<PAGE>

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

                                 UNITED STATES

                      SECURITIES AND EXCHANGE COMMISSION

                            Washington, D. C. 20549

                                ______________


                                   FORM 10-Q

                                ______________

(Mark One)

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

                      For the period ended June 30, 2001

                                      or

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

                        Commission File Number: 0-19923

                                ______________

                              STM WIRELESS, INC.
            (Exact Name of Registrant as Specified in its Charter)

                                ______________


                     Delaware                               95-3758983
           (State or other jurisdiction                  (I.R.S. Employer
         of incorporation or organization)              Identification No.)

          One Mauchly, Irvine, California                      92618
     (Address of principal executive offices)               (Zip code)

                                (949) 753-7864
             (Registrant's telephone number, including area code)

                                ______________


     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 and (2) has been subject to such filing
requirements for the last 90 days.

                              Yes [X]     No [_]

     As of August 1, 2000, there were 7,248,325 shares of Common Stock, $0.001
par value per share, outstanding.

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

                              STM WIRELESS, INC.
                                     INDEX

<TABLE>
<CAPTION>
Part I.      FINANCIAL INFORMATION                                                                            Page
                                                                                                              ----
<S>                                                                                                           <C>
             Item 1.     Financial Statements

                         Condensed Consolidated Balance Sheets at June 30, 2001
                         and December 31, 2000.............................................................      3

                         Condensed Consolidated Statements of Operations for the
                         three and six-month periods ended June 30, 2001 and June 30, 2000.................      4

                         Condensed Consolidated Statements of Cash Flows for the six
                         month periods ended June 30, 2001 and June 30, 2000...............................      5

                         Notes to Condensed Consolidated Financial Statements..............................   6-10

             Item 2.     Management's Discussion and Analysis of Financial
                         Condition and Results of Operations...............................................  11-14

             Item 3.     Quantitative And Qualitative Disclosures
                         About Market Risk.................................................................  14-15

Part II.     Other Information.............................................................................     16

             Item 1.     Legal Proceedings

             Item 6.     Exhibits And Reports On Form 8-K
</TABLE>

                                       2
<PAGE>

         Part I--Financial Information (Item 1--Financial Statements)


                               STM WIRELESS, INC
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                       (In Thousands, Except Share Data)
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                                        June 30,        December 31,
                                                                                          2001             2000
                                                                                          ----             ----
<S>                                                                                     <C>             <C>
                                       Assets
Current assets:
   Cash and cash equivalents........................................................    $  4,394          $  2,903
   Short-term investments...........................................................         162                --
   Restricted cash and short-term investments.......................................       2,150             2,250
   Accounts receivable, net.........................................................       5,506             7,014
   Inventories, net.................................................................       8,651             8,355
   Prepaid expenses and other current assets........................................         474               405
                                                                                        --------          --------
     Total current assets...........................................................      21,337            20,927
Property & equipment, net...........................................................       7,901             8,266
Equity and other investments........................................................          --               157
Other assets........................................................................         106               116
                                                                                        --------          --------
                                                                                        $ 29,344          $ 29,466
                                                                                        ========          ========

                        Liabilities and Stockholders' Equity
Current liabilities:
   Short-term borrowings............................................................    $  3,474          $  4,588
   Current portion of long-term debt................................................         108               192
   Accounts payable.................................................................       4,362             5,941
   Accrued liabilities..............................................................       2,316             2,552
   Customer deposits and deferred revenue...........................................       2,895             1,224
   Income taxes payable.............................................................         544               541
                                                                                        --------          --------
     Total current liabilities......................................................      13,699            15,038
Long-term debt......................................................................       6,806             6,848
Other long-term liabilities.........................................................         109                33
Stockholders' equity:
   Preferred stock, $0.001 par value; 5,000,000 shares
     authorized, none issued or outstanding.........................................          --                --
   Common stock, $0.001 par value; 20,000,000 shares
     authorized; issued and outstanding 7,248,325 shares
     at June 30, 2001 and 7,248,075 at December 31, 2000............................           7                 7
   Additional paid in capital.......................................................      39,287            39,287
   Accumulated deficit..............................................................     (30,264)          (31,447)
   Receivable from stockholder......................................................        (300)             (300)
                                                                                        --------          --------
     Total stockholders' equity.....................................................       8,730             7,547
                                                                                        --------          --------
                                                                                        $ 29,344          $ 29,466
                                                                                        ========          ========
</TABLE>

     See accompanying notes to condensed consolidated financial statements

                                       3
<PAGE>

                               STM WIRELESS, INC
                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                       (In Thousands, Except Share Data)
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                For the Three Months         For the Six Months
                                                                   Ended June 30,              Ended June 30,
                                                               ----------------------      ----------------------
                                                                 2001          2000          2001          2000
                                                               --------      --------      --------      --------
<S>                                                            <C>           <C>           <C>           <C>
Revenues:
 Products...................................................   $  6,485      $  2,814      $ 12,050      $  6,047
 Services...................................................        626           283         1,295           867
                                                               --------      --------      --------      --------
  Total revenues............................................      7,111         3,097        13,345         6,914
Cost of revenues:
 Products...................................................      4,191         1,548         7,780         3,567
 Services...................................................        542           490         1,186           884
                                                               --------      --------      --------      --------
  Total cost of revenues....................................      4,733         2,038         8,966         4,451

Gross profit................................................      2,378         1,059         4,379         2,463
Operating costs and other operating items:
 Selling, general & administrative expenses.................      1,436         1,651         2,651         2,998
 Research & development.....................................      1,321         1,410         2,696         2,782
 Recovery of note receivable from affiliate.................         --            --            --        (3,175)
                                                               --------      --------      --------      --------
  Total.....................................................      2,757         3,061         5,347         2,605
Operating loss..............................................       (379)       (2,002)         (968)         (142)
 Foreign currency losses....................................         (6)         (263)           (6)         (257)
 Gain on sale of assets.....................................         --           840            --           840
 Gain on disposal of affiliate..............................      2,510           440         2,510         1,015
 Interest income............................................         84           165           181           422
 Interest expense...........................................       (262)         (272)         (534)         (433)
                                                               --------      --------      --------      --------

Income (loss) before income taxes ..........................      1,947        (1,092)        1,183         1,445
 Income tax expense.........................................         --           (50)           --           (50)
                                                               --------      --------      --------      --------
Net income (loss)...........................................   $  1,947      $ (1,142)     $  1,183      $  1,395
                                                               ========      ========      ========      ========
Net income (loss) per common share:
 Basic......................................................   $   0.27      $  (0.16)     $   0.16      $   0.20
                                                               --------      --------      --------      --------
 Diluted....................................................   $   0.27      $  (0.16)     $   0.16      $   0.19
                                                               ========      ========      ========      ========
Common shares used in computing per share amounts:
 Basic......................................................      7,248         7,145         7,248         7,120
 Diluted....................................................      7,248         7,145         7,250         7,479
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                       4
<PAGE>

                              STM WIRELESS, INC.
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (In Thousands)
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                                         Six Months Ended June 30,
                                                                                           2001             2000
                                                                                         --------         --------
<S>                                                                                      <C>              <C>
Net cash provided by (used in) operations.............................................   $    518         $    (59)
                                                                                         --------         --------

 Cash flows provided by investing activities:
 Proceeds from the sale of stock in DTPI..............................................      2,510              440
 Cash proceeds from disposal of affiliate.............................................         --              575
 Decrease in restricted assets........................................................        100              236
 Increase in short-term investments...................................................       (162)              --
 Acquisition of property, plant and equipment.........................................       (311)            (353)
                                                                                         --------         --------
Net cash provided by investing activities.............................................      2,137              898
                                                                                         --------         --------

Cash flows from financing activities:
 Proceeds from exercise of stock options..............................................         --              650
 Increases (repayments) of short-term borrowings......................................     (1,114)           1,365
 Increase in other long-term liabilities..............................................         76               --
 Repayment of long-term debt..........................................................       (126)            (395)
                                                                                         --------         --------
Net cash provided by (used in) financing activities...................................     (1,164)           1,620
                                                                                         --------         --------

Effect of exchange rate on changes in cash and cash equivalents.......................         --               (7)
Net increase in cash and cash equivalents.............................................      1,491            2,452
Cash and cash equivalents at beginning of period......................................      2,903            4,441
                                                                                         --------         --------
Cash and cash equivalents at end of period............................................   $  4,394         $  6,893
                                                                                         ========         ========
</TABLE>

    See accompanying notes to condensed consolidated financial statements.

                                       5
<PAGE>

                              STM WIRELESS, INC.
            NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                   SIX MONTHS ENDED JUNE 30, 2001 AND 2000
                                  (Unaudited)



1.       Basis of Presentation:

         These financial statements are unaudited; however, the information
contained herein for STM Wireless, Inc. (the "Company" or "STM") gives effect to
all adjustments necessary (consisting only of normal accruals), in the opinion
of Company management, to present fairly the financial statements for the
interim periods presented.

         The results of operations for the current interim period are not
necessarily indicative of the results to be expected for the current year.

         Although the Company believes that the disclosures in these financial
statements are adequate to make the information presented not misleading,
certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission (the "SEC"), and
these condensed consolidated financial statements should be read in conjunction
with the financial statements included in the Company's Annual Report on Form
10-K for the year ended December 31, 2000, which is on file with the SEC.
Certain reclassifications have been made to the 2000 condensed consolidated
financial statements to conform to the 2001 presentation.

2.       Inventories:

         Inventories are summarized as follows:

<TABLE>
<CAPTION>
                                                                                    June 30,        December 31,
                                                                                      2001              2000
                                                                                  -------------    -------------
          <S>                                                                       <C>               <C>
          Raw materials........................................................     $    4,858        $    5,046
          Work in process......................................................          1,816             1,275
          Finished goods.......................................................          1,977             2,034
                                                                                   -----------      ------------
                                                                                    $    8,651        $    8,355
                                                                                   ===========      ============
</TABLE>

3.     Net Income (Loss) Per Share:

<TABLE>
<CAPTION>
                                                                   Three Months Ended       Six Months Ended
                                                                       June 30,                  June 30,
                                                               -------------------------   -----------------------
                                                                  2001          2000         2001          2000
                                                               ---------      ----------   ---------    ----------
         <S>                                                   <C>            <C>          <C>          <C>
         Net income (loss).................................     $  1,947       $ (1,142)    $  1,183       $ 1,395
                                                               ---------      ---------    ---------    ----------
         Basic:
         Weighted average common shares
            outstanding used in computing basic
            net income (loss) per share....................        7,248          7,145        7,248         7,120
                                                               ---------      ---------    ---------    ----------
         Basic net income (loss) per share.................     $   0.27       $  (0.16)    $   0.16       $  0.20
                                                               ---------      ---------    ---------    ----------
         Diluted:
         Weighted average common shares
            outstanding....................................        7,248          7,145        7,248         7,120
         Dilutive options outstanding......................           --             --            2           359
                                                               ---------      ---------    ---------    ----------
         Shares used in computing diluted net
            income (loss) per share........................        7,248          7,145        7,250         7,479
                                                               ---------      ---------    ---------    ----------
         Diluted net income (loss) per share...............     $   0.27       $  (0.16)    $   0.16       $  0.19
                                                               ---------      ---------    ---------    ----------
</TABLE>

         For the six months ended June 30, 2001, options to purchase
approximately 1,298,000 shares of common stock were not included in the
computation of diluted net income per share because the options' exercise price
was greater than the average market price of the common shares, and therefore,
the effect would be antidilutive. For the three months ended June 30, 2001,
options to purchase approximately 1,271,000 shares of common stock were
outstanding and were excluded from the computation of diluted net income per
share, as the effect would be
                                       6
<PAGE>

                              STM WIRELESS, INC.
            NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                   SIX MONTHS ENDED JUNE 30, 2001 AND 2000
                                  (Unaudited)


antidilutive. Options to purchase approximately 200,000 and 1,117,000 shares of
common stock were outstanding for the six months and three months ended June 30,
2000, and were excluded from the computation of diluted net income (loss) per
share as the effect would have been antidilutive.

4.       New Accounting Standards:

         In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133, as amended by SFAS
137 and SFAS 138, is effective for all fiscal quarters of fiscal years beginning
after June 15, 2000. SFAS 133 establishes accounting and reporting standards for
derivative instruments including derivative instruments embedded in other
contracts and for hedging activities. There was no transition adjustment upon
adoption of SFAS 133 on January 1, 2001. Adoption of SFAS 133 had no impact on
the Company's consolidated financial position, results of operations or
liquidity.

         In July 2001, the FASB issued Statement No. 141, Business Combinations,
and Statement No. 142, Goodwill and Other Intangible Assets. Statement 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001 as well as all purchase method
business combinations completed after June 30, 2001. Statement 141 also
specifies criteria intangible assets acquired in a purchase method business
combination must meet to be recognized and reported apart from goodwill, noting
that any purchase price allocable to an assembled workforce may not be accounted
for separately. Statement 142 will require that goodwill and intangible assets
with indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of Statement 142.
Statement 142 will also require that intangible assets with definite useful
lives be amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment in accordance with SFAS
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of.

         The Company is required to adopt the provisions of Statement 141
immediately, except with regard to business combinations initiated prior to July
1, 2001, which it expects to account for using the pooling-of-interests method,
and Statement 142 effective January 1, 2002. Furthermore, any goodwill and any
intangible asset determined to have an indefinite useful life that are acquired
in a purchase business combination completed after June 30, 2001 will not be
amortized, but will continue to be evaluated for impairment in accordance with
the appropriate pre-Statement 142 accounting literature. Goodwill and intangible
assets acquired in business combinations completed before July 1, 2001 will
continue to be amortized prior to the adoption of Statement 142.

         Statement 141 will require upon adoption of Statement 142, that the
Company evaluate its existing intangible assets and goodwill that were acquired
in a prior purchase business combination, and to make any necessary
reclassifications in order to conform with the new criteria in Statement 141 for
recognition apart from goodwill. Upon adoption of Statement 142, the Company
will be required to reassess the useful lives and residual values of all
intangible assets acquired in purchase business combinations, and make any
necessary amortization period adjustments by the end of the first interim period
after adoption. In addition, to the extent an intangible asset is identified as
having an indefinite useful life, the Company will be required to test the
intangible asset for impairment in accordance with the provisions of Statement
142 within the first interim period. Any impairment loss will be measured as of
the date of adoption and recognized as the cumulative effect of a change in
accounting principle in the first interim period.

         In connection with the transitional goodwill impairment evaluation,
Statement 142 will require the Company to perform an assessment of whether there
is an indication that goodwill is impaired as of the date of adoption. To
accomplish this the Company must identify its reporting units and determine the
carrying value of each reporting unit by assigning the assets and liabilities,
including the existing goodwill and intangible assets, to those reporting units
as of the date of adoption. The Company will then have up to six months from the
date of adoption to determine the fair value of each reporting unit and compare
it to the reporting unit's carrying amount. To the extent a reporting unit's
carrying amount exceeds its fair value, an indication exists that the reporting
unit's goodwill may be impaired and the Company must perform the second step of
the transitional

                                       7
<PAGE>

                              STM WIRELESS, INC.
            NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                   SIX MONTHS ENDED JUNE 30, 2001 AND 2000
                                  (Unaudited)

impairment test. In the second step, the Company must compare the implied fair
value of the reporting unit's goodwill, determined by allocating the reporting
unit's fair value to all of it assets (recognized and unrecognized) and
liabilities in a manner similar to a purchase price allocation in accordance
with Statement 141, to its carrying amount, both of which would be measured as
of the date of adoption. This second step is required to be completed as soon as
possible, but no later than the end of the year of adoption. Any transitional
impairment loss will be recognized as the cumulative effect of a change in
accounting principle in the Company's statement of earnings.

         And finally, any unamortized negative goodwill existing at the date
Statement 142 is adopted must be written off as the cumulative effect of a
change in accounting principle.

         As of the date of adoption, the Company has no unamortized
goodwill, no unamortized identifiable intangible assets, and no unamortized
negative goodwill, all of which would be subject to the transition provisions of
Statements 141 and 142.

5.     Geographic and Business Segment Information:

         The Company operates in one principal industry segment: the design,
manufacture and provision of wireless-based satellite communications
infrastructures.

<TABLE>
<CAPTION>
                                                                Three Months Ended          Six Months Ended
Revenues By Geographic Areas                                         June 30,                   June 30,
                                                               -----------------------     ---------------------
                                                                  2001          2000         2001         2000
                                                               ----------    ---------     ----------  ---------
<S>                                                            <C>           <C>           <C>         <C>
Total:
   Latin & South America....................................     $ 4,574      $    618       $  8,014     $ 2,363
   Africa & Middle East.....................................         459           266          1,407         667
   Asia.....................................................       1,321         2,102          2,240       3,137
   United States............................................         292            79            682         552
   Europe...................................................         465            32          1,002         195
                                                                --------     ---------      ---------    --------
Total.......................................................     $ 7,111      $  3,097       $ 13,345     $ 6,914
                                                                ========     =========      =========     =======
Products:
   Latin & South America....................................     $ 4,432      $    606       $  7,695     $ 2,239
   Africa & Middle East.....................................         451           256          1,342         624
   Asia.....................................................       1,067         1,932          1,813       2,763
   United States............................................         162            20            350         389
   Europe...................................................         373            --            850          32
                                                                --------     ---------      ---------    --------
Total.......................................................     $ 6,485      $  2,814       $ 12,050     $ 6,047
                                                                ========     =========      =========    ========
Services:
   Latin & South America....................................     $   142      $     12       $    319     $   124
   Africa & Middle East.....................................           8            10             65          43
   Asia.....................................................         254           170            427         374
   United States............................................         130            59            332         163
   Europe...................................................          92            32            152         163
                                                                --------     ---------      ---------    --------
Total.......................................................     $   626      $    283       $  1,295     $   867
                                                                ========     =========      =========    ========
   Operating income (loss) by area:
   Latin & South America....................................     $   (14)     $    (12)      $    (14)    $    48
   Africa & Middle East.....................................          --            --             --          --
   Asia.....................................................         168            41            180          82
   United States............................................        (533)       (2,031)        (1,134)       (272)
   Europe...................................................          --            --             --          --
                                                                --------     ---------      ---------    --------
Total.......................................................     $  (379)     $ (2,002)      $   (968)    $  (142)
                                                                ========     =========      =========    ========
</TABLE>

                                       8
<PAGE>

                              STM WIRELESS, INC.
            NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                   SIX MONTHS ENDED JUNE 30, 2001 AND 2000
                                  (Unaudited)

       Sales to Direc-To-Phone International, Inc. ("DTPI") for the three and
six months ended June 30, 2001, were approximately $2,776,000 and $3,401,000,
respectively. For the corresponding periods of 2000, sales to DTPI were $353,000
and $1,366,000, respectively. In the three months ended June 30, 2001, there was
one other customer to which sales exceeded 10% of total revenues for the period.
In the six months ended June 30, 2001, there were two other customers to which
sales exceeded 10% of total revenues for the period.

       Operating income for the six months ended June 30, 2000 includes the
recovery of a note receivable of $3,175,000 that has been included as part of
operating income for the United States. See note 6.


                                                      June 30,     December 31,
                                                        2001          2000
                                                    ----------   -------------
Identifiable assets by geographic area:
   United States                                     $  27,723      $  28,159
   Asia                                                  1,471          1,143
   Latin & South America                                   150            164
                                                    ----------   ------------
     Total                                           $  29,344      $  29,466
                                                    ==========   ============

6.       Recovery of Note Receivable From Affiliate and Gain on Disposal of
Affiliate:

         On March 28, 2000, DTPI completed a $45 million financing which reduced
STM's ownership to approximately 15% of DTPI on a fully diluted basis.
Coinciding with this financing, STM received $3,750,000 in cash from DTPI
representing a partial repayment of a $7,500,000 note receivable from DTPI. The
remaining balance of the note receivable, which was fully reserved, was
converted into preferred stock of DTPI, 60 days after the close of the
financing.

         The $7,500,000 note receivable from DTPI was fully reserved through a
combination of the Company's equity interest in the losses of DTPI recorded
through June 17, 1999, and additional provisions effectively made at the date of
deconsolidation on June 17, 1999. The total recovery of the note of $3,750,000
is reflected on two line items in the income statement for the six months ended
June 30, 2000: $3,175,000 is shown in operating income as a "Recovery of note
receivable from affiliate" and $575,000 is reflected as non-operating income
under the caption "Gain on disposal of affiliate". The portion treated as "Gain
on disposal of affiliate" was the portion of the reserve that was effectively
established at the date of deconsolidation. The remaining portion was reported
as operating income as the reserve against the note through June 17, 1999, was
originally recorded through losses from operations.

         On April 5, 2001, the Company sold 50% of its remaining common and
preferred shares in DTPI for cash totaling approximately $2,510,000. Under the
terms of the agreement with the buyer, the buyer has an option to acquire the
remaining 50% of the Company's ownership in DTPI for approximately $2,500,000
for a period of nine months through December 19, 2001. In June 2000, the Company
sold shares of DTPI for $440,000. The value of such shares had been written down
to zero as a result of STM recognizing losses of DTPI from inception. The
proceeds of $2,510,000 and $440,000 have been classified as "Gain on disposal of
affiliate" in the accompanying condensed consolidated statements of operations
for the three and six months ended June 30, 2001, and June 30, 2000,
respectively.

7.       Gain on Sale of Assets:

         In June 1998, the Company completed the sale of its majority-owned
subsidiary, Telecom Multimedia Systems, Inc. ("TMSI") to Inter-Tel, Inc.
("Inter-Tel"), pursuant to which Inter-Tel agreed to purchase certain assets and
assume certain liabilities of TMSI for approximately $25,000,000 in cash. Gains
of $9,950,000 and $2,964,000 (net of costs and reserves considered necessary)
were recognized in 1998 and 1999, respectively.

         In the second quarter of 2000, upon the resolution of certain customer
claims, the Company reevaluated certain accruals that were established at the
time of the sale and concluded that certain of these accruals were no longer
required, resulting in an additional gain of $840,000. This gain has been
classified as gain on the sale of assets in the three and six months ended June
30, 2000. At June 30, 2001, the Company's remaining accruals for probable
exposures associated with this transaction are immaterial.

                                       9
<PAGE>

                              STM WIRELESS, INC.
            NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                   SIX MONTHS ENDED JUNE 30, 2001 AND 2000
                                  (Unaudited)

8.       Short-Term Borrowings:

         On March 27, 2000, the Company entered into a new two year revolving
line of credit for approximately $3,300,000 of which $2,800,000 is available for
on-going working capital requirements. The line of credit bears interest at
Prime plus 1%.

         Availability to borrow the $2,800,000 is based upon a percentage of
eligible inventory and accounts receivable. Borrowings under the line of credit
at June 30, 2001 and June 30, 2000, were approximately $1,474,000 and
$1,400,000, respectively. The lender was granted a security interest in
substantially all of the Company's assets.

                                       10
<PAGE>

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

General:

     STM Wireless, Inc. (the "Company" or "STM"), founded in 1982, is a
developer, manufacturer, supplier and provider of wireless-based satellite
communications infrastructure and user terminal products utilized in public and
private telecommunications networks for broadband and telephony applications.
These networks support IP based data, fax, voice and video communication and are
used to either bypass or extend terrestrial networks. The Company's product line
is based on proprietary hardware and software and primarily consists of two-way
earth stations sometimes referred to as VSATs (very small aperture terminals),
associated infrastructure equipment and software. The Company's proprietary
equipment and software are utilized by businesses, government agencies and
telephone companies in Europe, the Americas, Africa and Asia.

Results of Operations:

     Total revenues were $7,111,000 and $13,345,000, respectively, for the three
and six month periods ended June 30, 2001, compared to $3,097,000 and
$6,914,000, respectively, for the corresponding periods of 2000, representing
increases of 130% and 93%, respectively, over the prior year periods. Product
revenues were $6,485,000 and $12,050,000, respectively, for the three and six
month periods ended June 30, 2001, compared to $2,814,000 and $6,047,000,
respectively, for the corresponding periods of 2000, representing increases of
130% and 99%, respectively, over the prior year periods. Service revenues were
$626,000 and $1,295,000, respectively, for the three and six month periods ended
June 30, 2001, compared to $283,000 and $867,000, respectively, for the
corresponding periods of 2000, representing increases of 121% and 49%,
respectively, over the prior year periods.

     The increase in revenues in the three and six months ended June 30, 2001
compared to June 30, 2000 reflects increased sales in primarily Latin and South
America but also in all other areas of the world in which STM sells product
except Asia. The Company has reported four successive quarters of revenue growth
from the third quarter of 2000. Revenues have increased from approximately
$5,000,000 in the third quarter of 2000 to approximately $7,100,000 in the
second quarter of 2001. Management expects continued growth in fiscal 2001
compared to fiscal 2000; however, the Company's revenues in total and by region
can vary significantly depending upon the timing of projects, the value of
individual projects and other factors.

     The gross profit percentage earned for the three months ended June 30, 2001
was 33%, compared with 34% in the corresponding period of 2000. For the six
months ended June 30, 2001, the gross profit percentage was 33%, compared with
36% in the corresponding period of 2000. For the three months ended June 30,
2001, gross profit percentage for product revenues was 35%, compared to 45% for
the corresponding period of 2000. The gross profit percentage in the three month
period ended June 30, 2000 benefited primarily from a single customer shipment
with a higher than average gross margin percentage than the corresponding period
of 2001.

     Selling, general and administrative (SG&A) expenses for the three months
ended June 30, 2001 decreased to $1,436,000 (20% of revenue) from $1,651,000
(53% of revenue) for the corresponding period of the prior year. For the six
months ended June 30, 2001 SG&A expenses decreased to $2,651,000 (20% of
revenue) from $2,998,000 (43% of revenue) for the corresponding period of the
prior year. Such cost decreases comprise cost reductions in both selling
expenses and general and administrative expenses. The second quarter and year-
to-date 2001 sales and marketing cost reductions are attributed to a reduction
in advertising and promotional expenses and sales acquisition costs. Also, for
the same periods, general and administrative cost reductions are attributed to
reduced depreciation expense and outside professional fees.

     Research and development (R&D) expenses for the three months ended June 30,
2001 decreased to $1,321,000 (19% of revenues) from $1,410,000 (46% of revenues)
for the corresponding period of the prior year. For the six months ended June
30, 2001, R&D expenses decreased to $2,696,000 (20% of revenues) from $2,782,000
(40% of revenues) for the corresponding period of the prior year. The year-to-
date 2001 cost reduction as compared to the corresponding period of 2000 is due
primarily to the reduced use of outside services in the course of product

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<PAGE>

development. However, these costs can vary depending on the stage reached in a
product development cycle. Current development efforts are focused on reducing
unit product cost, optimizing product design, and improving manufacturability.
Management believes that these efforts will yield future positive results in
terms of higher gross margins and improved inventory control.

     The recovery of the note receivable from affiliate of $3,175,000 for the
six months ended June 30, 2000 was related to the $3,750,000 received from DTPI
as a result of DTPI's financing (see note 6 to the condensed consolidated
financial statements). $3,175,000 of this recovery was classified as part of
operating income and the balance of $575,000 was classified as a gain on
disposal of affiliate in the accompanying condensed consolidated financial
statements for the six months ended June 30, 2000.

     The foreign currency losses of $263,000 and $257,000 recognized in the
three and six months ended June 30, 2000, primarily reflect a write-down of
certain accounts receivable balances from a customer in Brazil whereby the
customer did not reimburse the Company for changes in the exchange rate. For the
three and six month periods ended June 30, 2001, the amounts recognized for
foreign currency losses totaled $6,000 and are attributed to a weakening of a
foreign currency against the U.S. Dollar. The Company conducts most
international sales in U.S. Dollars.

     The gain on sale of assets of $840,000 for the three and six months ended
June 30, 2000 represented a gain on the sale of substantially all the assets of
TMSI. In the second quarter of 2000, upon the resolution of a customer claim,
respectively, the Company re-evaluated certain accruals that were established at
the time of the sale, resulting in the recognition of additional gains on the
sale of the assets of TMSI. There was no similar adjustment recognized in the
three month period ended June 30, 2001 (see note 7 to the condensed consolidated
financial statements).

     In the three month periods ended June 30, 2001 and June 30, 2000, the
Company disposed of shares in DTPI resulting in gains of $2,510,000 and
$440,000, respectively, which have been classified as gains on disposal of
affiliate in the accompanying condensed consolidated financial statements.
Combined with the $575,000 associated with the note recovery from DTPI, the
resulting gain on disposal of affiliate was $1,015,000 for the six months ended
June 30, 2000.

     Interest income was $84,000 for the three months ended June 30, 2001,
compared to $165,000 for the three months ended June 30, 2000, and was $181,000
for the six months ended June 30, 2001, compared to $422,000 for the
corresponding period of 2000. Along with the reduction in interest rate levels
in general, interest income for the three and six months ended June 30, 2001 is
less than the interest income recognized in the corresponding periods of 2000
due primarily to lower average cash balances and the absence in 2001 of interest
received on a note receivable from DTPI, that was repaid in full, during the
second quarter of 2000 (see note 6 to the condensed financial statements).

     Interest expense for the three months ended June 30, 2001, was $262,000
compared to $272,000 for the corresponding period of 2001. Interest expense for
the three months ended June 30, 2001 and June 30, 2000 are comparable except for
the general reduction in the level of interest rates between the corresponding
periods of 2001 and 2000, respectively. For the six months ended June 30, 2001
interest expense was $534,000 compared to $433,000 for the same period of 2000.
This increase is due primarily to the higher average level of borrowings in 2001
than 2000 and the credit line being established at the end of March 2000 (see
note 8 to the condensed financial statements).

     The tax provision for the three and six months ended June 30, 2000 is
related to overseas taxes. The absence of a U.S. tax provision in the three and
six months ended June 30, 2001 is due to continued net operating losses
available to the Company to offset current year income.

Liquidity and Capital Resources:

     For the first six months of 2001, the Company had a positive cash flow from
operating activities of $518,000 as compared to a negative cash flow of $59,000
for the corresponding period of 2000. The positive cash flow for the period
ended June 30, 2001 benefited primarily from a reduction in accounts receivable
and an increase in customer deposits partially offset by a reduction in accounts
payable and operating losses. For the corresponding period of 2000, the negative
cash flow of $59,000 was positively impacted by the $3,175,000 portion of the
$3,750,000 note recovery from DTPI (see note 6 to the condensed financial
statements) shown as operating income and negatively impacted by a decrease in
accounts payable and operating losses for the period.

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<PAGE>

     Cash flows from investing activities totaled $2,137,000 and $898,000 for
the six months ended June 30, 2001 and June 30, 2000, respectively. The positive
cash flows for 2001 were impacted primarily by the sale of 50% of the remaining
shares in DTPI for $2,510,000 (see note 6 to the condensed financial statements)
offset by $311,000 for capital expenditures. Cash flows during the first six
months of 2000 were positively impacted by the non-operating portion of the
recovery of the note receivable from DTPI for $575,000 and the sale of shares in
DTPI for $440,000, and negatively impacted by the acquisition of fixed assets
for $353,000.

     Cash flows from financing activities totaled a negative $1,164,000 and a
positive $1,620,000 for the six months ended June 30, 2001 and June 30, 2000,
respectively. The negative cash flows for 2001 were due primarily to the net
repayment of approximately $1,114,000 to reduce the balance owed under a line of
credit (see note 8 to the condensed financial statements). During the
corresponding period of 2000, cash flows from financing were positively impacted
by the proceeds from the issuance of Company stock upon the exercise of stock
options and the increase in short term borrowings under the new line of credit
established in March 2000.

     Overall, the Company's cash and cash equivalents totaled $4,394,000 at June
30, 2001 as compared to $2,903,000 at December 31, 2000 representing an improved
cash position of approximately $1,500,000 over December 31, 2000. In addition,
the Company has available borrowing of $1,300,000 under its line of credit.
Compared to fiscal year 2000, the Company is experiencing an improved accounts
receivable collection performance; therefore, management expects to have
sufficient cash generated from operations, through availability under lines of
credit and existing cash balances and through other sources to meet the
anticipated cash requirements for the next twelve months.

New Accounting Standards:

     In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133, as amended by SFAS 137 and SFAS
138, is effective for all fiscal quarters of fiscal years beginning after June
15, 2000. SFAS 133 establishes accounting and reporting standards for derivative
instruments including derivative instruments embedded in other contracts and for
hedging activities. There was no transition adjustment upon adoption of SFAS 133
on January 1, 2001. Adoption of SFAS 133 had no material impact on the Company's
consolidated financial position, results of operations or liquidity.

     In July 2001, the FASB issued Statement No. 141, Business Combinations, and
Statement No. 142, Goodwill and Other Intangible Assets. Statement 141 requires
that the purchase method of accounting be used for all business combinations
initiated after June 30, 2001 as well as all purchase method business
combinations completed after June 30, 2001. Statement 141 also specifies
criteria intangible assets acquired in a purchase method business combination
must meet to be recognized and reported apart from goodwill, noting that any
purchase price allocable to an assembled workforce may not be accounted for
separately. Statement 142 will require that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of Statement 142.
Statement 142 will also require that intangible assets with definite useful
lives be amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment in accordance with SFAS
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of.

     The Company is required to adopt the provisions of Statement 141
immediately, except with regard to business combinations initiated prior to July
1, 2001, which it expects to account for using the pooling-of-interests method,
and Statement 142 effective January 1, 2002. Furthermore, any goodwill and any
intangible asset determined to have an indefinite useful life that are acquired
in a purchase business combination completed after June 30, 2001 will not be
amortized, but will continue to be evaluated for impairment in accordance with
the appropriate pre-Statement 142 accounting literature. Goodwill and intangible
assets acquired in business combinations completed before July 1, 2001 will
continue to be amortized prior to the adoption of Statement 142.

     Statement 141 will require upon adoption of Statement 142, that the Company
evaluate its existing intangible assets and goodwill that were acquired in a
prior purchase business combination, and to make any necessary reclassifications
in order to conform with the new criteria in Statement 141 for recognition apart
from goodwill. Upon adoption of Statement 142, the Company will be required to
reassess the useful lives and residual values of all intangible assets acquired
in purchase business combinations, and make any necessary amortization period
adjustments by the end of the first interim period after adoption. In addition,
to the extent an intangible asset

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<PAGE>

is identified as having an indefinite useful life, the Company will be required
to test the intangible asset for impairment in accordance with the provisions of
Statement 142 within the first interim period. Any impairment loss will be
measured as of the date of adoption and recognized as the cumulative effect of a
change in accounting principle in the first interim period.

     In connection with the transitional goodwill impairment evaluation,
Statement 142 will require the Company to perform an assessment of whether there
is an indication that goodwill is impaired as of the date of adoption. To
accomplish this the Company must identify its reporting units and determine the
carrying value of each reporting unit by assigning the assets and liabilities,
including the existing goodwill and intangible assets, to those reporting units
as of the date of adoption. The Company will then have up to six months from the
date of adoption to determine the fair value of each reporting unit and compare
it to the reporting unit's carrying amount. To the extent a reporting unit's
carrying amount exceeds its fair value, an indication exists that the reporting
unit's goodwill may be impaired and the Company must perform the second step of
the transitional impairment test. In the second step, the Company must compare
the implied fair value of the reporting unit's goodwill, determined by
allocating the reporting unit's fair value to all of it assets (recognized and
unrecognized) and liabilities in a manner similar to a purchase price allocation
in accordance with Statement 141, to its carrying amount, both of which would be
measured as of the date of adoption. This second step is required to be
completed as soon as possible, but no later than the end of the year of
adoption. Any transitional impairment loss will be recognized as the cumulative
effect of a change in accounting principle in the Company's statement of
earnings.

     And finally, any unamortized negative goodwill existing at the date
Statement 142 is adopted must be written off as the cumulative effect of a
change in accounting principle.

     As of the date of adoption, the Company has no unamortized goodwill, no
unamortized identifiable intangible assets, and no unamortized negative
goodwill, all of which would be subject to the transition provisions of
Statements 141 and 142.

Item 3--Quantitative and Qualitative Disclosures About Market Risk

     To avoid the risk of fluctuating exchange rates associated with
international sales, the Company conducts most international sales in United
States currency. In Thailand the Company's subsidiary invoices most customers in
local currency based on contractual prices denominated in United States currency
to minimize the risk of foreign exchange loss. However, there is the risk of
loss on accounts receivable in that the local currency may devalue relative to
the United States currency during the period of collection. The balance in
accounts receivable carried in Thailand as of June 30, 2001 and as of December
31, 2000 is approximately $125,000 and $179,000, respectively. Foreign exchange
gain and loss through June 30, 2001 are immaterial.

     The Company does not use derivative financial instruments in its investment
portfolio.

Risk Factors and Forward Looking Statements:

     THIS DOCUMENT CONTAINS CERTAIN 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, THAT INVOLVE RISKS AND
UNCERTAINTIES. IN ADDITION, THE COMPANY MAY FROM TIME TO TIME MAKE FORWARD
LOOKING STATEMENTS, ORALLY OR IN WRITING. THE WORDS "ESTIMATE", "PROJECT",
"POTENTIAL", "INTENDED", "EXPECT", "BELIEVE" AND SIMILAR EXPRESSIONS OR WORDS
ARE INTENDED TO IDENTIFY FORWARD LOOKING STATEMENTS. ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE PROJECTED OR SUGGESTED IN ANY FORWARD LOOKING STATEMENTS
AS A RESULT OF A WIDE VARIETY OF FACTORS AND CONDITIONS, AMONG OTHERS, LACK OF
LIQUIDITY AND WORKING CAPITAL, INABILITY TO RAISE DEBT OR EQUITY FINANCING, LONG
TERM CYCLES INVOLVED IN COMPLETING MAJOR CONTRACTS, PARTICULARLY IN FOREIGN
MARKETS, INCREASING COMPETITIVE PRESSURES, GENERAL ECONOMIC CONDITIONS,
TECHNOLOGICAL ADVANCES, THE TIMING OF NEW PRODUCT INTRODUCTIONS, POLITICAL AND
ECONOMIC RISKS INVOLVED IN FOREIGN MARKETS AND FOREIGN CURRENCIES AND THE TIMING
OF OPERATING AND OTHER EXPENDITURES. REFERENCE

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IS HEREBY MADE TO "RISK FACTORS" IN THE COMPANY'S FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 2000.

     BECAUSE OF THESE AND OTHER FACTORS THAT MAY AFFECT THE COMPANY'S OPERATING
RESULTS, PAST FINANCIAL PERFORMANCE SHOULD NOT BE CONSIDERED AN INDICATOR OF
FUTURE PERFORMANCE, AND INVESTORS SHOULD NOT USE HISTORICAL TRENDS TO ANTICIPATE
RESULTS OR TRENDS IN FUTURE PERIODS.

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                          Part II--Other Information

Item 1--Legal Proceedings

     From time to time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. As of June 30,
2001, the Company was not engaged in any material legal proceedings which the
Company expects, individually or in the aggregate, will have a material adverse
effect on the Company's results of operations or its financial condition.

Item 6--Exhibits and Reports On Form 8-K

     None.

Items 2, 3, 4, and 5 are not applicable and have been omitted.

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                                  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.


                                      STM Wireless, Inc.

Date: August 13, 2001                 By: /s/ Joseph Wallace
                                          --------------------
                                          Joseph Wallace
                                          Vice President, Finance and
                                          Chief Financial Officer
                                          (Principal Financial and Accounting
                                          Officer and Duly Authorized Officer)

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