simple interest at the rate of 12% per annum, compounded monthly. As of
December 31, 2002, the Company has accepted promissory notes of approximately
$42,700, for which a full reserve has been recorded due to uncertainty of
collection.

The Company intends to continue to review options for potential subleasing
of its facility, as appropriate, to minimize operating expenses.

ITEM 3. LEGAL PROCEEDINGS

The Company is involved in legal actions in the ordinary course of its
business. Although the Company cannot predict the outcome of any such legal
actions, management believes that there is no pending legal proceeding against
or involving the Company for which the outcome is likely to have a material
adverse effect upon the Company's financial position, results of operations or
cash flows.

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

There were no matters submitted to a vote of security holders during the
Company's fourth quarter ended December 31, 2002.

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

MARKET INFORMATION. The Company's common stock is traded on the Over the
Counter Bulletin Board under the symbol "KMBC." Prior to August 25, 2000, the
Company's common stock was traded on the Nasdaq SmallCap Market. The following
table shows the range of high and low price information as quoted on the Over
the Counter Bulletin Board. The quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commissions and may not necessarily represent
actual transactions.

EQUITY COMPENSATION PLAN INFORMATION AS OF DECEMBER 31, 2002

(1) Includes shares issuable under the Company's 1994 Long Term Incentive
and Stock Option Plan and 1996 Directors' Stock Option Plan.

SHAREHOLDERS. As of March 5, 2003, there were 126 holders of record of the
Company's Common Stock. The Company believes that the actual number of its
beneficial shareholders is significantly higher than the number of record
holders, since a portion of our common stock is held in street name.

DIVIDENDS. The Company has not paid any cash dividends since inception and
does not anticipate paying cash dividends in the foreseeable future.

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ITEM 6. SELECTED FINANCIAL DATA

SELECTED STATEMENTS OF OPERATIONS DATA:
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

SELECTED BALANCE SHEET DATA:
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS. This report
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. When used in this report, in the Company's press
releases and in oral statements made with the approval of an authorized
executive officer, the words or phrases "believes," "anticipates," "expects,"
"intends," "estimates," "should", "may" or similar expressions are intended to
identify forward-looking statements, but are not the exclusive means of
identifying such statements. These forward-looking statements involve risks and
uncertainties that may cause the Company's actual results to differ materially
from the results discussed in the forward-looking statements. Factors that might
cause such differences include, but are not limited to, the following: risks
associated with the development of new products, market acceptance of new
products and services, technological obsolescence, dependence on third-party
manufacturers and suppliers, risks associated with the Company's dependence on
proprietary technology and the long customer sales cycle. The Company wishes to
caution readers not to place undue reliance on any such forward-looking
statements, which speak only as of the date made. The Company undertakes no

7

obligation to revise any forward-looking statements in order to reflect events
or circumstances after the date of such statements. Readers are urged to
carefully review the various disclosures made by the Company in this report,
including in particular Exhibit 99.1 to this report, and in other reports filed
with the Securities and Exchange Commission that attempt to advise interested
parties of the risks and factors that may affect the Company's business.

OPERATING RESULTS. The following table sets forth certain financial data
expressed as a percentage of net sales for the periods indicated:

MARKET TRENDS. The demand for rugged mobile computers continues to expand
on a worldwide basis. The availability of high-powered portable computer
technology coupled with application specific technologies and the proliferation
of wireless communications contributes to the increased demand. The Company
expects increased requirements to improve the efficiency in field-based work
forces to link field workers into corporate information systems. Customers are
demanding more functionality for less money due to recent short-term decreases
in capital spending among public safety, military and private field forces
worldwide. The Company expects the market for ruggedized computers to grow
slightly in the short-term with the biggest opportunity for growth in the low
price-point handheld products. Long-term growth is expected in all ruggedized
categories due to planned increased spending in homeland security and military
operations.

CRITICAL ACCOUNTING POLICIES. Financial Reporting Release (FRR) No. 60,
"Cautionary Advice Regarding Disclosure About Critical Accounting Policies,"
requires all companies to include a discussion of critical accounting policies
or methods used in the preparation of financial statements. The discussion and
analysis of the Company's financial condition and results of operations are
based upon its consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires the Company to make
estimates and judgments that affect the reported amount of assets and
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities at the date of its financial statements. Actual results may
differ from these estimates under different assumptions or conditions. Note 2 of
the Notes to the Consolidated Financial Statements includes a summary of the
significant accounting policies and methods used in the preparation of the
Company's Consolidated Financial Statements.

Critical accounting policies are defined as those that are reflective of
significant judgments and uncertainties, and potentially result in materially
different results under different assumptions and conditions. The accounting
policies which the Company believes are the most critical to aid in fully
understanding and evaluating our reported financial results include revenue
recognition, inventories and warranties.

Revenue Recognition. The Company recognizes revenue in accordance with SEC
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
(SAB 101), as amended by SAB 101A and 101B. SAB 101 requires that four basic
criteria must be met before revenue can be recognized: (1) persuasive evidence
of an arrangement exists; (2) delivery has occurred or services rendered; (3)
the fee is fixed and determinable; and (4) collectibility is reasonably assured.
Significant management judgments and estimates must be made and used in
connection with the revenue recognized in any accounting period. Material
differences may result in the amount and timing of our revenue for any period if
our management made different judgments or utilized different estimates.

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The Company's revenue recognition policy is significant because the
Company's revenue is a key component of its results of operations. The Company
generally recognizes revenue upon shipment of its products. In certain limited
situations, at the customer's written request, the Company enters into bill and
hold transactions whereby title transfers to the customer, but the product does
not ship until a specified later date. The Company recognizes revenues
associated with bill and hold arrangements when the product is complete, ready
to ship, and all bill and hold revenue recognition criteria have been met.
Accruals for sales returns and other allowances are provided at the time of
shipment based on experience. Service revenue, including non-warranty work and
related parts sales, is recognized as earned. Extended warranty contracts are
offered, generally as a separately priced arrangement with the customer.
Revenues related to extended warranties are recorded as deferred revenue and
recognized ratably over the term of the related agreements. The Company has
concluded that its revenue recognition policy is appropriate and in accordance
with generally accepted accounting principles and SAB 101.

Inventories. Inventories are stated at the lower of cost, as determined by
the first-in, first-out cost method, or market value. The Company's inventory
monitoring controls reduce the potential for write-downs of inventory due to
obsolescence; however, there can be no assurance that future inventory
write-downs will not be required. Inventory is coded to reflect the product for
which it is primarily used, allowing the Company to better manage its inventory
and to assist in making forecast updates.

The Company reviews its inventory quantities on hand quarterly and records
a provision for estimated obsolescence or unmarketable inventory based upon
usage and assumptions about future demand and market conditions.

Warranties. The Company warrants its products against defects in materials
and workmanship under normal use and service for one year from the date of
purchase. Warranty costs for existing products, including parts and labor, are
estimated based on actual historical experience. Management uses that historical
data to accrue reserves to cover estimated costs based on units in the field
under warranty. Management reviews the estimated warranty liability on a
quarterly basis to determine its adequacy. While the Company's warranty costs
have historically been within its expectations and the provisions established,
the Company cannot guarantee that it will continue to experience the same
warranty return rates or repair costs it has in the past.

While the Company engages in product quality programs and processes, the
Company's warranty obligation is affected by product failure rates, material
usage and service delivery costs incurred in correcting a product failure.
Should actual failure rates, material usage or service delivery costs differ
from the Company's estimates, revisions to the estimated warranty liability
would be required.

RELATED PARTY TRANSACTIONS. The Company sells certain products to Kontron
and the Kontron group of companies for further resale outside North America.
These sales were approximately $1.1 million in 2002 and $1.3 million in 2001.
The Company also buys products from these related entities for further resale
within North America. These purchases were approximately $2.0 million in 2002
and $0.8 million in 2001. The Company and the Kontron group of companies are
operating under agreements regarding the sales and purchases from each other.
Such transactions are in the normal course of business at negotiated prices
comparable to similar transactions with other customers and suppliers.
Management believes the transactions with Kontron and the Kontron group of
companies are at arms length and are under terms no less favorable to the
Company than those with other customers or suppliers.

Included in the financial statements are approximately $119,900 and
$118,500 of related party receivables and approximately $412,400 and $210,000 of
related party payables as of December 31, 2002 and December 30, 2001.

The Company has a credit line agreement with Kontron to provide up to 8.5
million Euros for operations ($8.8 million based on December 31, 2002 exchange
rate). Borrowings under this agreement bear interest at 10% per annum (payable
monthly). The maturity date of the note is July 1, 2011. Outstanding borrowings
under this line of credit were approximately $7.5 million at December 31, 2002.
Refer to the Liquidity and Capital Resources section for further discussion.

ACCOUNTING PRONOUNCEMENTS. In June 2002, the FASB issued Statement of
Financial Accounting Standards (SFAS) No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities". This statement requires that a liability for
a cost associated with an exit or disposal activity be recognized when the
liability is incurred. It also establishes that fair value is the objective for
initial measurement of the liability. This statement is effective for exit or
disposal activities that are initiated after December 31, 2002.

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" (FIN 45). FIN 45 establishes accounting
and disclosure requirements for a company's obligations under certain guarantees
that it has issued. A guarantor is required to recognize a liability for the
obligation it has undertaken in issuing a guarantee, including the ongoing
obligation to stand ready to perform over

9

the term of the guarantee in the event that the specified triggering events or
conditions occur. The objective of the initial measurement of that liability is
the fair value of the guarantee at its inception. The initial recognition and
measurement provisions of this Interpretation are applicable on a prospective
basis to guarantees issued or modified after December 31, 2002. FIN 45 also
requires expanded disclosure of information related to product warranty amounts
recorded in the financial statements. The disclosure provisions are effective
for interim and annual periods ending after December 15, 2002, and are included
within Note 2.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure", an amendment to SFAS No. 123. This
standard provides alternative methods of transition for any voluntary changes to
the fair value based method of accounting for stock-based employee compensation.
It also amends the disclosure requirements to require prominent disclosure in
both the annual and interim financial statements about the method of accounting
for stock-based employee compensation and the effect of the method used on
reported results. The new disclosure requirements are effective for annual
periods ending after December 15, 2002 and will be effective for interim periods
beginning after December 15, 2002. The annual requirements are included within
Notes 2 and 6 and the interim requirements will be adopted in the Company's
fiscal quarter ending March 31, 2003.

COMPARISON OF YEARS ENDED DECEMBER 31, 2002 AND DECEMBER 30, 2001

NET SALES. Net sales for 2002 were $12.2 million, a decrease of $5.1
million or 29% from 2001 net sales of $17.3 million. The decrease was primarily
attributable to a large order from the United States Army in 2001 with no
comparable large orders in 2002, in addition to general economic conditions.
Unit volumes of the 8000 Series represented 52% of total units in 2002 compared
to 45% in 2001. The increase in percent was due to lower overall sales in 2002.
The decreased dollars were due to general economic conditions. Sales of the 2000
Series Mobile Data Server represented 22% of total units in 2002 compared to 34%
in 2001. The decrease in sales was attributable to the large United States Army
order in 2001 with no comparable large orders in 2002. Unit volumes of the EnVoy
product represented 14% of total units in 2002 compared to 13% in 2001. Combined
unit volumes of the Field Lite, IN Rave and Power Lite represented 10% of total
units in 2002 compared to 2% in 2001. The Company began marketing these products
in mid-year 2001 so year-over-year figures are not comparable.

Sales by product line were as follows:

- --------------
(1) The EnVoy product was introduced in 2001.
(2) The Field Lite, IN Rave and Power Lite are Kontron products. The Company
began marketing these products in 2001.
(3) The 7000 Series product was discontinued and replaced with the 8000 Series
product in fiscal year 2000.
(4) The 5000 Series product was discontinued in fiscal year 2000. Revenues in
2001 and 2002 related to sales of remaining units on hand.

International sales decreased to $1.6 million, or 13% of sales in 2002
from $2.4 million, or 14% of net sales in 2001. The majority of
international sales are in Europe, including $0.9 million in 2002 and $1.9
million in 2001. The Company believes that international sales as a percentage
of net sales for the year 2003 will be in the low- to mid-teen % range with
little impact on the Company's results of operations and liquidity.

GROSS MARGIN. Gross margin decreased to $5.5 million in 2002 from $7.8
million in 2001. Gross margins, as a percentage of net sales, remained constant
at 45% in 2002 and 2001. The Company's gross margin will fluctuate as a result
of a number of factors, including mix of products sold, inventory obsolescence,
the proportion of international sales, large customer contracts (with the
associated volume discounts) and other manufacturing expenses.

10

SALES AND MARKETING. Sales and marketing expenses include salaries,
incentive compensation, commissions, travel, trade shows, technical support and
professional services personnel and general advertising and promotion. These
expenses also include the labor and material costs related to maintaining the
Company's standard one-year warranty program. Sales and marketing expenses were
$2.3 million in 2002, a decrease of $0.4 million as compared to $2.7 million in
2001. As a percentage of net sales, sales and marketing expenses increased to
19% in 2002 as compared to 16% in 2001. The decreased dollars are due to lower
sales commissions paid on lower revenue. The increased percent is due to lower
revenue over which to allocate the costs.

GENERAL AND ADMINISTRATIVE. General and administrative expenses include the
Company's executive, finance, information services and human resources
departments. These expenses decreased to $1.2 million in 2002 compared to $1.7
million in 2001. As a percentage of net sales, general and administrative
expenses stayed constant at 10% in 2002 and 2001. The decreased dollars are due
to lower legal fees and bad debt expense.

RESEARCH AND DEVELOPMENT. Research and development expenses are incurred in
the design, development and testing of new or enhanced products, services and
customized computing platforms. All research and development costs are expensed
as incurred. These expenses decreased to $1.0 million in 2002 from $1.2 million
in 2001. As a percentage of net sales, research and development expenses
increased to 8% in 2002 from 7% in 2001. The decreased dollars are due to
sharing research and development costs with Kontron and the synergy gained by
the combined efforts. The increased percent is due to lower revenue over which
to allocate the costs.

LOSS ON FOREIGN CURRENCY. The Company's credit agreements with Kontron
allow for borrowings which are payable in Euros.

In the second quarter of 2001, the Company began utilizing foreign currency
forward contracts to protect against significant fluctuations in net income
(loss) caused by changes in Euro exchange rates. The Company's practice is to
enter into a forward contract at the beginning of each quarter and settle the
contract at the end of the quarter. The Company records gains and losses on
these derivative contracts (which are not designated as hedging instruments for
accounting purposes) in net income (loss) in accordance with the requirements of
Statement of Financial Accounting Standards (SFAS) No. 133, "Derivatives and
Hedging Activities," and also marks the related debt instrument to market under
SFAS No. 52, "Foreign Currency Translation." These loss amounts are included in
the net foreign currency loss of $169,222 recorded in 2002 and the net foreign
currency gain of $207,664 recorded in 2001. As of December 31, 2002, the
Company's forward contract arrangements allowed the Company to hedge up to 7.0
million Euros.

INTEREST EXPENSE, NET. Net interest expense of $0.7 million was recorded
in 2002 compared to $1.3 million in 2001. The decrease in interest expense is
due to the repayment of the subordinated notes in September 2001 and a reduction
of the interest rate on the Kontron note payable from 11% to 10% effective July
2002. Additionally, financing costs of $882,000 related to warrants issued in
September 1999 were amortized over the two-year term of the subordinated notes.
On February 27, 2003, the Company repaid $2.0 million to Kontron. The Company
anticipates a reduction in interest expense in 2003 as a result of this
repayment plus potential future repayments of its borrowings from Kontron.

OTHER EXPENSE, NET. There were no costs booked to other expense in 2002
compared to approximately $119,700 in 2001. The majority of the 2001 costs were
related to the payments that were required to be made under a legal settlement.
See related discussion under Item 3, Legal Proceedings.

COMPARISON OF YEARS ENDED DECEMBER 30, 2001 AND DECEMBER 31, 2000

NET SALES. Net sales for 2001 were $17.3 million, an increase of $1.6
million or 10% from fiscal year 2000 net sales of $15.7 million. The increase
was primarily attributable to a large order from the United States Army for the
2000 Series Embedded Vehicle Server that shipped in the first two quarters of
2001.

Unit volumes of the 8000 Series represented 45% of total units in 2001
compared to 34% in fiscal year 2000. Production of the 8000 Series began in
fiscal year 2000, therefore the increase in sales in 2001 was attributable to
only a partial year's production in fiscal year 2000. Sales of the 2000 Series
Mobile Data Server represented 34% of total units in 2001 compared to 30% in
fiscal year 2000. The increase in sales was attributable to the large United
States Army order. Unit volumes of the EnVoy product represented 13% in 2001.
Production of the EnVoy product began in 2001 and, therefore, there were no
comparable sales in fiscal year 2000. Unit volumes of the 5000 Series decreased
to 6% of total unit sales in 2001 from 24% in fiscal year 2000. The decrease in
sales was attributable to the discontinuation of the 5000 Series product that
began in fiscal year 2000.

11

Sales by product line were as follows:

- --------------
(1) The 8000 Series product was introduced in fiscal year 2000.
(2) The EnVoy product was introduced in 2001.
(3) The Field Lite, IN Rave and Power Lite are Kontron products. The Company
began marketing these products in 2001.
(4) The 7000 Series product was discontinued and replaced with the 8000 Series
product in fiscal year 2000.
(5) The 5000 Series product was discontinued in fiscal year 2000. Revenues in
2001 related to sales of remaining units on hand.

International sales increased to $2.4 million, or 14% of sales in 2001
from $2.3 million, or 15% of net sales in fiscal year 2000. The majority of
international sales are in Europe, including $1.9 million in 2001 and $1.5
million in fiscal year 2000.

GROSS MARGIN. Gross margin (deficit) increased to $7.8 million in 2001 from
$(1.7) million in fiscal year 2000. Gross margins, as a percentage of net sales,
increased to 45% in 2001 as compared to (11)% in fiscal year 2000. The 2001
gross margin was positively impacted by increased average selling prices,
reduced direct material costs due to outsourcing within the Kontron group and
improved management of inventory. The fiscal year 2000 gross margin was
significantly impacted by $3.1 million of inventory write-downs which resulted
from product line close-outs, changes in outsourcing arrangements and other
technological and market developments. Excluding the $3.1 million of
write-downs, the gross margin in fiscal year 2000 would have been $1.4 million
and 9.0% of net sales.

SALES AND MARKETING. Sales and marketing expenses include salaries,
incentive compensation, commissions, travel, trade shows, technical support and
professional services personnel and general advertising and promotion. These
expenses also include the labor and material costs related to maintaining the
Company's standard one-year warranty program. Sales and marketing expenses were
$2.7 million in 2001, a decrease of $1.7 million as compared to $4.4 million in
fiscal year 2000. As a percentage of net sales, sales and marketing expenses
decreased to 16% in 2001 as compared to 28% in fiscal year 2000. The decrease in
expenses was primarily due to a workforce reduction in fiscal year 2000.

GENERAL AND ADMINISTRATIVE. General and administrative expenses include the
Company's executive, finance, information services and human resources
departments. These expenses decreased to $1.7 million in 2001 compared to $3.9
million in fiscal year 2000. As a percentage of net sales, general and
administrative expenses decreased to 10% in 2001 compared to 25% in fiscal year
2000. The decrease is due to the management workforce reduction that occurred in
August 2000, in addition to a reduction in consulting fees.

RESEARCH AND DEVELOPMENT. Research and development expenses are incurred in
the design, development and testing of new or enhanced products, services and
customized computing platforms. All research and development costs are expensed
as incurred. These expenses decreased to $1.2 million in 2001 from $4.2 million
in fiscal year 2000. As a percentage of net sales, research and development
expenses decreased to 7% in 2001 from 27% in fiscal year 2000. The decrease is
due to sharing research and development costs with Kontron and the synergy
gained by the combined efforts, in addition to a workforce reduction in fiscal
year 2000.

RESTRUCTURING COSTS. Restructuring costs were $0.5 million, or 3% of net
sales in fiscal year 2000. These costs were primarily severance charges due to
changes in the Company's management team at the time of the Kontron investment.

GAIN ON FOREIGN CURRENCY. The Company's credit agreements with Kontron
allow for borrowings which are payable in Euros.

12

In the second quarter of 2001, the Company began utilizing foreign currency
forward contracts to protect against significant fluctuations in net income
(loss) caused by changes in Euro exchange rates. The Company's practice is to
enter into a forward contract at the beginning of each quarter and settle the
contract at the end of the quarter. The Company records gains and losses on
these derivative contracts (which are not designated as hedging instruments for
accounting purposes) in net income (loss) in accordance with the requirements of
Statement of Financial Accounting Standards (SFAS) No. 133, "Derivatives and
Hedging Activities," and also marks the related debt instrument to market under
SFAS No. 52, "Foreign Currency Translation." These gain (loss) amounts are
included in the net foreign currency gain of $207,664 recorded in 2001. As of
December 30, 2001, the Company's forward contract arrangements allowed the
Company to hedge up to 8.0 million Euros.

INTEREST EXPENSE, NET. Net interest expense of $1.3 million was recorded in
2001 compared to $1.7 million in fiscal year 2000. The decrease in interest
expense is due to the repayment of the subordinated notes in September 2001.
Additionally, financing costs of $882,000 related to warrants issued in
September 1999 were amortized over the two-year term of the subordinated notes.

OTHER EXPENSE, NET. Other expense of approximately $119,700 was recorded
in 2001 compared to approximately $641,900 in fiscal year 2000. The majority of
the costs were related to the payments that were required to be made under a
legal settlement. See related discussion under Item 3, Legal Proceedings.

LIQUIDITY AND CAPITAL RESOURCES

In 2002, the Company's revenue decreased 29% compared to 2001 due to fewer
large customer orders and general economic conditions. Even with the decreased
sales, the Company was able to achieve profitability in the fiscal year. The
Company realizes that continuous management of sales, gross margin and cash is
necessary to improve liquidity. There can be no assurance that the Company will
be successful in achieving these measures. Circumstances that are reasonably
likely to affect liquidity include changes in technology, dependence on key
customers, decrease in demand for the Company's products and reliance on Kontron
for financing and research and development support.

In 2003, one of the Company's focus areas is long-term growth by
introducing new products that will further penetrate existing markets as well as
new and growing markets. In 2002, the Company introduced three new products: an
enhanced EnVoy with a Kontron-designed faster CPU module, the FieldWorks 8500
(FW8500) with enhanced features and performance based on another
Kontron-designed CPU module, and a higher-brightness, lower-cost display for the
EnVoy and 2000 Series III product lines. In early 2003, the Company is planning
production of the ReVolution, marking the re-entry of the Company into the
rugged notebook market. The Company continues to be focused on further cost
reductions through on-going product re-design initiatives by Kontron worldwide
mobile design teams.

As in 2002, the Company intends to continue funding its own cash needs in
2003 without assistance from Kontron. To be successful, the Company will focus
on increased sales and profitability, in addition to working capital management.
In 2002, the Company incurred charges for interest expense to Kontron of
approximately $723,000, relating to the note payable to Kontron. The Company
intends to reduce this interest expense in 2003 by making a partial repayment of
the note payable to Kontron as the funds are available. On February 27, 2003,
the Company repaid $2.0 million to Kontron. However, there can be no assurance
that additional repayments will be possible.

Kontron has provided the Company with a written agreement to provide
financial support to enable the Company to meet its cash flow needs and
obligations as and when they become due through December 31, 2003, if necessary.
As of December 31, 2002, Kontron controlled approximately 65% of the Company.
The Company has a line of credit agreement with Kontron which allows for
borrowings of up to 8.5 million Euros for operations ($8.8 million based on
December 31, 2002 exchange rate.) As of December 31, 2002, borrowings under this
agreement bear interest at 10% per annum (payable monthly). Prior to third
quarter 2002, the note had no stated maturity date. Effective in third quarter
2002, the note was amended to establish a maturity date of July 1, 2011. Because
of this amendment, the note was reclassified from current to long-term in the
September 30, 2002 balance sheet. Outstanding borrowings under this line of
credit were approximately $7.5 million at December 31, 2002. Effective March 1,
2003, Kontron agreed to reduce the interest rate to 8%.

In the first quarter of 2002, the Company repaid $1.0 million to Kontron,
consisting of $620,000 in accrued interest and $388,000 in principal. In the
second quarter of 2002, the Company repaid an additional $264,000 in accrued
interest. In the third quarter of 2002, the Company repaid $200,000 to Kontron,
consisting of $178,000 in accrued interest and $22,000 in principal. The Company
has finalized a $750,000 line of credit with a commercial bank and if necessary,
intends to use this line of credit to fund potential cash requirements in excess
of its current cash flow projection. The line of credit expires May 15, 2003.
There were no borrowings outstanding on this line of credit at December 31,
2002.

13

The Company's cash balance as of December 31, 2002 was $2.0 million,
consistent with the December 30, 2001 balance of $2.1 million and compared to
the December 31, 2000 balance of $0.6 million. The Company's accounts receivable
was $3.1 million at December 31, 2002, $3.0 million at December 30, 2001 and
$3.1 million at December 31, 2000. Net inventories decreased to $1.0 million at
December 31, 2002 from $1.2 million at December 30, 2001 and $2.5 million at
December 31, 2000. The change from 2002 to 2001 was due to slightly higher
revenue in the fourth quarter and therefore, lower inventory levels in 2002
compared to 2001. Prepaid expenses decreased to $0.1 million from $0.3 million
due to the return of a deposit from a former supplier. Deferred revenue was $1.1
million at December 31, 2002, $1.3 million at December 30, 2001 and $0.7 million
at December 31, 2000. The change from 2001 to 2002 was attributable to reduced
sales of extended warranties. Accounts payable was $0.8 million at December 31,
2002, $1.3 million at December 30, 2001 and $3.2 million at December 31, 2000.
The change from 2001 to 2002 was attributable to a reduction of inventory, in
addition to reduced overall expenses. Other accrued liabilities decreased to
$0.3 million at December 31, 2002 from $0.8 million at December 30, 2001 and
$1.8 million at December 31, 2000. The change from 2001 to 2002 was due to a
lower interest balance owed to Kontron at December 31, 2002 compared to December
30, 2001.

The Company purchased approximately $55,000 of property, plant and
equipment in 2002 as compared to $24,000 in 2001 and $0.3 million in fiscal year
2000. The Company anticipates purchases of property, plant and equipment in 2003
will remain consistent with 2002.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of December 31, 2002 the Company had approximately $7.5 million
outstanding on its line of credit from Kontron. This loan bears interest at 10%
per annum, payable monthly. Both the principal amount borrowed under the line of
credit and interest payable thereunder are payable in Euros. See the earlier
discussion under "Foreign Currency Transactions" for a description of the
foreign currency forward contract in effect. All remaining transactions of the
Company are conducted and accounts are denominated in United States dollars.
Based on its overall foreign currency rate exposure at December 31, 2002, the
Company does not believe that a hypothetical 10% change in foreign currency
rates would materially adversely affect its financial position or results of
operations.

The Company has no derivative financial instruments or derivative commodity
instruments in its cash and cash equivalents. The Company had $2.0 million in
cash and cash equivalents at December 31, 2002. Based on analysis, shifts in
money market rates would have an immaterial impact on the Company.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

On July 23, 2002, the Audit Committee approved discontinuing the
engagement of Arthur Andersen LLP ("Arthur Andersen") as the Company's
independent auditors and engaging Deloitte & Touche LLP ("Deloitte & Touche")
to serve as the Company's independent auditors for the year ending December 31,
2002. Arthur Andersen's reports on the Company's consolidated financial
statements for each of the fiscal years ended December 30, 2001 and December 31,
2000 did not contain an adverse opinion or disclaimer of opinion, nor were they
qualified or modified as to uncertainty, audit scope or accounting principles.
In connection with its audits for the Company's fiscal years ended December 30,
2001 and December 31, 2000 and through July 23, 2002, there were no
disagreements between the Company and Arthur Andersen on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedures which disagreements, if not resolved to Arthur Andersen's
satisfaction, would have caused Arthur Andersen to make reference to the subject
matter of the disagreements

14

in connection with Arthur Andersen's report on the Company's consolidated
financial statements for such years; and there were no reportable events as
defined in Item 304(a)(1)(v) of Regulation S-K promulgated under the Exchange
Act. During the fiscal years ended December 30, 2001 and December 31, 2000 and
through July 23, 2002, the Company did not consult Deloitte & Touche with
respect to the application of accounting principles to a specified transaction,
either completed or proposed, or the type of audit opinion that might be
rendered on the Company's consolidated financial statements, or any other
matters or reportable events listed in Items 304(a)(2)(i) and (ii) of Regulation
S-K. The firm of Deloitte & Touche has been the independent auditors for the
Company since July 23, 2002.

15

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information required by this item is set forth in the Proxy Statement under
the heading Election of Directors and is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

Information required by this item is set forth in the Proxy Statement under
the heading Executive Compensation and is incorporated herein by reference.

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

Information required by this item is set forth in the Proxy Statement under
the heading Security Ownership of Certain Beneficial Owners and Management and
is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information required by this item is set forth in the Proxy Statement under
the heading Certain Transactions and is incorporated herein by reference.

ITEM 14. CONTROLS AND PROCEDURES

The Company's Chief Executive Officer and President have concluded, based
on their evaluation within 90 days of the filing date of this report, that the
Company's disclosure controls and procedures are adequately designed to ensure
that information required to be disclosed by the Company in the reports that it
files or submits under the Securities and Exchange Act of 1934, as amended, is
recorded, processed, summarized and reported, within the time periods specified
in applicable rules and forms. There have not been any significant changes in
the Company's internal controls or in other factors that could significantly
affect those controls, subsequent to the date of such evaluation, including any
corrective actions taken with regard to significant deficiencies and material
weaknesses.

16

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) The following documents are filed as part of this Annual Report:

1. Financial Statement Schedule: The following financial statement
schedule of Kontron Mobile Computing, Inc. for the fiscal years ended
December 31, 2002, December 30, 2001 and December 31, 2000, is filed
as part of this Report and should be read in conjunction with the
Financial Statements of Kontron Mobile Computing, Inc.

o Schedule II--Valuation and Qualifying Accounts

o Schedules not listed above have been omitted because they are not
applicable or are not required or the information required to be
set forth therein is included in the Financial Statements or
Notes thereto.

2. Exhibits: The Exhibits listed on the accompanying Index to Exhibits are
filed as part of, or incorporated by reference into, this Report.

(b) Reports on Form 8-K: No reports on Form 8-K were filed by the Company
during the quarter ended December 31, 2002.

17

SIGNATURES

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

KONTRON MOBILE COMPUTING, INC.

By /s/ THOMAS SPARRVIK
------------------------------------
Thomas Sparrvik
Chief Executive Officer

Dated: March 31, 2003

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

18

CERTIFICATIONS

I, Thomas Sparrvik, Chief Executive Officer of Kontron Mobile Computing, Inc.,
certify that:

1. I have reviewed this annual report on Form 10-K of Kontron Mobile
Computing, Inc.;

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

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

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

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

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

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

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

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

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

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

Date: March 31, 2003 /s/ Thomas Sparrvik
----------------------------------
Chief Executive Officer

19

CERTIFICATIONS

I, Dale R. Szymborski, President of Kontron Mobile Computing, Inc., certify
that:

1. I have reviewed this annual report on Form 10-K of Kontron Mobile
Computing, Inc.;

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

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

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

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

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

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

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

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

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

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

Date: March 31, 2003 /s/ Dale R. Szymborski
--------------------------------
President

20

INDEX TO EXHIBITS

22

BALANCE SHEETS

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

23

STATEMENTS OF OPERATIONS

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

24

STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)

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

25

STATEMENTS OF CASH FLOWS

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

26

NOTES TO FINANCIAL STATEMENTS

1. NATURE OF BUSINESS

OPERATING ACTIVITIES. Kontron Mobile Computing, Inc. ("Kontron Mobile
Computing" or "the Company"), was incorporated in Minnesota in 1992 under its
former name of FieldWorks, Incorporated and is dedicated to the development and
sale of rugged portable computing solutions. The Company's computer platforms
are designed for demanding field environments, meeting military standards for
shock, vibration, moisture and temperature extremes. The Company's products have
been designed with a modular system configuration that allows expansion paths
including desktop-like ISA/PCI computer card expansion slots, PC card slots,
serial ports, universal serial bus and custom modules. As a result, all
platforms are flexible "electronic toolboxes" that integrate the user's
application-specific tools and technologies into one custom, rugged mobile
solution.

Kontron Mobile Computing's focus is to be a key provider of tools and
services to facilitate field data acquisition, test and measurement, telemetry,
mobile computing and communication applications through the partnership with
value-added resellers. The markets for the Company's products consist of those
businesses, armed forces, national and local governmental agencies and other
entities that are seeking reliable mobile computing for field personnel and
functions. The Company provides professional services including consulting
services relating to product application, technical support, project management,
product implementation and troubleshooting on post-installation questions.
Software integration services, including loading and testing of multiple
software applications, can be provided to relieve end users of the burden of
installing software. On-site product training and consultation services tailored
to customer requirements can also be provided.

KONTRON AG EQUITY INVESTMENT. On June 29, 2000, the Company entered into a
Purchase and Option Agreement with FWRKS Acquisition Corp., a wholly owned
subsidiary of Kontron AG ("Kontron"). The agreement was amended on August 16,
2000. Under the amended agreement, Kontron acquired 6 million shares of common
stock of the Company for a purchase price of $5.4 million. In addition, the
option Kontron previously granted to Industrial-Works Holding Co., LLC, (IWHC),
a wholly owned subsidiary of Glenmount International was amended. As amended,
IWHC was granted an option to acquire 62,000 shares of Kontron in exchange for
preferred shares of the Company that were convertible into 3.4 million shares of
the Company common stock. Both of these matters were approved at a special
shareholders meeting held on October 18, 2000 and adjourned to October 27, 2000
and the transactions were closed in December 2000. As a result, Kontron controls
approximately 65% of the Company through 7,694,492 shares of common stock and
4,750,000 shares of Series B and C Preferred Convertible Stock convertible into
5,468,750 shares of common stock of the Company.

SIGNIFICANT RISKS AND UNCERTAINTIES. In 2002, the Company's revenue
decreased 29% compared to 2001 due to fewer large customer orders and general
economic conditions. Even with the decreased sales, the Company was able to
achieve profitability in the fiscal year. The Company realizes that continuous
management of sales, gross margin and cash is necessary to improve liquidity.
There can be no assurance that the Company will be successful in achieving these
measures. Circumstances that are reasonably likely to affect liquidity include
changes in technology, dependence on key customers, decrease in demand for the
Company's products and reliance on Kontron for financing and research and
development support.

In 2003, one of the Company's focus areas is long-term growth by
introducing new products that will further penetrate existing markets as well as
new and growing markets. In 2002, the Company introduced three new products: an
enhanced EnVoy with a Kontron-designed faster CPU module, the FieldWorks 8500
(FW8500) with enhanced features and performance based on another
Kontron-designed CPU module, and a higher-brightness, lower-cost display for the
EnVoy and 2000 Series III product lines. In early 2003, the Company is planning
production of the ReVolution, marking the re-entry of the Company into the
rugged notebook market. The Company continues to be focused on further cost
reductions through on-going product re-design initiatives by Kontron worldwide
mobile design teams.

As in 2002, the Company intends to continue funding its own cash needs in
2003 without assistance from Kontron. To be successful, the Company will focus
on increased sales and profitability, in addition to working capital management.
In 2002, the Company incurred charges for interest expense to Kontron of
approximately $723,000, relating to the note payable to Kontron. The Company
intends to reduce this interest expense in 2003 by making a partial repayment of
the note payable to Kontron as the funds are available. See Note 2 for
additional discussion of note repayments.

Kontron has provided the Company with a written agreement to provide
financial support to enable the Company to meet its cash flow needs and
obligations as and when they become due through December 31, 2003, if necessary.
As of December 31, 2002, Kontron controlled approximately 65% of the Company.
The Company has a line of credit agreement with Kontron which allows for
borrowings of up to 8.5 million Euros for operations ($8.8 million based on
December 31, 2002 exchange rate.) As of December 31, 2002, borrowings under this
agreement bear interest at 10% per annum (payable monthly). Prior to third
quarter 2002, the note had no stated maturity date. Effective in third quarter
2002, the note was amended to establish a maturity date of

27

July 1, 2011. Because of this amendment, the note was reclassified from current
to long-term in the September 30, 2002 balance sheet. Outstanding borrowings
under this line of credit were approximately $7.5 million at December 31, 2002.

In the first quarter of 2002, the Company repaid $1.0 million to Kontron,
consisting of $620,000 in accrued interest and $388,000 in principal. In the
second quarter of 2002, the Company repaid an additional $264,000 in accrued
interest. In the third quarter of 2002, the Company repaid $200,000 to Kontron,
consisting of $178,000 in accrued interest and $22,000 in principal. The Company
has finalized a $750,000 line of credit with a commercial bank and if necessary,
intends to use this line of credit to fund potential cash requirements in excess
of its current cash flow projection. The line of credit expires May 15, 2003.
There were no borrowings outstanding on this line of credit at December 31,
2002.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

FISCAL YEAR. In 2002, the Company changed to a fiscal year ending on
December 31. The Company believes that this change does not significantly affect
the comparability of the financial statements. Prior to 2002, fiscal years ended
on the Sunday closest to December 31st. All references herein to "2001" and
"2000" represent the fiscal years ended December 30, 2001 and December 31, 2000
respectively, each of which were 52-week years.

EARNINGS (LOSS) PER COMMON SHARE. Basic earnings (loss) per share is
computed by dividing net income (loss) by the weighted average number of shares
of common stock outstanding during the fiscal year. Diluted earnings (loss) per
share is computed under the treasury stock method and is calculated to compute
the dilutive effect of potential common shares.

A reconciliation of these amounts is as follows:

Potential common shares of 4,605,451, 9,916,450 and 10,473,854 related to
options, warrants and convertible preferred stock were excluded from the
computation of diluted earnings (loss) per share for 2002, 2001 and 2000 as
inclusion of these shares would have been antidilutive.

CASH AND CASH EQUIVALENTS. Cash and cash equivalents consist of amounts
held in the Company's checking accounts and money market funds with original
maturities of 90 days or less. The carrying value of these instruments
approximates fair value.

INVENTORIES. Inventories are stated at the lower of cost or market value,
as determined by the first-in, first-out cost method.

The components of inventories were:

PROPERTY AND EQUIPMENT. Property and equipment are recorded at cost. Repair
and maintenance costs which do not significantly extend the lives of the
respective assets are expensed as incurred. Depreciation is computed using the
straight-line method over the related assets' useful lives, ranging from two to
seven years.

WARRANTIES. The Company warrants its products against defects in materials
and workmanship under normal use and service for one year from the date of
purchase. Warranty costs for existing products, including parts and labor, are
estimated based on actual historical experience. Management uses that historical
data to accrue reserves to cover estimated costs based on units in the field.
Management reviews the estimated warranty liability on a quarterly basis to
determine its adequacy.

28

As required under Financial Accounting Standards Board (FASB)
Interpretation No. 45 (FIN 45) (see "Accounting Pronouncements" below), the
following table presents the changes in the Company's warranty liability for the
year ended December 31, 2002:

REVENUE RECOGNITION. The Company generally recognizes sales upon shipment
of its products. In certain limited situations, at the customer's written
request, the Company enters into bill and hold transactions whereby title
transfers to the customer, but the product does not ship until a specified later
date. The Company recognizes revenues associated with bill and hold arrangements
when the product is complete, ready to ship, and all bill and hold revenue
recognition criteria have been met. Accruals for sales returns and allowances
are provided at the time of shipment based on experience. Service revenue,
including non-warranty work and related parts sales, is recognized as earned.
Extended warranty contracts are offered, generally as a separately priced
arrangement with the customer. Revenues related to extended warranties are
recorded as deferred revenue and recognized ratably over the term of the related
agreements.

SIGNIFICANT CUSTOMERS. Sales to the United States Army represented 15% of
net sales in 2002 and 28% of net sales in 2001. Sales to John Deere Information
Systems represented 11% of net sales in fiscal year 2000.

RESEARCH AND DEVELOPMENT. Research and development costs are charged to
expense as incurred.

CONCENTRATIONS OF CREDIT RISK. At December 31, 2002, two large,
well-established customers made up 74% of the outstanding accounts receivable
balance. All amounts due on these balances were collected subsequent to
year-end. The Company's exposure to concentrations of credit risk relates
primarily to trade receivables. This exposure is limited due to the large number
of customers and their dispersion across several vertical markets and
geographies. The Company controls potential credit risk by performing credit
evaluations for all customers and requires letters of credit, bank guarantees
and advance payments, if deemed necessary.

USE OF ESTIMATES. The preparation of financial statements in conformity
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities as
of the date of the financial statements. Estimates also affect the reported
amounts of revenues and expenses during the periods presented. Estimates are
used for such items as allowances for doubtful accounts, inventory write-downs,
useful lives of property and equipment, warranty costs and income tax valuation
allowances. Ultimate results could differ from those estimates.

ACCOUNTING PRONOUNCEMENTS. In June 2002, the FASB issued Statement of
Financial Accounting Standards (SFAS) No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities". This statement requires that a liability for
a cost associated with an exit or disposal activity be recognized when the
liability is incurred. It also establishes that fair value is the objective for
initial measurement of the liability. This statement is effective for exit or
disposal activities that are initiated after December 31, 2002.

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" (FIN 45). FIN 45 establishes accounting
and disclosure requirements for a company's obligations under certain guarantees
that it has issued. A guarantor is required to recognize a liability for the
obligation it has undertaken in issuing a guarantee, including the ongoing
obligation to stand ready to perform over the term of the guarantee in the event
that the specified triggering events or conditions occur. The objective of the
initial measurement of that liability is the fair value of the guarantee at its
inception. The initial recognition and measurement provisions of this
Interpretation are applicable on a prospective basis to guarantees issued or
modified after December 31, 2002. FIN 45 also requires expanded disclosure of
information related to product warranty amounts recorded in the financial
statements. The disclosure provisions are effective for interim and annual
periods ending after December 15, 2002, and are included within Note 2.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure", an amendment to SFAS No. 123. This
standard provides alternative methods of transition for any voluntary changes to
the fair value based method of accounting for stock-based employee compensation.
It also amends the disclosure requirements to require prominent disclosure in
both the annual and interim financial statements about the method of accounting
for stock-based employee compensation and the effect of the method used on
reported results. The new disclosure requirements are effective for

29

annual periods ending after December 15, 2002 and will be effective for interim
periods beginning after December 15, 2002. The annual requirements are included
within Notes 2 and 6 and the interim requirements will be adopted in the
Company's fiscal quarter ending March 31, 2003.

The Company applies the intrinsic value method described in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
related Interpretations in accounting for its stock option plans. Accordingly,
no compensation cost has been recognized in the accompanying statements of
operations. The following table illustrates the effect on net income (loss) and
net income (loss) per common share if the Company had applied the fair value
recognition provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation."

FOREIGN CURRENCY TRANSACTIONS. As described in Note 4, the Company's credit
agreements with Kontron allow for borrowings which are payable in Euros.

In the second quarter of 2001, the Company began utilizing foreign currency
forward contracts to protect against significant fluctuations in net income
(loss) caused by changes in Euro exchange rates. The Company's practice is to
enter into a forward contract at the beginning of each quarter and settle the
contract at the end of the quarter. The Company records gains and losses on
these derivative contracts (which are not designated as hedging instruments for
accounting purposes) in net income (loss) in accordance with the requirements of
Statement of Financial Accounting Standards (SFAS) No. 133, "Derivatives and
Hedging Activities," and also marks the related debt instrument to market under
SFAS No. 52, "Foreign Currency Translation." These gain (loss) amounts are
included in the net foreign currency loss of $169,222 recorded in 2002 and the
net foreign currency gain of $207,664 recorded in 2001. As of December 31, 2002,
the Company's forward contract arrangements allowed the Company to hedge up to
7.0 million Euros.

RELATED PARTY TRANSACTIONS. The Company sells certain products to Kontron
and the Kontron group of companies for further resale outside North America.
These sales were approximately $1.1 million in 2002 and $1.3 million in 2001.
The Company also buys products from these related entities for further resale
within North America. These purchases were approximately $2.0 million in 2002
and $0.8 million in 2001. The Company and the Kontron group of companies are
operating under agreements regarding the sales and purchases from each other.
Such transactions are in the normal course of business at negotiated prices
comparable to similar transactions with other customers and suppliers.
Management believes the transactions with Kontron and the Kontron group of
companies are at arms length and are under terms no less favorable to the
Company than those with other customers or suppliers.

Included in the financial statements are approximately $119,900 and
$118,500 of related party receivables and approximately $412,400 and $210,000 of
related party payables as of December 31, 2002 and December 30, 2001,
respectively.

The Company has a credit line agreement with Kontron to provide up to 8.5
million Euros for operations ($8.8 million based on December 31, 2002 exchange
rate). Borrowings under this agreement bear interest at 10% per annum (payable
monthly). The maturity date of the note is July 1, 2011. Outstanding borrowings
under this line of credit were approximately $7.5 million at December 31, 2002.
On February 27, 2003, the Company repaid $2.0 million to Kontron; however, there
can be no assurance that additional repayments will be possible.

3. INCOME TAXES

The Company accounts for income taxes under the liability method, which
requires recognition of deferred income tax assets and liabilities for the
expected future income tax consequences under enacted tax laws of temporary
differences between the financial reporting and tax bases of assets and
liabilities.

30

A reconciliation of the Company's statutory tax rate to the effective rate
is as follows:

As of December 31, 2002, the Company had approximately $30 million of net
operating loss carryforwards for federal income tax purposes that are available
to offset future taxable income through the year 2022. These carryforwards will
be subject to an annual limitation as a result of a deemed change in ownership
under the tax regulations at the time of the Kontron transaction in December
2000.

The components of the Company's deferred tax asset are as follows:

A full valuation allowance has been established to offset the deferred tax
assets, as management currently believes that it is more likely than not that
the benefit will not be realized.

4. LINE OF CREDIT AND SUBORDINATED NOTES PAYABLE

KONTRON AG LINE OF CREDIT. The Company has a line of credit agreement with
Kontron which allows for borrowings of up to 8.5 million Euros for operations
($8.8 million based on December 31, 2002 exchange rate.) As of December 31,
2002, borrowings under this agreement bear interest at 10% per annum (payable
monthly). Prior to third quarter 2002, the note had no stated maturity date.
Effective in third quarter 2002, the note was amended to establish a maturity
date of July 1, 2011. Because of this amendment, the note was reclassified from
current to long-term in the September 30, 2002 balance sheet. Outstanding
borrowings under this line of credit were approximately $7.5 million at December
31, 2002.

SUBORDINATED NOTES PAYABLE. In September 1999, the Company completed a
private placement of $3.0 million in 11% subordinated notes. The notes were
repaid at the September 2001 maturity date. Noteholders also received warrants
to purchase 1.5 million shares of common stock exercisable at $1.00 per share.
The warrants are exercisable for five years, and were recorded at their
estimated fair value of $882,000 at the date of issuance.

5. SHAREHOLDERS' EQUITY

Warrants to purchase 2,337,501 and 2,556,251 shares of the Company's common
stock were outstanding at December 31, 2002 and December 30, 2001. The warrants
are exercisable at various times through February 2007 at prices ranging from
$1.00 to $2.00.

On March 31, 2000, the Company issued 500,000 shares of Series C
Convertible Preferred Stock to IWHC. The Company recorded a $250,000 charge
relating to the beneficial conversion feature associated with this preferred
stock. The Company issued a warrant to IWHC to purchase 100,000 shares of common
stock with an exercise price of $2.00 per share in connection with this
transaction. Subsequent to March 31, 2000, the conversion rate was adjusted to
such that the holders have the right to receive a total of 1,041,666 shares of
common stock upon conversion of the Series C Convertible Participating Preferred
Stock. In connection with this conversion rate adjustment, an additional
beneficial conversion feature of $270,833 was recorded.

On February 22, 2000, the Company completed a $4.25 million equity
investment by IWHC. In exchange for the $4.25 million investment, the Company
issued 4,250,000 shares of Series B Convertible Preferred Stock (each share of
which was initially convertible into one share of Common Stock). Subsequent to
February 22, 2000, the conversion rate was adjusted to such that the holders
have the right to receive a total of 4,427,083 shares of common stock upon
conversion of the Series B Convertible

31

Participating Preferred Stock. IWHC received 500,000 warrants exercisable at
$1.00 per share. The Company used the net proceeds for market expansion and new
product development as well as for working capital and general corporate
purposes. In December 2000, IWHC tendered all of its shares of Series B and
Series C Convertible Preferred Stock to Kontron in exchange for shares of
Kontron Common Stock.

In the event of liquidation of the Company, the liquidation preference
would first be to shareholders of Series B Convertible Participating Preferred
Stock, followed by shareholders of Series C Convertible Participating Preferred
Stock, followed by shareholders of Common Stock. Voting rights of both the
Series B and Series C Convertible Participating Stock are equal to that of the
Common Stock shareholders, on an as if converted basis.

6. STOCK OPTION AND 401(k) PLANS

STOCK OPTION PLAN. The Company has a Long-Term Incentive and Stock Option
Plan (the Plan). Under the Plan, options are granted at an exercise price equal
to the fair market value of the common stock at the date of grant. Incentive
stock options are granted to employees, and vest over varying periods not to
exceed ten years. The Plan is authorized to issue up to 2,500,000 shares of
common stock for such options. At December 31, 2002 and December 30, 2001,
283,627 and 610,127 shares were available for future grants.

The Company also has a Non-Employee Directors' Stock Option Plan (the
Directors' Plan). Under the Directors' Plan, each non-employee director receives
25,000 nonqualified options upon election and 10,000 options at each reelection
date. At December 31, 2002 and December 30, 2001, 87,500 and 137,500 shares were
available for future grants.

On August 4, 1999, the Board of Directors approved the repricing of all
outstanding incentive stock options for non-director employees with an exercise
price greater than $1.25. The new exercise price of such options is $1.25, an
amount greater than the fair market value of the Company's common stock on that
date. A total of 819,050 options with exercise prices of $1.53 to $6.40 were
cancelled and reissued under the terms described above. The Company is required
to account for these repriced options under variable plan accounting. No
compensation charge was recognized in 2002, 2001 or 2000, as the market value of
the Company's common stock was less than the exercise price for these options.

Shares subject to option are summarized as follows:

32

Additional information regarding options outstanding at December 31, 2002
is as follows:

The weighted average fair values of options granted were as follows:

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 2002, 2001 and 2000:

401(k) PROFIT-SHARING PLAN. The Company has a 401(k) profit-sharing plan
(the 401(k) Plan) covering substantially all employees. Eligible employees may
elect to defer up to 15% of their eligible compensation. The Company accrues
matching contributions of 50% on the first 4% of each plan participant's
eligible contributions. The Company's matching contributions were $38,500,
$40,500 and $51,600 for 2002, 2001 and 2000, respectively.

7. COMMITMENTS AND CONTINGENCIES

LEASES. The Company leases its current headquarters office facilities under
an operating lease which expires November 30, 2004. The Company has subleased
two portions of the site: 12,422 square feet of office space has been subleased
for the period of September 1, 2000 to November 30, 2004 and 4,728 square feet
of warehouse space has been subleased with an original ending date of June 30,
2001 that has now become month-to-month and is cancelable by either party with a
60-day notice.

As of August 2002, the sublessee in the larger space notified the Company
that it was unable to meet its full rent obligation. The Company agreed to
accept a demand promissory note for each month that the sublessee paid short,
bearing simple interest at the rate of 12% per annum, compounded monthly. As of
December 31, 2002, the Company has accepted promissory notes of approximately
$42,700, for which a full reserve has been recorded due to uncertainty of
collection.

Total rental payments to be received over the term of the non-cancelable
sublease agreement, assuming payment in full, will be $742,000. Rent expense
associated with operating leases was $512,000, $496,600 and $485,400 for 2002,
2001 and 2000, respectively. The Company does not have any capital leases as of
December 31, 2002.

The following is a schedule of future minimum operating lease payments as
of December 31, 2002:

2003 ...................................... $501,000
2004 ...................................... 449,000
2005 ...................................... 0

33

LEGAL PROCEEDINGS. The Company is involved in legal actions in the ordinary
course of its business. Although the Company cannot predict the outcome of any
such legal actions, management believes that there is no pending legal
proceeding against or involving the Company for which the outcome is likely to
have a material adverse effect upon the Company's financial position, results of
operations or cash flows.

8. SEGMENT REPORTING

Based on the requirements of Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information",
the Company has determined that development and sale of rugged portable
computing solutions is its only reportable segment.

Sales by geographic locations were as follows:

* Denotes less than $1,000 in sales

Sales by product line were as follows:

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

(1) The EnVoy product was introduced in 2001.

(2) The Field Lite, IN Rave and Power Lite are Kontron products. The Company
began marketing these products in 2001.

(3) The 7000 Series product was discontinued and replaced with the 8000 Series
product in fiscal year 2000.

(4) The 5000 Series product was discontinued in fiscal year 2000. Revenues in
2001 and 2002 related to sales of remaining units on hand.

All of the Company's long-lived assets are located in the United States.

34

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders of Kontron Mobile Computing, Inc.:

We have audited the accompanying balance sheet of Kontron Mobile Computing, Inc.
as of December 31, 2002, and the related statements of operations, shareholders'
equity (deficit), and cash flows for the year then ended. Our audit also
included the financial statement schedule for the year ended December 31, 2002
listed in the Index at Item 15. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements and
financial statement schedule based on our audit. The financial statements and
financial statement schedules of the Company for the years ended December 30,
2001 and December 31, 2000 were audited by other auditors who have ceased
operations. Those auditors expressed an unqualified opinion on those financial
statements and financial statement schedules in their report dated February 11,
2002.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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. An audit also includes 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, such financial statements present fairly, in all material
respects, the financial position of Kontron Mobile Computing, Inc. as of
December 31, 2002, and the results of their operations and their cash flows for
the year then ended, in conformity with accounting principles generally accepted
in the United States of America. Also, in our opinion, such financial statement
schedule, when considered in relation to the financial statements taken as a
whole, presents fairly in all material respects, the information set forth
therein as of December 31, 2002, and for the year then ended.

DELOITTE & TOUCHE LLP

Minneapolis, Minnesota
January 24, 2003
(February 27, 2003 as to the last sentence of Note 2)

35

THIS IS A COPY OF A REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN LLP. THIS REPORT
HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP NOR HAS ARTHUR ANDERSEN LLP
PROVIDED A CONSENT TO THE INCLUSION OF ITS REPORT IN THIS ANNUAL REPORT.

Report of independent public accountants

To Kontron Mobile Computing, Inc.:

We have audited the accompanying balance sheets of Kontron Mobile Computing,
Inc. (a Minnesota corporation, formerly known as FieldWorks, Incorporated) as of
December 30, 2001 and December 31, 2000, and the related statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended December 30, 2001. 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 in accordance with auditing standards generally accepted
in the 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. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Kontron Mobile Computing, Inc.
as of December 30, 2001 and December 31, 2000, and the results of its operations
and its cash flows for each of the three years in the period ended December 30,
2001 in conformity with accounting principles generally accepted in the United
States.

Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. Schedule II is presented for purposes of complying
with the Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.

ARTHUR ANDERSEN LLP

Minneapolis, Minnesota,
February 11, 2002

36

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS