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

                                   FORM 10-K

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

                    FOR FISCAL YEAR ENDED DECEMBER 31, 1997

                                       OR

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

                        COMMISSION FILE NUMBER 000-22859

                          CORSAIR COMMUNICATIONS, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S>                                            <C>
                   DELAWARE                                      77-0390406
           (STATE OF INCORPORATION)                            (IRS EMPLOYER
                                                            IDENTIFICATION NO.)

 3408 HILLVIEW AVENUE, PALO ALTO, CALIFORNIA                       94304
   (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                      (ZIP CODE)
</TABLE>

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (650) 842-3300

       SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:  NONE

          SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                         COMMON STOCK, $.001 PAR VALUE

     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 Common Stock held by non-affiliates of
the registrant, based on the closing price of the Common Stock as reported on
The Nasdaq Stock Market (National Market System) on February 28, 1998 was
approximately $151,726,000. For the purposes of this calculation, shares owned
by officers, directors and 10% stockholders known to the registrant have been
excluded. Such exclusion is not intended, nor shall it be deemed, to be an
admission that such persons are affiliates of the registrant.

     As of February 28, 1998 there were 13,693,151 shares of the registrant's
Common Stock outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the registrant's Proxy Statement for the 1998 Annual Meeting of
Stockholders to be held on June 4, 1998 (the "Proxy Statement"), are
incorporated by reference into Part III of this Annual Report on Form 10-K.
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                                     PART I

ITEM 1.  BUSINESS

     The discussion in this Annual Report contains forward-looking statements
that involve risks and uncertainties. The statements contained in this Annual
Report that are not purely historical are forward-looking statements within the
meaning of section 27A of the Securities Act of 1933, as amended including
statements regarding the Company's expectations, beliefs, intentions or
strategies regarding the future. All forward-looking statements included in this
document are based on information available to the Company on the date hereof,
and the Company assumes no obligation to update any such forward-looking
statement. The Company's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in this section and elsewhere
in this Annual Report, and the risks discussed in the Company's Securities and
Exchange Commission ("SEC") Filings.

GENERAL

     Corsair Communications, Inc. provides an open architecture hardware and
software system that can serve as a platform for the delivery of multiple
products and services to the wireless telecommunications industry. The genesis
for the platform is PhonePrint(R), a system that has proven highly effective in
reducing cloning fraud. The PhonePrint system has prevented over 120 million
fraudulent call attempts and some customers have reported up to a 95% reduction
in cloning fraud losses after deploying PhonePrint. In addition to providing
cloning fraud prevention, the Company's platform is designed to support a broad
range of products and services for the wireless telecommunications industry,
including churn reduction and phone location products. The Company believes that
new products can be integrated with its open, scalable platform, which can
provide a number of benefits to wireless telecommunications carriers, including
accelerated development and deployment, reduced costs, efficient use of cell
site space and improved customer service.

     The Company sells and markets its products to wireless telecommunications
carriers domestically and internationally. The Company's customers include AT&T
Wireless Services, Inc., Baja Celular Mexicana, S.A. de C.V., Bell Atlantic
Mobile, BellSouth Cellular Corp., Celular de Telefonia, S.A. de C.V., CCPR
Services, Inc., Centennial Cellular Corp., Comcast Cellular Communications,
Dobson Cellular Systems, Inc., GTE Wireless., Grupo Iusacell, S.A. de C.V., Los
Angeles Cellular Telephone Company, Aurora Wireless Technologies, Inc., Pilipino
Telephone Corporation (Piltel), PriCellular Wireless Corp., Puerto Rico
Telephone Company, RadioMovil DIPSA, S.A. de C.V. (Telcel), Southwestern Bell
Mobile Systems Inc., Southwestern Bell Wireless, United States Cellular Corp.
and Vanguard Cellular Financial Corp.

INDUSTRY BACKGROUND

     The worldwide demand for wireless telecommunications services has grown
significantly in recent years as those services have become widely available and
increasingly affordable. The growth in the worldwide subscriber base, together
with changes in telecommunications regulations and allocations of additional
radio spectrum frequencies, has resulted in the build-out of a significant
number of new networks and plans for additional networks. Dataquest Incorporated
estimates that the number of wireless telecommunications subscribers worldwide
increased from approximately 16 million in 1991 to approximately 125 million in
1996, and the number of subscribers is expected to exceed 360 million by the end
of 2000.

     There are two types of wireless telecommunications networks: analog and
digital. Analog networks broadcast the actual voice waveform; digital networks
digitize the voice waveform using various coding techniques before the signal is
broadcast. In the 1980s, carriers around the world installed primarily analog
networks. In North America, all analog networks use a single transmission
standard, called Advanced Mobile Phone Services ("AMPS"), that enables carriers
to provide nearly seamless roaming coverage by partnering with other carriers.
The Company believes that over 90% of wireless telecommunications subscribers in
North America use analog networks. Worldwide, a substantial majority of wireless
telecommunications subscribers use analog networks.

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     The Company believes that analog networks will continue to play a
significant role in wireless telecommunications for the foreseeable future. The
Company believes that the costs required to replace existing analog phones, the
capacity available on existing analog networks, the existence of multiple
digital transmission standards and the need to provide seamless roaming services
make the exclusive implementation of digital networks across all markets
impractical and unlikely for the foreseeable future. However, because digital
standards are gaining market share, the Company has plans to develop products to
serve markets using digital standards.

  Issues Facing Wireless Telecommunications Carriers

     As the wireless telecommunications industry evolves, it faces severe
competitive, pricing and cost pressures and additional regulatory hurdles. In
the U.S., existing carriers are seeing increased competition as new Personal
Communications Services ("PCS") and Enhanced Specialized Mobile Radio ("ESMR")
carriers enter their markets. Also, as the industry shifts from a predominantly
high usage business subscriber base to the mass market, carriers are being
impacted by a decline in the average revenue per subscriber. As a result,
carriers must retain subscribers for a longer period of time to recover their
marketing investment per subscriber and the high costs of spectrum acquisition
and network build-out. In order to retain or acquire market share, carriers are
faced with a growing need to differentiate service offerings from their
competitors, using enhanced features, security, voice quality, coverage, pricing
and other factors as differentiators.

     These market forces have identified the need for carriers to improve their
service offerings and to address a number of issues that have been facing the
industry for some time. Three of these issues are objects of the Company's
products and product development efforts: fraud, customer churn, and the
impending need for a wireless location capability.

  Fraud

     Fraud is one of the most pervasive problems facing the wireless
telecommunications industry. The most common types of fraud are cloning fraud,
subscription fraud and phone theft. Fraud in the U.S. cost wireless
telecommunications carriers in excess of $1 billion in 1996, according to the
Yankee Group. It is also believed that fraud poses a significant problem for
wireless telecommunications carriers worldwide.

     The Company believes that cloning fraud accounts for most fraud losses in
analog networks. Cloning occurs when a thief uses a scanning device to steal the
mobile identification number ("MIN") and electronic serial number ("ESN")
transmitted over the air during a wireless call, and then reprograms other
phones with the stolen numbers. The reprogrammed phones, or "clones," are then
used to make fraudulent calls on the wireless carriers' networks.

     To address cloning fraud, a number of prevention techniques, including
fraud profilers, personal identification numbers ("PINs") and voice recognition,
have been developed. None of these techniques has proven to be a practical and
effective solution to preventing cloning fraud on analog networks. A fraud
profiler is a software tool that tracks anomalies in a subscriber's behavior and
notifies a carrier of unusual calling patterns. Profilers detect suspicious
activity only after it has occurred and do not identify fraud conclusively, but
instead only assist carriers in identifying fraud and require manual
intervention. PINs involve the use of a numeric code that must be dialed by the
subscriber before a call is connected. PINs are considered inconvenient, and
because they are transmitted over the air during a call, they have been
compromised in the same manner as MIN/ESN numbers. Voice recognition requires
the use of a spoken password before a call is connected. The technological
feasibility of voice recognition systems for the prevention of cloning fraud is
still being evaluated and voice recognition systems are not generally viewed as
a cost-effective or convenient solution.

     Another cloning fraud prevention technique, known as authentication, uses
encryption technologies and requires a phone to prove its validity before a call
is connected. While authentication has been adopted by many carriers and is
expected to be used in a large number of networks in the future, the Company
believes that it will not be cost effective to replace the large number of
existing analog phones that do not allow authentication. Because authentication
is generally considered expensive and difficult to implement, a number
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of carriers, especially in international and smaller U.S. markets, have not yet
deployed it. In addition, recent announcements relating to breaches of other
wireless encryption algorithms have heightened concerns about the vulnerability
of authentication processes in preventing fraud.

  Customer Churn

     New competitive market forces have focused carriers on reducing the rate at
which subscribers switch to another carrier's services or cease using wireless
telecommunications services altogether, a phenomenon known as "churn." According
to industry sources, churn is in the range of 20% to 30% per year for many
carriers, and is expected to remain a significant issue as competition
intensifies. The Company believes that the high rates of churn experienced in
the wireless telecommunications industry can be attributed, in part, to
subscriber dissatisfaction with the scope and quality of service. In order to
increase subscriber satisfaction and improve the overall quality of service,
carriers are currently attempting to increase network capacity, offer enhanced
services, improve network security and voice quality and reduce the impact of
fraud on legitimate subscribers. The Company believes wireless
telecommunications carriers will seek solutions to reduce churn by identifying
and correcting problems before subscriber turnover occurs.

  Wireless Location

     Wireless telecommunications carriers in the U.S. are also seeking
cost-effective means to comply with new industry regulations. A Federal
Communications Commission ("FCC") mandate currently requires that by October
2001 all wireless telecommunications carriers in the U.S. be capable of locating
emergency 911 callers on their networks within a certain range of accuracy.
Although the FCC mandate contains a provision that may allow carriers to pass
the cost of this service to their subscribers, the Company believes that cost
containment and pricing pressures likely will encourage the implementation of
low-cost solutions that minimize the cost of service to subscribers. Given the
regulatory requirement to implement wireless location, carriers are also
considering ways to leverage their investment in a location capability to offer
location-based commercial services to their subscribers. The Company believes
location systems may introduce commercially significant service enhancements
such as location-based billing, tracking, and information services.

CORSAIR'S SOLUTIONS

  Fraud

     Corsair's PhonePrint system provides highly effective cloning fraud
prevention to wireless telecommunications carriers by using proprietary radio
frequency ("RF") signal analysis technology to identify attempted fraudulent
calls and prevent cloners from gaining access to a carrier's analog network. The
system measures specific characteristics of each phone's unique RF waveform to
develop an "RF fingerprint" that is a reliable tool to distinguish between a
clone and a legitimate phone. Just as no two human fingerprints are the same,
differences in phone designs and components as well as subtle manufacturing
differences mean that no two wireless phones generate the same waveform. The RF
fingerprint of one wireless phone cannot be emulated by another wireless phone,
and is therefore not subject to being compromised like MIN/ESN numbers, PINs or
potentially authentication codes. The scalable design of the PhonePrint system
allows carriers to deploy the system initially in areas where fraud is most
prevalent and to further deploy the system over time in other parts of their
networks. In addition, by purchasing subscriptions to the Company's PhonePrint
Roaming Network(TM), carriers can share RF fingerprints in real-time between
PhonePrint systems in different markets to protect against losses associated
with roaming fraud.

  Customer Churn

     Corsair's PhoneCheck(TM) system, first made commercially available in
November 1997, provides a means for wireless telecommunications carriers to
collect data on the performance of subscribers' phones as they use the wireless
network. Using the PhonePrint system as the backbone for signal collection,
PhoneCheck gathers phone performance information from throughout the carrier's
wireless network. The system presents this information through a graphical user
interface to carrier personnel to focus their customer retention and

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service efforts. PhoneCheck allows carriers to detect phones with performance
problems, report on specific indicators of those problems, and track the
handling of the affected subscriber. Using PhoneCheck performance data, the
carrier's customer service, marketing, and engineering groups can address a
financially significant source of subscriber dissatisfaction and churn.

  Wireless Location

     Corsair's PhoneTrack(TM) wireless location system is currently under
development. The Company is taking a technological approach that it believes
will both support commercial applications and permit cost-effective compliance
with the FCC Mandate. The PhoneTrack system will be a network-based time
difference of arrival system, a technology the Company believes provides an
attractive combination of flexibility, low cost, and high accuracy. PhoneTrack
is currently scheduled for release in 1999.

     The Corsair platform has been designed as a distributed, open architecture
system into which products addressing other needs of wireless telecommunications
carriers can be integrated. The Company believes that this platform is capable
of supporting a broad range of products that may be demanded by the wireless
telecommunications industry. Additionally, the Company believes that the open
platform will provide significant cost advantages for products developed for it,
as compared to stand-alone products offered by others, because of the ability to
leverage common designs and components.

STRATEGY

     The Company's objective is to be the leading provider of value-added
solutions to wireless telecommunications carriers. Key elements of the Company's
strategy include:

     MAINTAIN LEADERSHIP IN RF FINGERPRINTING SOLUTIONS.  The Company believes
that its proprietary approach to developing RF fingerprints, based upon
technology originally developed for the military, is a key differentiator of the
Company's solution that results in highly effective cloning fraud prevention.
The Company also believes that it deployed the first real-time network for the
exchange of fingerprints between carriers, and that it was also the first to
expand real-time roaming protection internationally. The Company intends to
focus on enhancing and improving PhonePrint in order to optimize its
performance.

     FURTHER PENETRATE MARKET FOR CLONING FRAUD PREVENTION SOLUTIONS.  The
Company intends to leverage its reputation and experience as a leading provider
of RF fingerprinting solutions to increase its share of the market for cloning
fraud prevention solutions. The Company plans to capitalize on the PhonePrint
system's initial success in reducing cloning fraud. The Company believes that
carriers in international markets are experiencing substantial cloning fraud on
their analog networks and present a greater future opportunity for PhonePrint
sales than domestic markets. The Company intends to expand PhonePrint sales
internationally by increasing its direct sales force and marketing through
distribution partners. The Company believes that the reputation, customer
relationships and global field support capabilities of distribution partners may
accelerate the penetration of its products in international markets. To date,
the Company has deployed PhonePrint in Mexico, the Philippines and Malaysia.

     LEVERAGE CORE EXPERTISE TO DEVELOP AND ACQUIRE NEW PRODUCTS.  The Company
intends to use its core expertise in RF signal analysis, digital signal
processing and real-time networking in distributed systems environments to
develop and introduce other products that can be integrated into the Corsair
platform. The Company has recently developed the PhoneCheck wireless phone
performance monitoring system, which addresses the wireless telecommunications
industry's concerns over voice quality and customer churn. The Company is
currently developing the PhoneTrack wireless location system to address the
challenge presented by the FCC phone location mandate. The Company also seeks to
strategically acquire complementary businesses, products and technologies from
third parties. The Company has in the past evaluated and expects in the future
to pursue acquisitions with third parties.

     LEVERAGE CORSAIR PLATFORM TO PROVIDE LOW-COST SOLUTIONS.  The Company
intends to use the PhonePrint system as an open platform from which additional
products and services can be provided to the wireless telecommunications
industry. The Company believes that new products can be integrated with certain

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hardware and software designs and components of its open, scalable platform,
which can provide a number of benefits, including accelerated development and
deployment, reduced costs, efficient use of cell site space and improved
customer service. Once installed, the Corsair platform can support additional
Company and third-party products that the Company believes would be more
cost-effective than stand-alone products. The Company seeks to collaborate with
third party product developers to integrate new products into the Corsair
platform.

     PROVIDE SUPERIOR CUSTOMER SUPPORT.  The Company believes that providing
superior customer support is critical to maintaining long-term relationships and
to capitalizing upon future sales opportunities. The Company has invested in
building a customer support organization with the range of technical skills and
depth of expertise necessary to serve various wireless customers. The Company
has developed proprietary software tools that permit extensive monitoring and
diagnosis of system performance and provide for the flexibility of remote
operation.

THE PHONEPRINT SYSTEM

     PhonePrint is an open architecture hardware and software system that
reduces cloning fraud by detecting and promptly disconnecting fraudulent call
attempts. A key element of the architecture is its distributed processing
capability, which provides high performance and efficiency and reduces network
bandwidth requirements. The system supports real-time network connectivity,
allowing PhonePrint markets to interoperate both domestically and abroad. The
scalable design of the PhonePrint system has allowed both large and small
carriers to deploy the system initially in areas where cloning fraud is most
prevalent and to further deploy the system over time in other parts of their
networks.

     PhonePrint's cloning fraud prevention capability is based upon proprietary
RF signal analysis technology. Every wireless phone's signal creates a unique
waveform due to differences in phone designs and components, as well as subtle
manufacturing variances. PhonePrint creates an RF fingerprint by using complex
proprietary algorithms to measure physical features of these waveforms. RF
fingerprints of legitimate subscribers' phones are stored in a database.
PhonePrint compares the observed RF fingerprint of the caller with the RF
fingerprint of the subscriber in the database. If the two fingerprints do not
match, the call is promptly disconnected. In addition, PhonePrint reduces
roaming fraud by exchanging RF fingerprints between markets connected to the
PhonePrint Roaming Network in real-time, allowing the immediate disconnection of
fraudulent roaming call attempts.

     The PhonePrint system is comprised of three components for each market:
radio frequency units located in multiple cell sites, a single system control
center and a single real-time application server. All of these components are
connected by a real-time open internet protocol ("IP") network.

     Radio Frequency Units ("RFUs").  Each RFU is an intelligent, self-contained
unit that detects fraudulent calls. Key elements of the RFU include
sophisticated receivers, a PC-based processor and a database of subscriber RF
fingerprints. An RFU constantly monitors the RF waveforms generated by phones,
analyzes them via proprietary algorithms and initiates disconnections when fraud
is detected. The RF collection, signal analysis and fraud detection process
requires less than 0.5 seconds. RFUs have been designed so that they can be
installed, exchanged or taken off-line without interrupting the carrier's
wireless network.

     System Control Center ("SCC").  An SCC administers and maintains the master
database of RF fingerprints and activates RF fingerprint validation processes
for a market. An SCC also communicates with the market's RFUs to receive new RF
fingerprint observations and update RF fingerprint databases. The SCC also
supports remote system diagnostics and configuration administration.

     Real-Time Application Server ("RTAS").  The RTAS hosts a graphical user
interface that allows different carrier personnel, including customer care
representatives and fraud analysts, to generate a variety of system activity
reports based on real-time and historical data.

     Real-Time Network.  The RFUs, SCC and RTAS for each market are connected
together, and the PhonePrint system is connected to the carrier's network
infrastructure, using an open IP network. Carriers can

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subscribe to the PhonePrint Roaming Network service to exchange RF fingerprints
with other markets in real-time to reduce roaming fraud.

     The hardware and software components of the PhonePrint system have been
designed to be compatible with various vendors' infrastructure equipment to
maximize the testability, reliability and performance of the system and to
reduce software release cycle times.

THE PHONECHECK SYSTEM

     PhoneCheck is a software and hardware system, which uses the PhonePrint
system's hardware, software, and network to provide a second application to
wireless telecommunications carriers. Introduced in November 1997, PhoneCheck
uses RF signal data collected by the PhonePrint RFUs to analyze the performance
of phones throughout the wireless network. This application delivers performance
data to the carrier via a Windows-based graphical user interface which allows
the carrier to identify poorly performing phones, selectively sort and
distribute performance data, and track contacts made with subscribers.
PhoneCheck data and the interface application are designed specifically to
support the carrier's proactive efforts to contact subscribers at risk of churn
because of poor call quality.

     The PhoneCheck system consists of several software and hardware additions
to the PhonePrint system on which it depends. The PhonePrint RFUs contain
software to measure a number of RF signal performance features during normal
operation of the PhonePrint system. The RFUs store this data temporarily,
downloading to the PhonePrint SCC periodically. The SCC then forwards the data
to the PhoneCheck Data Server ("PDS"), which analyzes the performance data and
enters it into the PhoneCheck database. The PDS is the only hardware addition to
the PhonePrint system necessary to implement PhoneCheck. The PDS structures the
performance data for use by Windows-based client workstations running the
PhoneCheck graphical user interface.

     PhoneCheck's graphical user interface allows the carrier's customer service
or marketing representatives to sort and structure the phone performance data to
support both outbound and inbound subscriber contact programs. Outbound contact
programs typically are used to "save" subscribers at risk of churning; inbound
programs are used to handle subscribers' complaints about call quality and other
issues. The system's outbound contact features allow for the generation of
subscriber lists for contact, tracking of contacts made and actions taken, and
management reporting. Inbound contact features allow call center representatives
to look up phone performance data rapidly and identify phone problems while the
subscriber is on the line. PhoneCheck is designed to fit smoothly into the
carriers' operations and systems, with minimal need for special equipment,
software, or networking. To date, the Company has recognized no revenues from
PhoneCheck.

PRODUCT DEVELOPMENT

     The Company believes that it has established a platform from which multiple
integrated products can be offered to customers at relatively low cost compared
to stand-alone products through the use of common designs and components. The
platform was designed to use standard computer and networking protocols to allow
for the integration of future products. For example, the platform operates in
UNIX, and uses a structured query language ("SQL") relational database, standard
PC processor, and network messaging supported via TCP/IP standards. The Corsair
platform, by virtue of its flexibility, distributed processing power and
location within a carrier's cell site, is positioned to perform a variety of
tasks. Decreasing the cost of cell site equipment, obtaining superior customer
support and saving cell site space are all important considerations for carriers
in selecting products. The Company believes that all of these considerations can
be addressed by leveraging common designs and components incorporated within the
Corsair platform across a broad range of products.

     The Company's product development enhancements to the PhonePrint system and
development of new products will address perceived market opportunities. Future
releases of PhonePrint are being developed to support additional signal
transmission standards, particularly digital standards. Additional research and

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development activities are focused on developing new products that would
integrate into the Corsair platform and expand and enhance the capabilities of
the platform.

     The Company is currently developing a phone location product (PhoneTrack),
currently targeted to be introduced in 1999, which is intended to leverage the
key designs and components of its existing platform to create a product that
enables U.S. wireless telecommunications carriers to meet the FCC mandate that
requires them to be capable of identifying the location of wireless callers to
911 emergency systems. The mandate requires that these products be operational
and accurate to within 125 meters of the wireless caller not less than 67% of
the time by October 2001. The FCC mandate has also focused the wireless
telecommunications industry on finding commercial applications for wireless
location systems. The Company believes that its knowledge of RF signal analysis
technologies, its digital signal processing ("DSP") expertise and its installed
base of PhonePrint systems are competitive advantages in its development of an
emergency 911 caller location product for the wireless telecommunications
industry.

     The process of developing new products and product enhancements for use in
the wireless telecommunications industry is extremely complex and is expected to
become more complex and expensive in the future as new platforms and
technologies emerge. In particular, the Company is aware of significant
technical challenges with respect to the phone location product it is currently
attempting to develop. In the past, the Company has experienced delays in the
introduction of certain product enhancements, and there can be no assurance that
new products or product enhancements will be introduced on schedule or at all.
Any new products or product enhancements may also contain defects when first
introduced or when new versions are released. There can be no assurance that,
despite testing by the Company, defects will not be found in new products or
product enhancements after commencement of commercial shipments, resulting in
loss of or delay in market acceptance. Any loss of or delay in market acceptance
would have a material adverse effect on the Company's business, operating
results and financial condition.

     Total research and development expenditures were $7.0 million, $5.0
million, and $3.1 million in fiscal 1997, 1996, and 1995, respectively. The
Company anticipates that it will continue to commit substantial resources to
product development in the future. All research and development expenditures
have been expensed as incurred. For the past three years, product development
activities have significantly improved the PhonePrint system by identifying new
algorithms and refining existing algorithms to bolster PhonePrint's fraud
detection capabilities and by improving reliability and manufacturability.
During this same period of time, end-to-end real-time network connectivity
capabilities and a graphical user interface were also developed, and significant
size and cost reductions were achieved.

     As of December 31, 1997, 44 employees were engaged in research and
development programs, including hardware and software development, test and
engineering support. The Company believes that recruiting and retaining
engineering personnel is essential to its success. Competition for such
personnel is intense. See "Risks and Uncertainties -- Dependence on Personnel."

CUSTOMERS

     The end users of the Company's PhonePrint system are both domestic and
international wireless telecommunications carriers. BellSouth Cellular
Corporation, GTE Mobilnet Service Corporation, Southwestern Bell Mobile Systems,
Inc. and Radiomovil DIPSA S.A. de C.V. each accounted for greater than 10% of
the Company's total revenues in 1997, and collectively accounted for over 52% of
the Company's total revenues in 1997. For the same period in 1996, Los Angeles
Cellular Telephone Company, AT&T Wireless Services, Inc., Southwestern Bell
Mobile Systems, Inc. and Comcast Cellular Communications, Inc. each accounted
for greater than 10% of the Company's total revenues, and collectively accounted
for over 70% of the Company's total revenues for the year. AT&T Wireless
Services, Inc. and AirTouch Communications, Inc. accounted for virtually all of
the Company's total revenues in 1995. See "Risks and Uncertainties -- Customer
Concentration."

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     The following is a list of wireless telecommunications carriers that have
deployed the Company's PhonePrint system:

<TABLE>
<S>                                            <C>
American Cellular Communications Corp.         Los Angeles Cellular Telephone Company
AT&T Wireless Services, Inc.                   Pilipino Telephone Corporation (PILTEL)
Bell Atlantic NYNEX Mobil                      Puerto Rico Cellular Telephone Company
BellSouth Cellular Corporation                 RadioMovil DIPSA, S.A. de C.V. (Telcel)
Centennial Cellular Corporation                Southwestern Bell Mobile Systems, Inc.
Comcast Cellular Communications, Inc.          Vanguard Cellular Financial Corp.
CCPR Services, Inc. (Cellular One Puerto       United States Cellular Corporation
  Rico)
GTE Mobilnet Services Corp.
Houston Cellular Telephone Company
</TABLE>

SALES, MARKETING, DISTRIBUTION AND CUSTOMER SUPPORT

     The Company markets its products to wireless telecommunications carriers
domestically and internationally primarily through its direct sales force. The
Company has also entered into several distribution agreements. The Company sells
and licenses PhonePrint pursuant to agreements that typically provide for
hardware purchases and software licenses, customer service and support and
roaming service fees. A carrier's decision to deploy PhonePrint typically
involves a significant commitment of capital by the carrier, with the attendant
delays frequently associated with significant capital expenditures. In addition,
purchases of PhonePrint involve testing, integration, implementation and support
requirements. For these and other reasons, the sales cycle associated with the
purchase of PhonePrint typically ranges from three to 18 months and is subject
to a number of risks over which the Company has little control, including the
carrier's budgetary and capital spending constraints and the internal decision
making processes. See "Risks and Uncertainties -- Fluctuations in Quarterly
Financial Results; Lengthy Sales Cycle and Customer Concentration."

     For the year ended December 31, 1997, international revenues accounted for
approximately 19% of the Company's total revenues. Revenue from international
customers did not account for any of the Company's total revenues in 1996 or
1995. The Company expects that revenue from international customers may account
for a significantly larger portion of the Company's total revenues in the
foreseeable future then it did in 1997. The Company is expanding its sales
efforts outside of the United States, both directly and through distributors and
switch vendors. Any such expansion will require significant management attention
and financial resources. See "Risks and Uncertainties -- Risks Associated with
International Expansion."

     The Company is actively seeking to enter into distribution agreements and
other marketing arrangements as it believes it will depend on distributors in
the future, both with respect to PhonePrint and new products, if any, that the
Company may offer. During 1997, the Company entered into distribution agreements
with Motorola, Inc. ("Motorola") and Ericsson Radio Systems AB ("Ericsson"),
which provide these companies the ability to distribute PhonePrint worldwide on
a non-exclusive basis. The Company also entered into sales referral agreements
with Lucent Technologies, Inc. ("Lucent") and Sumitomo Corporation of America
("Sumitomo") allowing Lucent and Sumitomo to work with the Company to generate
sales leads in certain situations. In 1996, the Company entered into a
distribution agreement with Aurora Wireless Technologies, Ltd. ("Aurora"), which
provides Aurora with the ability to distribute PhonePrint throughout the
Asia/Pacific region, as defined in the agreement. Pursuant to these
arrangements, PhonePrint systems have been placed with carriers in the
Philippines, Malaysia, and Europe. See "Risks and Uncertainties -- Dependence on
Distributors."

     The Company provides service and technical support for its products through
both its direct field service and support personnel and its distributors. A high
level of continuing service and support is critical to the Company's objective
of developing long-term relationships with its customers. The Company also
provides on-site installations and technical assistance as part of the standard
support and service package that its customers

                                        9
<PAGE>   10

typically purchase for the length of their respective agreements with the
Company. The Company also offers various training courses for its distributors
and customers.

COMPETITION

     The market for PhonePrint is new and intensely and increasingly
competitive. The Company believes that the primary competitive factors in the
cloning fraud prevention market in which it currently competes include product
effectiveness and quality, price, service and support capability and
compatibility with cloning fraud prevention systems used by the carrier in other
geographic markets and by the carrier's roaming partners. There has been a
tendency for carriers that purchase cloning fraud prevention systems to purchase
products from the company that supplies cloning fraud prevention systems to
other carriers with whom the purchasing carrier has a roaming arrangement. As a
result, the Company expects it will be significantly more difficult to sell
PhonePrint to a carrier if the carrier's roaming partners use cloning fraud
prevention systems supplied by a competitor. Furthermore, once a competitor has
made a sale of RF-based cloning fraud prevention systems to a carrier, the
Company expects that it is unlikely that the Company would be able to sell
PhonePrint to that carrier.

     The Company's principal competitor for RF-based cloning fraud prevention
systems is Cellular Technical Services Company, Inc. ("CTS"). CTS has agreements
pursuant to which it has installed or will install its RF-based cloning fraud
prevention system in many major U.S. markets. PhonePrint also competes with a
number of alternative technologies, including profilers, personal identification
numbers and authentication. The Company is aware of numerous companies,
including GTE Telecommunications Services, Inc., Authentix Network, Inc.,
Systems/Link, Subscriber Computing, Inc., and Lightbridge, Inc., that currently
are or are expected to offer products in the cloning fraud prevention area. In
addition, carriers may themselves develop technologies that limit the demand for
PhonePrint. There can be no assurance that any such company or any other
competitor will not introduce a new product at a lower price or with greater
functionality than PhonePrint. Furthermore, the demand for PhonePrint would be
materially adversely affected if wireless telecommunications carriers implement
authentication technology applicable to analog phones as their sole cloning
fraud solution in major markets, if U.S. wireless telecommunications carriers
adopt a uniform digital standard that reduces the need for digital phones to
operate in analog mode while roaming, or if analog phone makers change product
designs and/or improve manufacturing standards to a point where the difference
from phone to phone in the radio waveform becomes so small that it is difficult
for PhonePrint to identify a clone. There can be no assurance that any currently
available alternative technology or any new technology will not render the
Company's products obsolete or significantly reduce the market share afforded to
RF-based cloning fraud prevention systems like PhonePrint.

     The market for other products and services provided to wireless
telecommunications carriers is highly competitive and subject to rapid
technological change, regulatory developments and emerging industry standards.
In addition, many wireless telecommunications carriers and vendors of switches
and other telecommunications equipment may be capable of developing and offering
products and services competitive with new products, if any, that the Company
may offer in the future. Trends in the wireless telecommunications industry,
including greater consolidation and technological or other developments that
make it simpler or more cost-effective for wireless telecommunications carriers
to provide certain services themselves could affect demand for new products, if
any, offered by the Company, and could make it more difficult for the Company to
offer a cost-effective alternative to a wireless telecommunications carrier's
own capabilities. The Company is aware of a number of companies that have either
announced an intention to develop or are capable of developing products that
would compete with the products the Company is developing, and the Company
anticipates the entrance of new competitors in the wireless telecommunications
carrier service industry in the future. The Company's ability to sell new
products, if any, may be hampered by relationships that competitors have with
carriers based upon the prior sale of other products to carriers.

     The Company believes that its ability to compete in the future depends in
part on a number of competitive factors outside its control, including the
ability to hire and retain employees, the development by others of products and
services that are competitive with the Company's products and services, the
price at which others offer comparable products and services and the extent of
its competitors' responsiveness to
                                       10
<PAGE>   11

customer needs. Many of the Company's competitors and potential competitors have
significantly greater financial, marketing, technical and other competitive
resources than the Company. As a result, the Company's competitors may be able
to adapt more quickly to new or emerging technologies and changes in customer
requirements or may be able to devote greater resources to the promotion and
sale of their products and services. To remain competitive in the market for
products and services sold to wireless telecommunications carriers, the Company
will need to continue to invest substantial resources in engineering, research
and development and sales and marketing. There can be no assurance that the
Company will have sufficient resources to make such investments or that the
Company will be able to make the technological advances necessary to remain
competitive. Accordingly, there can be no assurance that the Company will be
able to compete successfully with respect to new products, if any, it offers in
the future.

MANUFACTURING

     The Company's manufacturing objective is to produce products that conform
to Corsair's specifications at the lowest possible manufacturing cost.
Manufacturing, system integration and certain testing operations are performed
at the Company's headquarters in Palo Alto, California. The Company's
manufacturing operations consist primarily of assembling finished goods from
components and subassemblies purchased from third parties. The Company monitors
quality at each stage of the production process, including the selection of
component suppliers, the assembly of finished goods and final testing, packaging
and shipping.

     The Company relies to a substantial extent on outside vendors to
manufacture many of the components and subassemblies used in PhonePrint, some of
which are obtained from a single supplier or a limited group of suppliers. The
Company's reliance on outside vendors generally, and a sole or a limited group
of suppliers in particular, involves several risks, including a potential
inability to obtain an adequate supply of required components and reduced
control over quality, pricing and timing of delivery of components. In the past
the Company has experienced delays in receiving materials from vendors,
sometimes resulting in delays in the assembly of products by the Company. See
"Risks and Uncertainties -- Dependence on Third-Party Products and Services;
Sole or Limited Sources of Supply."

PATENTS AND PROPRIETARY RIGHTS

     The Company relies on a combination of patent, trade secret, copyright and
trademark protection and nondisclosure agreements to protect its proprietary
rights. As of December 31, 1997, the Company had one issued U.S. patent, six
pending U.S. patent applications; one issued foreign patent and nine pending
foreign patent applications. The Company's success will depend in large part on
the ability of the Company to obtain patent protection, defend patents once
obtained, license third-party proprietary rights, maintain trade secrets and
operate without infringing upon the patents and proprietary rights of others.
The patent positions of companies in the wireless telecommunications industry,
including the Company, are generally uncertain and involve complex legal and
factual questions. There can be no assurance that patents will issue from any
patent applications owned or licensed to the Company or that, if patents do
issue, the claims allowed would be sufficiently broad to protect the Company's
technology. In addition, there can be no assurance that any issued patents owned
by or licensed to the Company will not be challenged, invalidated or
circumvented, or that the rights granted thereunder will provide competitive
advantages to the Company.

     Patents issued and patent applications filed relating to products used in
the wireless telecommunications industry are numerous and there can be no
assurance that current and potential competitors and other third parties have
not filed or in the future will not file applications for, or have not received
or in the future will not receive, patents or obtain additional proprietary
rights relating to products used or proposed to be used by the Company. The
Company is aware of patents granted to third parties that relate to the
potential products the Company is currently developing. The Company will need to
either design those potential products in a manner that does not infringe the
third-party patents or obtain licenses from the third parties and there can be
no assurance that the Company will be able to do so. There can be no assurance
that the Company is aware of all patents or patent applications that may
materially affect the Company's ability to make, use or sell any current or
future products. U.S. patent applications are confidential while pending in the
U.S. Patent and Trademark Office, and patent applications filed in foreign
countries are often first published six months or
                                       11
<PAGE>   12

more after filing. There can also be no assurance that third parties will not
assert infringement claims against the Company in the future or that any such
assertions will not result in costly litigation or require the Company to obtain
a license to intellectual property rights of such parties. There can be no
assurance that any such licenses would be available on terms acceptable to the
Company, if at all. Furthermore, parties making such claims may be able to
obtain injunctive or other equitable relief that could effectively block the
Company's ability to make, use, sell or otherwise practice its intellectual
property (whether or not patented or described in pending patent applications),
or to further develop or commercialize its products in the U.S. and abroad and
could result in the award of substantial damages. Defense of any lawsuit or
failure to obtain any such license could have a material adverse effect on the
Company's business, operating results or financial condition.

     The Company also relies on unpatented trade secrets to protect its
proprietary technology, and no assurance can be given that others will not
independently develop or otherwise acquire the same or substantially equivalent
technologies or otherwise gain access to the Company's proprietary technology or
disclose such technology or that the Company can ultimately protect its rights
to such unpatented proprietary technology. No assurance can be given that third
parties will not obtain patent rights to such unpatented trade secrets, which
patent rights could be used to assert infringement claims against the Company.
The Company also relies on confidentiality agreements with its employees,
vendors, consultants and customers to protect its proprietary technology. There
can be no assurance that these agreements will not be breached, that the Company
would have adequate remedies for any breach or that the Company's trade secrets
will not otherwise become known to or be independently developed by competitors.
Failure to obtain or maintain patent and trade secret protection, for any
reason, could have a material adverse effect on the Company's business,
operating results and financial condition.

EMPLOYEES

     As of December 31, 1997, the Company had 143 employees, including 43 in
sales and marketing, 18 in manufacturing, 44 in research and development, 20 in
operations, field service and customer support and 18 in finance and
administration. None of the Company's employees are represented by a collective
bargaining agreement, nor has the Company experienced any work stoppages. The
Company believes that its relations with its employees are good.

RISKS AND UNCERTAINTIES

     The Company operates in a rapidly changing environment that involves a
number of risks, many of which are beyond the Company's control. The following
discussion highlights some of these risks. The Company's actual results could
differ materially from those discussed herein. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
in this section and else where in this Annual Report, and the risks discussed in
the Company's other SEC Filings.

     Limited Operating History; Lack of Sustained Profitability.  The Company
was incorporated in December 1994 and first shipped its PhonePrint system in
March 1995. Accordingly, the Company has only a limited operating history upon
which to base an evaluation of its business and prospects. Despite achieving
profitability in the latter half of fiscal 1997, the Company has incurred net
losses since its incorporation resulting in an accumulated deficit of $28.3
million as of December 31, 1997. There can be no assurance that the Company's
existing revenue levels can be sustained, and past and existing revenue levels
should not be considered indicative of future results or growth. Moreover, there
can be no assurance that the Company will sustain profitability on a quarterly
or annual basis. Operating results for future periods are subject to numerous
uncertainties specified elsewhere in this Annual Report. The Company's prospects
must be considered in light of the risks encountered by companies with limited
operating histories, particularly companies in new and rapidly evolving markets
such as the markets in which the Company now competes and may in the future
compete. The Company's future operating results will depend upon, among other
factors: the demand for PhonePrint; the Company's ability to introduce
successful new products and product enhancements, including products that are
sold to both analog network carriers and emerging digital network carriers such
as Personal Communications Services ("PCS") and Enhanced Specialized Mobile
Radio ("ESMR") carriers; the level
                                       12
<PAGE>   13

of product and price competition; the ability of the Company to expand its
international sales; the Company's success in expanding distribution channels;
the Company's success in attracting and retaining motivated and qualified
personnel; and the ability of the Company to avoid patent and intellectual
property litigation. If the Company is not successful in addressing such risks,
as well as the others set forth in this Annual Report, the Company's business,
operating results and financial condition will be materially adversely affected.

     Dependence on PhonePrint; Dependence on Analog Networks.  To date, all of
the Company's revenues have primarily been attributable to PhonePrint, the
Company's cloning fraud prevention system, and the Company anticipates that
PhonePrint will continue to account for substantially all of the Company's
revenues at least through the end of 1998. As a result, the Company's future
operating results will depend on the demand for and market acceptance of
PhonePrint. A relatively small number of analog network carriers constitute the
potential customers for PhonePrint. A large majority of the analog carriers in
the largest U.S. markets have to varying degrees already implemented cloning
fraud solutions, and there can be no assurance that the Company will be able to
achieve material revenues from the sale of PhonePrint to remaining potential
customers in the U.S. The Company anticipates that the demand for cloning fraud
solutions in the U.S. will decline in the future. If not offset by growth in
international markets, this trend will have a material adverse effect on the
Company's business, operating results and financial condition. Over time, this
trend could also occur in international markets. As analog network carriers
adopt cloning fraud solutions for their existing networks, the future commercial
success of PhonePrint will depend in part on the further expansion of analog
networks by those carriers. If analog networks do not continue to expand, expand
slowly or expand in a manner that does not create significant new demand for
cloning fraud solutions, then the future demand for PhonePrint would be
materially adversely affected. There can be no assurance that the international
market for cloning fraud solutions will grow as the U.S. market declines as a
result of U.S. analog network carriers adopt solutions to their cloning fraud
problems, or that current or future levels of revenues attributable to
PhonePrint will be maintained or will not decline. Any reduction in the demand
for PhonePrint would have a material adverse effect on the Company's business,
operating results and financial condition.

     All of the Company's customers to date have been carriers that operate
analog networks. Wireless services operating in digital mode, including PCS and
ESMR in the U.S. and Global System for Mobile Communications ("GSM") in many
foreign countries (including many European countries), use or may use
authentication processes that automatically establish the validity of a phone
each time it attempts to access the wireless telecommunications network. The
Company is not aware of any information that suggests that cloners have been
able to break the authentication encryption technologies. Unless the encryption
technologies that form the basis for authentication are broken by cloners, the
Company does not believe that operators of digital networks will purchase third
party radio frequency ("RF") fingerprinting solutions for cloning fraud such as
PhonePrint. In addition, authentication processes for analog networks are also
currently available. The Company is also very dependent on the continued
widespread use of analog networks. While there are currently over 40 million
analog phones in existence in the U.S., industry experts project that the number
of analog phones will decline in the future. Any reduction in demand by analog
network carriers for cloning fraud solutions would, or any reduction in the use
of analog phones could, have a material adverse effect on the Company's
business, operating results and financial condition.

     Dependence on New Product Introductions and Product Enhancements.  The
Company's future success depends on the timely introduction and acceptance of
new products and product enhancements. However, there can be no assurance that
any new products or product enhancements the Company attempts to develop will be
developed successfully or on schedule, or if developed, that they will achieve
market acceptance. In addition, there can be no assurance that the Company will
successfully execute its strategy of acquiring businesses, products and
technologies from third parties. In the case of products that can locate
wireless phones, the U.S. Federal Communications Commission ("FCC") has mandated
that wireless telecommunications carriers be able to identify the location of
emergency 911 callers by October 2001. The Company has a significant product
development effort underway addressing the need of U.S. wireless
telecommunications carriers resulting from the FCC mandate. There can be no
assurance that the FCC mandate will not be abolished or altered in a fashion
that reduces or eliminates any potential demand for products addressing phone
location. There can be no assurance that any wireless telecommunications
carriers will purchase any

                                       13
<PAGE>   14

phone location products before the effective date of the FCC mandate, October
2001. Any failure by the Company to introduce commercially successful new
products or product enhancements or any significant delay in the introduction of
such new products or product enhancements would have a material adverse effect
on the Company's business, operating results and financial condition.

     The process of developing new products and product enhancements for use in
the wireless telecommunications industry is extremely complex and is expected to
become more complex and expensive in the future as new platforms and
technologies emerge. In particular, the Company is aware of significant
technical challenges with respect to the phone location product it is currently
attempting to develop. In the past, the Company has experienced delays in the
introduction of certain product enhancements, and there can be no assurance that
new products or product enhancements will be introduced on schedule or at all.
Any new products or product enhancements may also contain defects when first
introduced or when new versions are released. There can be no assurance that,
despite testing by the Company, defects will not be found in new products or
product enhancements after commencement of commercial shipments, resulting in
loss of or delay in market acceptance. Any loss of or delay in market acceptance
would have a material adverse effect on the Company's business, operating
results and financial condition.

     Fluctuations in Quarterly Financial Results; Lengthy Sales Cycle.  The
Company has experienced significant fluctuations in revenues and operating
results from quarter to quarter due to a combination of factors and expects
significant fluctuations to continue in future periods. Factors that are likely
to cause the Company's revenues and operating results to vary significantly from
quarter to quarter include, among others: the level and timing of revenues
associated with PhonePrint; the timing of the introduction or acceptance of new
products and services and product enhancements offered by the Company and its
competitors; changes in governmental regulations or mandates affecting the
wireless telecommunications industry; technological changes or developments in
the wireless telecommunications industry; dependence on a single product; the
size, product mix and timing of significant orders; the timing of system
revenue; competition and pricing in the markets in which the Company competes;
possible recalls; lengthy sales cycles; production or quality problems; the
timing of development expenditures; further expansion of sales and marketing
operations; changes in material costs; disruptions in sources of supply; capital
spending; the timing of payments by customers; and changes in general economic
conditions. These and other factors could cause the Company to recognize
relatively large amounts of revenue over a very short period of time, followed
by a period during which relatively little revenue is recognized. Because of the
relatively fixed nature of most of the Company's costs, including personnel and
facilities costs, any unanticipated shortfall in revenues in any quarter would
have a material adverse impact on the Company's operating results in that
quarter and would likely result in substantial adverse fluctuations in the price
of the Company's Common Stock. Accordingly, the Company expects that from time
to time its future operating results will be below the expectations of market
analysts and investors, which would likely have a material adverse effect on the
prevailing market price of the Common Stock.

     A carrier's decision to deploy PhonePrint typically involves a significant
commitment of capital by the carrier and approval by its senior management.
Consequently, the timing of purchases are subject to uncertainties and delays
frequently associated with significant capital expenditures, and the Company is
not able to accurately forecast future sales of PhonePrint. In addition,
purchases of PhonePrint involve testing, integration, implementation and support
requirements. For these and other reasons, the sales cycle associated with the
purchase of PhonePrint typically ranges from three to 18 months and is subject
to a number of risks over which the Company has little control, including the
carrier's budgetary and capital spending constraints and internal
decision-making processes. In addition, a carrier's purchase decision may be
delayed as a result of announcements by the Company or competitors of new
products or product enhancements or by regulatory developments. The Company
expects that there will be a lengthy sales cycle with respect to new products,
if any, that the Company may offer in the future. Because of this lengthy sales
cycle and the relatively large size of a typical order and because the Company
does not recognize revenue until cell site equipment is activated or other
contractual acceptance criteria are met, if revenues forecasted from a specific
customer for a particular quarter are not realized in that quarter, the
Company's operating results for that quarter could be materially and adversely
affected.

                                       14
<PAGE>   15

     Risks Associated with International Markets.  To date, the Company has
conducted a limited number of deployments of PhonePrint systems internationally.
In an effort to offset what the Company expects will be declining demand in the
U.S. for cloning fraud solutions, the Company intends to devote significant
marketing and sales efforts over the next several years to increase its sales of
PhonePrint to international customers. This expansion of sales efforts outside
of the U.S. will require significant management attention and financial
resources. There can be no assurance that the Company will be successful in
achieving significant sales of PhonePrint in international markets. The Company
does not expect to sell PhonePrint in the many international markets that rely
primarily on digital wireless networks, including many European countries. There
may not be demand in foreign countries with respect to new products, if any,
that the Company may offer in the future. For example, the Company is currently
developing a product addressing the U.S. FCC mandate that wireless
telecommunications carriers be able to identify the location of emergency 911
callers by October 2001. The Company is not aware of any corresponding
regulatory requirement in any foreign country.

     The Company's international sales may be denominated in foreign or U.S.
currencies. The Company does not currently engage in foreign currency hedging
transactions. As a result, a decrease in the value of foreign currencies
relative to the U.S. dollar could result in losses from transactions denominated
in foreign currencies. With respect to the Company's international sales that
are U.S. dollar-denominated, such a decrease could make the Company's systems
less price-competitive. Additional risks inherent in the Company's international
business activities include changes in regulatory requirements, the costs and
risks of localizing systems in foreign countries, tariffs and other trade
barriers, political and economic instability, reduced protection for
intellectual property rights in certain countries, difficulties in staffing and
managing foreign operations, difficulties in managing distributors, potentially
adverse tax consequences, foreign currency exchange fluctuations, the burden of
complying with a wide variety of complex foreign laws and treaties and the
possibility of difficulty in accounts receivable collections. The Company
anticipates that product service and support will be more complicated and
expensive with respect to products sold in international markets. The Company
may need to adapt its products to conform to different technical standards that
may exist in foreign countries. Future customer purchase agreements may be
governed by foreign laws, which may differ significantly from U.S. laws.
Therefore, the Company may be limited in its ability to enforce its rights under
such agreements and to collect damages, if awarded. There can be no assurance
that any of these factors will not have a material adverse effect on the
Company's business, operating results and financial condition.

     Potential Acquisitions.  The Company has in the past evaluated and expects
in the future to pursue acquisitions of businesses, products or technologies
that complement the Company's business. Future acquisitions may result in the
potentially dilutive issuance of equity securities, the use of cash resources,
the incurrence of additional debt, the write-off of in-process research and
development or software acquisition and development costs and the amortization
of expenses related to goodwill and other intangible assets, any of which could
have a material adverse effect on the Company's business, operating results and
financial condition. Future acquisitions would involve numerous additional
risks, including difficulties in the assimilation of the operations, services,
products and personnel of an acquired business, the diversion of management's
attention from other business concerns, entering markets in which the Company
has little or no direct prior experience and the potential loss of key employees
of an acquired business. In addition, there can be no assurance that the Company
would be successful in completing any acquisition. The Company currently has no
agreements or understandings with regard to any acquisition.

     Highly Competitive Industry.  The market for PhonePrint is new and
intensely and increasingly competitive. The Company believes that the primary
competitive factors in the cloning fraud prevention market in which it currently
competes include product effectiveness and quality, price, service and support
capability and compatibility with cloning fraud prevention systems used by the
carrier in other geographic markets and by the carrier's roaming partners. There
has been a tendency for carriers that purchase cloning fraud prevention systems
to purchase products from the company that supplies cloning fraud prevention
systems to other carriers with whom the purchasing carrier has a roaming
arrangement. As a result, the Company expects it will be significantly more
difficult to sell PhonePrint to a carrier if the carrier's roaming partners use
cloning fraud prevention systems supplied by a competitor. Furthermore, once a
competitor has

                                       15
<PAGE>   16

made a sale of RF-based cloning fraud prevention systems to a carrier, the
Company expects that it is unlikely that the Company would be able to sell
PhonePrint to that carrier.

     The Company's principal competitor for RF-based cloning fraud prevention
systems is Cellular Technical Services Company, Inc. ("CTS"). CTS has agreements
pursuant to which it has installed or will install its RF-based cloning fraud
prevention system in many major U.S. markets. PhonePrint also competes with a
number of alternative technologies, including profilers, personal identification
numbers and authentication. The Company is aware of numerous companies,
including GTE Telecommunications Services, Inc., Authentix Network, Inc., and
Lightbridge, Inc., that currently are or are expected to offer products in the
cloning fraud prevention area. In addition, carriers may themselves develop
technologies that limit the demand for PhonePrint. There can be no assurance
that any such company or any other competitor will not introduce a new product
at a lower price or with greater functionality than PhonePrint. Furthermore, the
demand for PhonePrint would be materially adversely affected if wireless
telecommunications carriers implement authentication technology applicable to
analog phones as their sole cloning fraud solution in major markets, if U.S.
wireless telecommunications carriers adopt a uniform digital standard that
reduces the need for digital phones to operate in analog mode while roaming, or
if analog phone makers change product designs and/or improve manufacturing
standards to a point where the difference from phone to phone in the radio
waveform becomes so small that it is difficult for PhonePrint to identify a
clone. There can be no assurance that any currently available alternative
technology or any new technology will not render the Company's products obsolete
or significantly reduce the market share afforded to RF-based cloning fraud
prevention systems like PhonePrint.

     The market for other products and services provided to wireless
telecommunications carriers is highly competitive and subject to rapid
technological change, regulatory developments and emerging industry standards.
In addition, many wireless telecommunications carriers and vendors of switches
and other telecommunications equipment may be capable of developing and offering
products and services competitive with new products, if any, that the Company
may offer in the future. Trends in the wireless telecommunications industry,
including greater consolidation and technological or other developments that
make it simpler or more cost-effective for wireless telecommunications carriers
to provide certain services themselves could affect demand for new products, if
any, offered by the Company, and could make it more difficult for the Company to
offer a cost-effective alternative to a wireless telecommunications carrier's
own capabilities. The Company is aware of a number of companies that have either
announced an intention to develop or are capable of developing products that
would compete with the products the Company is developing, and the Company
anticipates the entrance of new competitors in the wireless telecommunications
carrier service industry in the future. The Company's ability to sell new
products, if any, may be hampered by relationships that competitors have with
carriers based upon the prior sale of other products to carriers.

     The Company believes that its ability to compete in the future depends in
part on a number of competitive factors outside its control, including the
ability to hire and retain employees, the development by others of products and
services that are competitive with the Company's products and services, the
price at which others offer comparable products and services and the extent of
its competitors' responsiveness to customer needs. Many of the Company's
competitors and potential competitors have significantly greater financial,
marketing, technical and other competitive resources than the Company. As a
result, the Company's competitors may be able to adapt more quickly to new or
emerging technologies and changes in customer requirements or may be able to
devote greater resources to the promotion and sale of their products and
services. To remain competitive in the market for products and services sold to
wireless telecommunications carriers, the Company will need to continue to
invest substantial resources in engineering, research and development and sales
and marketing. There can be no assurance that the Company will have sufficient
resources to make such investments or that the Company will be able to make the
technological advances necessary to remain competitive. Accordingly, there can
be no assurance that the Company will be able to compete successfully with
respect to new products, if any, it offers in the future.

     Customer Concentration.  To date, a very significant portion of the
Company's revenues in any particular period has been attributable to a limited
number of customers, comprised entirely of wireless telecommunications carriers
that operate analog networks. BellSouth Cellular Corporation, GTE Mobilnet
Service Corpora-
                                       16
<PAGE>   17

tion, Southwestern Bell Mobile Systems, Inc. and Radiomovil DIPSA S.A. de C.V.
each accounted for greater than 10% of the Company's total revenues in 1997, and
collectively accounted for over 52% of the Company's total revenues in 1997. For
the same period in 1996, AT&T Wireless Services, Comcast Cellular
Communications, Inc., Los Angeles Cellular Telephone Company and Southwestern
Bell Mobile Systems, Inc., each accounted for greater than 10% of the Company's
total revenues, and collectively accounted for over 70% of the Company's total
revenues in 1996. AirTouch Communications, Inc. and AT&T Wireless Services, Inc.
accounted for virtually all of the Company's total revenues in 1995. A
relatively small number of analog network carriers are potential customers for
PhonePrint. The Company believes that the number of potential customers for
future products, if any, will be relatively small. Any failure by the Company to
capture a significant share of those customers could have a material adverse
effect on the Company's business, operating results and financial condition. The
Company expects a relatively small number of customers will continue to
represent a significant percentage of its total revenues for each quarter for
the foreseeable future, although the companies that comprise the largest
customers in any given quarter may change from quarter to quarter. The terms of
the Company's agreements with its customers are generally for periods of between
two and five years. Although these agreements typically contain annual software
license fees and various service and support fees, there are no minimum payment
obligations or obligations to make future purchases of hardware or to license
additional software. Therefore, there can be no assurance that any of the
Company's current customers will generate significant revenues in future
periods.

     Uncertainty Regarding Patents and Protection of Proprietary Technology;
Risks of Future Litigation. The Company relies on a combination of patent, trade
secret, copyright and trademark protection and nondisclosure agreements to
protect its proprietary rights. As of December 31, 1997, the Company had one
issued U.S. patent, six pending U.S. patent applications; one issued foreign
patent and nine pending foreign patent applications. The Company's success will
depend in large part on the ability of the Company to obtain patent protection,
defend patents once obtained, license third party proprietary rights, maintain
trade secrets and operate without infringing upon the patents and proprietary
rights of others. The patent positions of companies in the wireless
telecommunications industry, including the Company, are generally uncertain and
involve complex legal and factual questions. There can be no assurance that
patents will issue from any patent applications owned or licensed to the Company
or that, if patents do issue, the claims allowed would be sufficiently broad to
protect the Company's technology. In addition, there can be no assurance that
any issued patents owned by or licensed to the Company will not be challenged,
invalidated or circumvented, or that the rights granted thereunder will provide
competitive advantages to the Company.

     Patents issued and patent applications filed relating to products used in
the wireless telecommunications industry are numerous and there can be no
assurance that current and potential competitors and other third parties have
not filed or in the future will not file applications for, or have not received
or in the future will not receive, patents or obtain additional proprietary
rights relating to products used or proposed to be used by the Company. The
Company is aware of patents granted to third parties that relate to the
potential products the Company is currently developing. The Company will need to
either design those potential products in a manner that does not infringe the
third-party patents or obtain licenses from the third parties, and there can be
no assurance that the Company will be able to do so. There can be no assurance
that the Company is aware of all patents or patent applications that may
materially affect the Company's ability to make, use or sell any current or
future products. U.S. patent applications are confidential while pending in the
U.S. Patent and Trademark Office, and patent applications filed in foreign
countries are often first published six months or more after filing. There can
also be no assurance that third parties will not assert infringement claims
against the Company in the future or that any such assertions will not result in
costly litigation or require the Company to obtain a license to intellectual
property rights of such parties. There can be no assurance that any such
licenses would be available on terms acceptable to the Company, if at all.
Furthermore, parties making such claims may be able to obtain injunctive or
other equitable relief that could effectively block the Company's ability to
make, use, sell or otherwise practice its intellectual property (whether or not
patented or described in pending patent applications), or to further develop or
commercialize its products in the U.S. and abroad and could result in the award
of substantial damages. Defense of any lawsuit or failure to obtain any such
license could have a material adverse effect on the Company's business,
operating results or financial condition.
                                       17
<PAGE>   18

     The Company also relies on unpatented trade secrets to protect its
proprietary technology, and no assurance can be given that others will not
independently develop or otherwise acquire the same or substantially equivalent
technologies or otherwise gain access to the Company's proprietary technology or
disclose such technology or that the Company can ultimately protect its rights
to such unpatented proprietary technology. No assurance can be given that third
parties will not obtain patent rights to such unpatented trade secrets, which
patent rights could be used to assert infringement claims against the Company.
The Company also relies on confidentiality agreements with its employees,
vendors, consultants and customers to protect its proprietary technology. There
can be no assurance that these agreements will not be breached, that the Company
would have adequate remedies for any breach or that the Company's trade secrets
will not otherwise become known to or be independently developed by competitors.
Failure to obtain or maintain patent and trade secret protection, for any
reason, could have a material adverse effect on the Company's business,
operating results and financial condition.

     Dependence on Third-Party Products and Services; Sole or Limited Sources of
Supply.  The Company relies to a substantial extent on outside vendors to
manufacture many of the components and subassemblies used in PhonePrint, some of
which are obtained from a single supplier or a limited group of suppliers. The
Company's reliance on outside vendors generally, and a sole or a limited group
of suppliers in particular, involves several risks, including a potential
inability to obtain an adequate supply of required components and reduced
control over quality, pricing and timing of delivery of components. In the past,
the Company has experienced delays in receiving materials from vendors,
sometimes resulting in delays in the assembly of products by the Company. Such
delays, or other significant vendor or supply quality issues, may occur in the
future, which could result in a material adverse effect on the Company's
business, operating results or financial condition. The manufacture of certain
of these components and subassemblies is specialized and requires long lead
times, and there can be no assurance that delays or shortages caused by vendors
will not reoccur. Any inability to obtain adequate deliveries, or any other
circumstance that would require the Company to seek alternative sources of
supply or to manufacture such components internally could delay shipment of the
Company's products, increase its cost of goods sold and have a material adverse
effect on the Company's business, operating results and financial condition. In
addition, from time to time, the Company must also rely upon third parties to
develop and introduce components and products to enable the Company, in turn, to
develop new products and product enhancements on a timely and cost-effective
basis. There can be no assurance that the Company will be able to obtain access
in a timely manner to third-party products and development services necessary to
enable the Company to develop and introduce new and enhanced products, that the
Company will obtain third-party products and development services on
commercially reasonable terms or that the Company will be able to replace
third-party products in the event such products become unavailable, obsolete or
incompatible with future versions of the Company's products. The absence of, or
any significant delay in, the replacement of third-party products could have a
material adverse effect on the Company's business, operating results and
financial condition.

     Dependence on Personnel.  The success of the Company is dependent, in part,
on its ability to attract and retain highly qualified personnel. The Company's
future business and operating results depend upon the continued contributions of
its senior management and other employees, many of whom would be difficult to
replace and certain of whom perform important functions for the Company beyond
those functions suggested by their respective job titles or descriptions.
Competition for such personnel is intense and the inability to attract and
retain additional senior management and other employees or the loss of one or
more members of the Company's senior management team or current employees,
particularly to competitors, could materially adversely affect the Company's
business, operating results or financial condition. There can be no assurance
that the Company will be successful in hiring or retaining requisite personnel.
None of the Company's employees has entered into employment agreements with the
Company, and the Company does not have any key-person life insurance covering
the lives of any members of its senior management team.

     Management of Growth.  The Company is at an early stage of development and
has rapidly and significantly expanded its operations. The number of employees
has grown from 36 on January 1, 1995 to 143 on December 31, 1997. Such growth
has placed, and, if sustained, will continue to place, significant demands on
the Company's management, information systems, operations and resources. The
strain experienced to date

                                       18
<PAGE>   19

has chiefly been in hiring, integrating and effectively managing sufficient
numbers of qualified personnel to support the expansion of the Company's
business. The Company's ability to manage any future growth, should it occur,
will continue to depend upon the successful expansion of its sales, marketing,
research and development, customer support and administrative infrastructure and
the ongoing implementation and improvement of a variety of internal management
systems, procedures and controls. There can be no assurance that the Company
will be able to attract, manage and retain additional personnel to support any
future growth, if any, or will not experience significant problems with respect
to any infrastructure expansion or the attempted implementation of systems,
procedures and controls. Any failure in one or more of these areas could have a
material adverse effect on the Company's business, results of operations and
financial condition.

     Government Regulation and Legal Uncertainties.  While most of the Company's
operations are not directly regulated, the Company's existing and potential
customers are subject to a variety of U.S. and foreign governmental regulations.
Such regulations may adversely affect the wireless telecommunications industry,
limit the number of potential customers for the Company's products or impede the
Company's ability to offer competitive products and services to the wireless
telecommunications industry or otherwise have a material adverse effect on the
Company's business, financial condition and results of operations. Recently
enacted legislation, including the Telecommunications Act of 1996, deregulating
the telecommunications industry may cause changes in the wireless
telecommunications industry, including the entrance of new competitors and
industry consolidation, which could in turn increase pricing pressures on the
Company, decrease demand for the Company's products, increase the Company's cost
of doing business or otherwise have a material adverse effect on the Company's
business, operating results and financial condition. The Telecommunications Act
of 1996 contains several provisions that may bear directly on the Company's
existing and potential customers in the U.S., including provisions that require
wireless carriers to interconnect with local exchange carriers and contribute to
a universal service fund, that limit the ability of state and local governments
to discriminate against or prohibit certain wireless services and that may allow
certain companies to bundle local and long distance services with wireless
offerings. These provisions may cause an increase in the number of wireless
telecommunications carriers which could in turn increase the number of potential
customers of the Company. This could require the Company to expand its marketing
efforts with no assurance that revenues would increase proportionately or at
all. Alternatively, these provisions could encourage industry consolidation,
which would reduce the Company's potential customer base. Currently the FCC and
state authorities are implementing the provisions of the Telecommunications Act
of 1996 and several of the decisions by the FCC and state authorities are
already being challenged in court. Therefore, the Company cannot at this time
predict the extent to which the Telecommunications Act of 1996 will affect the
Company's current and potential customers or ultimately affect the Company's
business, financial condition or results of operations. If the recent trend
toward privatization and deregulation of the wireless telecommunications
industry outside of the U.S. were to discontinue, or if currently deregulated
international markets were to reinstate comprehensive government regulation of
wireless telecommunications services, the Company's business, operating results
and financial condition could be materially and adversely affected. In addition,
the problem of cloning fraud has received heightened attention from Congress and
the FCC, which are exploring legislative and regulatory initiatives that would
impose stricter penalties for, and increase enforcement against, cloning fraud.
The Company cannot predict the effect of such initiatives on the Company's
business, operating results or financial condition, including demand for the
Company's products.

     Dependence on Growth of Wireless Telecommunications Industry.  The
Company's future financial performance will depend in part on the number of
carriers seeking third-party solutions to the problem of cloning fraud and other
problems that the Company's new products, if any, will attempt to address,
including phone location and churn reduction. Although the wireless
telecommunications industry has experienced significant growth in recent years,
there can be no assurance that such growth will continue at similar rates, or
that, if the industry does grow, there will be continued demand for the
Company's cloning fraud prevention or other products. Any decline in demand for
wireless telecommunications products and services in general would have a
material adverse effect on the Company's business, operating results and
financial condition.

                                       19
<PAGE>   20

     Risk of System Failure.  The continued, uninterrupted operation of the
PhonePrint system depends on protecting it from damage from fire, earthquake,
power loss, communications failure, unauthorized entry or other events. Any
damage to or failure of a component or combination of components that causes a
significant reduction in the performance of a PhonePrint system could have a
material adverse effect on the Company's business, operating results and
financial condition. The Company currently does not have liability insurance to
protect against these risks and there can be no assurance that such insurance
will be available to the Company on commercially reasonable terms, or at all. In
addition, if any carrier using PhonePrint encounters material performance
problems, the Company's reputation and its business, operating results and
financial condition could be materially adversely affected.

     Year 2000 Compliance.  The Company's products use and are dependent upon
certain internally developed and third party software programs. The company has
initiated a review and assessment of all hardware and software used in its
products to confirm that they will function properly in the year 2000. With
respect to software developed internally by the Company, the results of that
evaluation to date have revealed certain source codes that are unable to
appropriately interpret the upcoming calendar year 2000, and the Company is
working diligently to upgrade programs to make them capable of processing data
incorporating year 2000 dates without material errors or interruptions. With
respect to third party software incorporated in the Company's products, all
vendors whose software is used by the Company have indicated that their software
is or will be year 2000 compliant. Evaluation of year 2000 issues is continuing,
and there can be no assurance that additional issues, not presently known by the
Company, will not be discovered which could present a material risk to the
function of the Company's products and have a material adverse effect on the
Company's business, operating results and financial condition.

     Dependence on Distributors.  PhonePrint is currently marketed primarily
through the Company's direct sales efforts. The Company has entered into
distribution agreements with respect to PhonePrint with Motorola, Inc., Ericsson
Radio Systems AB and Aurora Wireless Technologies, Ltd. and sales referral
agreements with Lucent Technologies, Inc. and Sumitomo Corporation of America.
The Company seeks to pursue distribution agreements and other forms of sales and
marketing arrangements with other companies and the Company believes that its
dependence on distributors and these other sales and marketing relationships
will increase in the future, both with respect to PhonePrint and to new
products, if any, that the Company may offer in the future. There are no minimum
purchase obligations applicable to any existing distributor or other sales and
marketing partners and the Company does not expect to have any guarantees of
continuing orders. There can be no assurance that any existing or future
distributors or other sales and marketing partners will not become competitors
of the Company with respect to PhonePrint or any future product. Any failure by
the Company's existing and future distributors or other sales and marketing
partners to generate significant revenues could have a material adverse effect
on the Company's business, operating results and financial condition.

     Future Capital Requirements.  The Company's future capital requirements
will depend upon many factors, including the commercial success of PhonePrint,
the timing and success of new product introductions, if any, the progress of the
Company's research and development efforts, the Company's results of operations,
the status of competitive products and the potential acquisition of businesses,
technologies or assets. The Company believes that combination of existing
sources of liquidity and internally generated cash will be sufficient to meet
the Company's projected cash needs for at least the next 12 months. There can be
no assurance, however, that the Company will not require additional financing
prior to such date to fund its operations. In addition, the Company may require
additional financing after such date to fund its operations. There can be no
assurance that any additional financing will be available to the Company on
acceptable terms, or at all, when required by the Company. If additional funds
are raised by issuing equity securities, further dilution to the existing
stockholders will result. If adequate funds are not available, the Company may
be required to delay, scale back or eliminate one or more of its development or
manufacturing programs or obtain funds through arrangements with third parties
that may require the Company to relinquish rights to certain of its technologies
or potential products or other assets that the Company would not otherwise
relinquish. Accordingly, the inability to obtain such financing could have a
material adverse effect on the Company's business, operating results and
financial condition.

                                       20
<PAGE>   21

     Volatility of Stock Price.  The market price of the Common Stock is likely
to be highly volatile and could be subject to wide fluctuations in response to
numerous factors, including, but not limited to, revenues attributable to
PhonePrint, new products or new contracts by the Company or its competitors,
actual or anticipated variations in the Company's operating results, the level
of operating expenses, changes in financial estimates by securities analysts,
potential acquisitions, regulatory announcements, developments with respect to
patents or proprietary rights, conditions and trends in the wireless
telecommunications and other industries, adoption of new accounting standards
affecting the industry and general market conditions. As a result, the Company
expects that from time to time its future operating results will be below the
expectations of market analysts and investors, which would likely have a
material adverse effect on the prevailing market price of the Common Stock. The
realization of any of the risks described in these "Risk and Uncertainties"
could have a dramatic and adverse impact on the market price of the Common
Stock.

     Further, the stock market has experienced extreme price and volume
fluctuations that have particularly affected the market prices of equity
securities of many companies in the telecommunications industry and that often
have been unrelated or disproportionate to the operating performance of such
companies. These market fluctuations, as well as general economic, political and
market conditions such as recessions or international currency fluctuations may
adversely affect the market price of the Common Stock. In the past, following
periods of volatility in the market price of the securities of companies in the
telecommunications industry, securities class action litigation has often been
instituted against those companies. Such litigation, if instituted against the
Company, could result in substantial costs and a diversion of management
attention and resources, which would have a material adverse effect on the
Company.

     Antitakeover Effects of Charter, Bylaws and Delaware Law.  The Company's
Restated Certificate of Incorporation authorizes the Company's Board of
Directors (the "Board") to issue shares of undesignated Preferred Stock without
stockholder approval on such terms as the Board may determine. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of any such Preferred Stock that may be issued in the
future. Moreover, the issuance of Preferred Stock may make it more difficult for
a third party to acquire, or may discourage a third party from acquiring, a
majority of the voting stock of the Company. The Company's Restated Bylaws
provide that the Company's Board will be classified into three classes of
directors beginning at the 1998 annual meeting of stockholders. With a
classified Board, one class of directors is elected each year with each class
serving a three-year term. These and other provisions of the Restated
Certificate of Incorporation and the Restated Bylaws, as well as certain
provisions of Delaware law, could delay or impede the removal of incumbent
directors and could make more difficult a merger, tender offer or proxy contest
involving the Company, even if such events could be beneficial to the interest
of the stockholders. Such provisions could limit the price that certain
investors might be willing to pay in the future for the Common Stock.

ITEM 2.  PROPERTIES.

     The Company's principal administrative, assembly, manufacturing, marketing
and sales facilities total approximately 34,555 square feet and are located in a
single building in Palo Alto, California. The Company occupies its current
facilities under a lease that expires on June 1, 2002. The Company has the right
to expand into the remaining 20,455 feet of space in the building beginning in
April 1998.

ITEM 3.  LEGAL PROCEEDINGS.

     From time to time, the Company may be involved in litigation relating to
claims arising out of its operations in the normal course of business. As of the
date of this Prospectus, the Company is not engaged in any legal proceedings
that are expected, individually or in the aggregate, to have a material adverse
effect on the Company.

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

     No matters were submitted to a vote of security holders during the quarter
ended December 31, 1997.

                                       21
<PAGE>   22

                                    PART II

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

     (a) Market Price of and Dividends on the Registrant's Common Equity.

     The Company's Common Stock trades on The Nasdaq Stock Market under the
symbol "CAIR." The table below sets forth the high and low closing sales prices
per share as reported on The Nasdaq Stock Market since the Company's initial
public offering on July 29, 1997.

<TABLE>
<CAPTION>
                                                               HIGH        LOW
                                                              -------    -------
<S>                                                           <C>        <C>
YEAR ENDED DECEMBER 31, 1997
Third quarter ended September 30, 1997(1)...................  $21.625    $15.000
Fourth quarter ended December 31, 1997......................  $26.000    $15.000
YEAR ENDED DECEMBER 31, 1998
First quarter ended March 31, 1998(2).......................  $21.750    $15.000
</TABLE>

---------------
(1) From July 29, 1997 through end of the third quarter.

(2) From January 1, 1998 through February 28, 1998.

     On February 28, 1998, the last reported sale price of the Registrant's
Common Stock was $20.50 per share. As of February 28, 1998, the number of record
holders of the Company's Common Stock was 180 and the number of beneficial
holders was approximately 2,000. The Company has declared no cash dividends on
its Common Stock. The Company currently intends to retain any earnings for use
in its business and does not anticipate paying any cash dividends in the
foreseeable future.

     (b) Recent Sales of Unregistered Securities

     Since January 1, 1997, the Company has sold and issued the following
unregistered securities:

          (1) On March 1, 1997, the Company issued an aggregate of 400,000
     shares of Series D preferred stock (which has subsequently been converted
     into 266,667 shares of Common Stock) to certain investors for an aggregate
     consideration of $3,000,000.00

          (2) From January 1, 1997 to July 29, 1997, the Company issued options
     to purchase an aggregate of 513,925 shares of Common Stock with exercise
     prices ranging from $0.83 to $12.00 per share, and 726,065 shares of Common
     Stock were issued through the exercise of options for an aggregate exercise
     price of approximately $401,000.

     The sales and issuance's of securities in the above transactions were
deemed to be exempt under the Securities Act by virtue of Section 4(2) thereof
and/or Regulation D and Rule 701 promulgated thereunder as transactions not
involving any public offering. The purchasers in each case represented their
intention to acquire the securities for investment only and not with a view to
any distribution thereof. Appropriate legends were affixed to the stock
certificates issued in such transactions. Similar representations of investment
intent were obtained and similar legends imposed in connection with any
subsequent transfers of any such securities. The Registrant believes that all
recipients had adequate access, either through employment or other
relationships, to information about the Registrant to make an informed
investment decision.

ITEM 6.  SELECTED FINANCIAL DATA

     The following selected financial data should be read in conjunction with
the Company's financial statements and related notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere herein. The selected financial data presented below under the
captions "Statement of Operations Data" for the period from December 5, 1994
(inception) to December 31, 1994 and for each of the years ended December 31,
1995, 1996 and 1997 and "Balance Sheet Data" as of December 31, 1994, 1995, 1996
and 1997 are derived from the financial statements of the Company, which

                                       22
<PAGE>   23

have been audited by KPMG Peat Marwick LLP, independent auditors. Historical
results are not necessarily indicative of future results of operations.

<TABLE>
<CAPTION>
                                                  PERIOD FROM
                                                  DECEMBER 5,
                                                      1994
                                                 (INCEPTION) TO
                                                  DECEMBER 31,           YEAR ENDED DECEMBER 31,
                                                 --------------   --------------------------------------
                                                      1994           1995           1996         1997
                                                 --------------   -----------    ----------    ---------
                                                                  (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                              <C>              <C>            <C>           <C>
STATEMENT OF OPERATIONS DATA:
Total revenues.................................     $    --        $   7,593      $ 19,606      $47,838
Total cost of revenues.........................          --            8,137        19,197       31,516
                                                    -------        ---------      --------      -------
Gross profit (deficit).........................          --             (544)          409       16,322
Operating costs and expenses:
  Research and development.....................         507            3,094         4,983        6,975
  Sales and marketing..........................          62            2,981         5,374        7,486
  General and administrative...................         498            2,115         2,591        3,868
  Write-off of in-process research and
     development...............................       4,894               --            --           --
                                                    -------        ---------      --------      -------
  Total operating costs and expenses...........       5,961            8,190        12,948       18,329
                                                    -------        ---------      --------      -------
Operating loss.................................      (5,961)          (8,734)      (12,539)      (2,007)
Interest income (expense), net.................          20              218          (220)       1,374
                                                    -------        ---------      --------      -------
Loss before income taxes.......................      (5,941)          (8,516)      (12,759)        (633)
Income taxes...................................           1                1             2            7
                                                    -------        ---------      --------      -------
Loss before extraordinary item.................      (5,942)          (8,517)      (12,761)        (640)
Loss on debt extinguishment....................          --               --            --         (428)
                                                    -------        ---------      --------      -------
Net loss.......................................     $(5,942)       $  (8,517)     $(12,761)     $(1,068)
                                                    =======        =========      ========      =======
Basic and diluted net loss per share data(1):
Loss before extraordinary item.................                    $ (774.27)     $ (96.67)     $ (0.10)
Extraordinary item.............................                    $      --      $     --      $ (0.06)
                                                                   ---------      --------      -------
Net loss.......................................                    $ (774.27)     $ (96.67)     $ (0.16)
                                                                   =========      ========      =======
Shares used in per share calculation...........                           11           132        6,643
                                                                   =========      ========      =======
Pro forma basic and diluted net loss per share
  data(1):
Loss before extraordinary item.................                                   $  (1.75)     $ (0.05)
Extraordinary item.............................                                         --      $ (0.04)
                                                                                  --------      -------
Net loss.......................................                                   $  (1.75)     $ (0.09)
                                                                                  ========      =======
Shares used in pro forma per share
  calculation..................................                                      7,312       11,697
                                                                                  ========      =======
</TABLE>

---------------
(1) Per share results have been restated in accordance with SFAS No. 128 and SAB
    No. 98 from the previously reported per share results of $(0.09) and $(1.44)
    for the years ended December 31, 1997 and 1996, respectively.

                                       23
<PAGE>   24

<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                      ----------------------------------------
                                                       1994       1995       1996       1997
                                                      -------    -------    -------    -------
                                                                   (IN THOUSANDS)
<S>                                                   <C>        <C>        <C>        <C>
BALANCE SHEET DATA:
Cash, cash equivalents, & short term investments....  $ 6,819    $ 9,029    $19,504    $59,160
Working capital.....................................    9,560      9,767     19,561     54,835
Total assets........................................   11,305     14,156     34,911     77,677
Long-term obligations...............................    3,010      1,155      4,394        438
Total stockholders' equity..........................    7,273     10,592     18,011     59,947
</TABLE>

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

     The following discussion and analysis may contain forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ materially from the results discussed in such forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed in "Item 1. Business -- Risks and Uncertainties."
The Company undertakes no obligation to release publicly the results of any
revisions to these forward-looking statements to reflect events or circumstances
arising after the date hereof.

     The following should be read in conjunction with the Company's financial
statements and notes thereto.

OVERVIEW

     Corsair was incorporated in December 1994 in connection with the purchase
of certain in-process research and development and certain assets from a
subsidiary of TRW Inc. The Company further developed this technology into the
PhonePrint cloning fraud prevention system and first recorded revenues from
commercial shipment of this system in June 1995. From inception, the Company's
operating activities have related primarily to the commercialization, continued
development and enhancement of PhonePrint, the sale and marketing of PhonePrint,
and the development of potential new products. In 1995, the Company generated
revenues of $7.6 million based upon sales of PhonePrint to two customers. In
1996 the Company generated revenues of $19.6 Million based upon sales of
PhonePrint to nine customers. In 1997, the Company generated revenues of $47.8
million based upon sales of PhonePrint to twenty-three customers. See "Risk and
Uncertainties -- Customer Concentration."

     To date, all of the Company's revenues have been attributable to
PhonePrint, and the Company anticipates that the sale and license of the
hardware and software that constitute PhonePrint and the sale of associated
services will continue to account for substantially all of the Company's
revenues at least through the end of 1998. As a result, the Company's future
operating results will depend on the demand for and market acceptance of
PhonePrint. A relatively small number of analog network carriers constitute the
potential customers for PhonePrint. A large majority of the analog carriers in
the largest U.S. markets have to varying degrees already implemented cloning
fraud solutions, and there can be no assurance that the Company will be able to
achieve material revenues from the sale of PhonePrint to remaining potential
customers in the U.S. The Company anticipates that the demand for cloning fraud
solutions in the U.S. will decline in the future. If not offset by growth in
international markets, this trend will have a material adverse effect on the
Company's business, operating results and financial condition. Over time, this
trend could also occur in international markets. To date, the Company had
conducted a limited number of deployments of PhonePrint systems internationally.
In an effort to offset what the Company expects will be declining demand in the
U.S. for cloning fraud solutions, the Company intends to devote significant
marketing and sales efforts over the next several years to increase its sales of
PhonePrint to international customers and intends to pursue acquisitions of
businesses, products or technologies that complement the Company's business.

     There are two components of revenues attributable to PhonePrint: system
revenue and service revenue. System revenue is comprised of both the sale of
hardware and the licensing of software. Revenue from hardware sales is
recognized upon the commissioning of the product (the activation of the cell
site equipment) unless a sales contract contains specific acceptance criteria,
in which case, hardware revenue is recognized

                                       24
<PAGE>   25

upon achievement of those criteria. Software license revenue is recognized over
the period of the software license term. Service revenue is primarily derived
from maintenance contracts and subscriptions to the PhonePrint Roaming Network,
which is recognized monthly over the term of the contract. Service revenue also
includes revenue resulting from time and material billing, training courses,
consulting, operations support, and the provision of spare parts, each of which
is recognized in the month the service is provided to the customer.

     Cost of system revenue consists of the cost of hardware and software, as
well as license and royalty fees. Cost of hardware revenue consists of
manufacturing overhead for the Company's test and assembly operation, materials
purchased from the Company's subcontractors and vendors, hardware purchased from
third party vendors, depreciation of rental units, and shipping costs. Cost of
software license revenue primarily includes fees paid to third party software
vendors, as well as costs associated with the installation and configuration of
the software. Cost of service revenue consists primarily of expenses for
personnel engaged in network support, customer support, installation, training
and consulting as well as communications charges and network equipment
depreciation.

     The Company's gross margin has varied significantly in the past and may
vary significantly in the future, depending on the mix of services and systems.
The Company's software licenses have a higher gross margin than its service and
hardware revenue. In addition, the hardware gross margin varies from customer to
customer depending on the contract and from model to model depending upon the
customer's cell site and switch configuration. Therefore, the Company's
operating results will be affected by the mix of hardware units, software
licenses, and service fees recognized during the period.

     The Company sells PhonePrint primarily through its direct sales force, but
has also entered into distribution agreements with Motorola, Ericsson and Aurora
and seeks to enter into additional distribution agreements for international
markets. The Company has entered into sales referral agreements with Lucent and
Sumitomo. The Company's gross margin will also vary depending on the mix of
direct sales and sales through distribution channels and sales referral
arrangements.

     The Company continues to make efforts to generate profits by increasing
sales volume, decreasing costs of goods sold, and through certain other
measures. While the Company has certain programs in place intended to reduce the
costs of certain components of the PhonePrint system, the Company expects that
its operating expenses will continue to increase in the foreseeable future. As a
result, there can be no assurance that the Company will maintain its
profitability. See "Risks and Uncertainties -- Limited Operating History; Lack
of Profitability."

RESULTS OF OPERATIONS-YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

     REVENUES.  For the year ended December 31, 1997, total revenues were $47.8
million, compared with $19.6 and $7.6 million for the comparable 1996 and 1995
periods, respectively. System revenue was $41.9 million for the year ended
December 31, 1997, compared with $18.2 million for 1996 and $7.4 million for
1995. This increase resulted primarily from an increase in sales of PhonePrint
systems.

     Service revenue was $6.0 million for the year ended December 31, 1997,
compared with $1.4 million and $242,000 for the comparable periods in 1996 and
1995, respectively. The increase in service revenue was attributable to growth
in the installed base of PhonePrint units covered by service contracts over the
years and initial revenue attributable to the Company's PhonePrint Roaming
Network service released late in 1996.

     International revenues comprised 18.9% of total revenues for the year ended
December 31, 1997. The Company did not have export sales in 1996 or 1995.

     GROSS PROFIT (DEFICIT).  Gross profit increased to $16.3 million for the
year ended December 31, 1997 from a gross profit of $409,000 in 1996 and a gross
deficit of $544,000 in 1995. The increase in gross profit was due primarily to
improved margins from system revenues which contributed $13.9 million in gross
profit for the year ended December 31, 1997 as compared to a gross profit of
$943,000 for the year ended December 31, 1996, and gross deficits of $171,000
for the same period in 1995. Service revenue gross profit for the year

                                       25
<PAGE>   26

ended December 31, 1997 improved to $2.4 million as compared to a gross deficit
of $534,000 and $373,000 in the previous two fiscal years.

     RESEARCH AND DEVELOPMENT.  Research and development expenses were $7.0
million, or 14.6% of total revenues, for the year ended December 31, 1997,
compared with $5.0 million (25.4% of total revenues), and $3.1 million (40.8% of
total revenues) for the years ended December 31, 1996 and 1995, respectively.
This increase in expenditures was due primarily to the hiring of additional
engineering personnel related to the continued development of PhonePrint and
development work on new products and the decrease in percentage of total
revenues was due to the overall increase in the Company's revenues from period
to period.

     SALES AND MARKETING.  Sales and marketing expenses were $7.5 million, or
15.6% of total revenues, during the year ended December 31, 1997, compared with
$5.4 million or 27.4% of total revenues for the year ended December 31, 1996 and
$3.0 million or 39.3% of total revenues for the comparable 1995 period. The
increase in expenses resulted from the hiring of additional sales and marketing
personnel to support the increased sales of PhonePrint and to support the
increase in service revenue. The decrease in percentage of total revenues was
due to the overall increase in the Company's revenues form period to period. The
Company expects its sales and marketing expenses to increase in absolute dollars
in the foreseeable future as it expands the scope of its sales and marketing
efforts.

     GENERAL AND ADMINISTRATIVE.  General and administrative expenses increased
to $3.9 million (8.1% of total revenues) in the year ended December 31, 1997,
compared with $2.6 million (13.2% of total revenues) and $2.1 million (27.9% of
total revenues) for the years ended December 31, 1996 and 1995, respectively.
This increase in expenditures was due primarily to higher personnel expenses
related to increased staffing. The decrease in percentage of total revenues was
due to the overall increase in the Company's revenues form period to period.

     INTEREST INCOME (EXPENSE), NET.  Net interest income was $1.4 million in
the year ended December 31, 1997 as compared to net interest expense of $220,000
in 1996 and net interest income of $218,000 in 1995. Net interest income and
expense consists of interest income from the Company's cash and short-term
investments, net of interest expense on the Company's equipment loans, equipment
lease lines and other loans obtained primarily in 1996. The increase in net
interest income in 1997 was a result of larger average cash investments
attributable to the proceeds received from the Company's initial public offering
of Common Stock completed in July 1997.

     EXTRAORDINARY ITEM.  During the year ended December 31, 1997, the Company
incurred a loss on debt extinguishment of $428,000 associated with paying the
principal and interest of $5.1 million on short-term and long-term notes
payable.

     INCOME TAXES.  The income tax expense for the years ended December 31,
1997, 1996 and 1995 represent minimum state tax liabilities.

LIQUIDITY AND CAPITAL RESOURCES

     The Company has funded its operations from inception primarily through a
series of Preferred Stock, debt financings, and an initial public offering. From
its incorporation through December 31, 1997, the Company completed four
Preferred Stock financings providing aggregate net proceeds of approximately
$47.9 million, and debt financings provided aggregate net proceeds of
approximately $5.9 million. In July 1997, the Company completed its initial
public offering generating $39.1 million of net proceeds. At December 31, 1997,
the Company had cash and cash equivalents of approximately $15.4 million and
short-term investments of approximately $43.7 million.

     In June 1997, the Company signed a loan and security agreement, which made
available a $3.0 million equipment term loan facility at prime plus 0.75% (9.25%
at December 31, 1997). The loan facility is available through July 1998 and is
secured by any underlying equipment purchased. As of December 31, 1997, the
Company did not have any borrowings under the equipment term loan.

                                       26
<PAGE>   27

     The Company's operating activities generated cash of $5.9 million for the
year ended December 31, 1997. The improvement in 1997 over previous years was
due primarily to improved operating results, increased cash collections in
accounts receivable, lower inventory balances, and an increase in deferred
revenue.

     The Company's investing activities used cash of $43.6 million for the year
ended December 31, 1997. Net cash of $41.3 million was used for purchasing
short-term investments, and cash of $2.3 million was used for the purchase of
property and equipment, primarily computer hardware and software, and for
leasehold improvements to the Company's facility.

     The Company's financing activities generated cash of $36.1 million for the
year ended December 31, 1997 primarily attributable to the Company's July 1997
initial public offering, which resulted in net proceeds to the Company of $39.1
million.

     The Company believes that existing sources of liquidity and internally
generated cash, if any, will be sufficient to meet the Company's projected cash
needs for at least the next 12 months. The Company intends to continue its
significant product development efforts in the future and expects to fund those
activities out of working capital. There can be no assurance, however, that the
Company will not require additional financing prior to such date to fund its
operations or possible acquisitions. In addition, the Company may require
additional financing after such date to fund its operations. There can be no
assurance that any additional financing will be available to the Company on
acceptable terms, or at all, if and when required by the Company.

                                       27
<PAGE>   28

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                           ANNUAL REPORT ON FORM 10-K
                      FOR THE YEAR ENDED DECEMBER 31, 1997

                         INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Independent Auditors' Report................................   29
Balance Sheets as of December 31, 1996 and 1997.............   30
Statements of Operations for the years ended December 31,
  1995, 1996 and 1997.......................................   31
Statements of Stockholders' Equity for the years ended
  December 31, 1995, 1996 and 1997..........................   32
Statements of Cash Flows for the years ended December 31,
  1995, 1996 and 1997.......................................   33
Notes to Financial Statements...............................   34
</TABLE>

                                       28
<PAGE>   29

                          INDEPENDENT AUDITORS' REPORT

The Board of Directors
Corsair Communications, Inc.:

     We have audited the accompanying balance sheets of Corsair Communications,
Inc. as of December 31, 1996 and 1997, and the related statements of operations,
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1997. 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 generally accepted auditing
standards. 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 Corsair Communications, Inc.
as of December 31, 1996 and 1997, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1997, in
conformity with generally accepted accounting principles.

                                          /s/ KPMG PEAT MARWICK LLP

San Francisco, California
January 26, 1998

                                       29
<PAGE>   30

                          CORSAIR COMMUNICATIONS, INC.

                                 BALANCE SHEETS
                       (In thousands, except share data)

<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                              --------------------
                                                                1996        1997
                                                              --------    --------
<S>                                                           <C>         <C>
                                      ASSETS
Current assets:
  Cash and cash equivalents.................................  $ 17,052    $ 15,426
  Short-term investments....................................     2,452      43,734
  Trade accounts receivable, less allowance for doubtful
     accounts of $404 for 1996 and $501 for 1997............     3,260       3,836
  Other receivables.........................................        43         754
  Evaluation inventory......................................     5,328       4,590
  Inventories, net..........................................     3,849       3,618
  Prepaid expenses..........................................        83         169
                                                              --------    --------
          Total current assets..............................    32,067      72,127
Property and equipment, net.................................     2,424       3,511
Other assets................................................       420       2,039
                                                              --------    --------
                                                              $ 34,911    $ 77,677
                                                              ========    ========
                       LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable..........................................  $  3,428    $    696
  Accrued expenses..........................................     2,502       5,790
  Current portion of notes payable..........................     1,803          --
  Current portion of capital lease obligations..............       286         437
  Deferred revenue..........................................     4,487      10,369
                                                              --------    --------
          Total current liabilities.........................    12,506      17,292
  Notes payable, net of current portion.....................     3,780          --
  Capital lease obligations, net of current portion.........       614         438
                                                              --------    --------
          Total liabilities.................................    16,900      17,730
                                                              --------    --------
Commitments and contingencies
Stockholders' equity:
  Convertible preferred stock, $.001 par value; 14,548,963
     shares authorized; 9,166,288 shares issued and
     outstanding at December 31, 1996; none issued and
     outstanding at December 31, 1997.......................         9          --
  Common stock, $.001 par value; 20,000,000 shares
     authorized; 604,094, and 13,635,440 shares issued and
     outstanding at December 31, 1996 and 1997,
     respectively...........................................         1          14
  Note receivable from stockholder..........................      (136)       (136)
  Additional paid-in capital................................    45,426      89,005
  Deferred compensation.....................................       (69)       (648)
  Accumulated deficit.......................................   (27,220)    (28,288)
                                                              --------    --------
          Total stockholders' equity........................    18,011      59,947
                                                              --------    --------
                                                              $ 34,911    $ 77,677
                                                              ========    ========
</TABLE>

                 See accompanying notes to financial statements
                                       30
<PAGE>   31

                          CORSAIR COMMUNICATIONS, INC.

                            STATEMENTS OF OPERATIONS
                     (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                             --------------------------------
                                                               1995        1996        1997
                                                             --------    --------    --------
<S>                                                          <C>         <C>         <C>
Revenues:
  System revenue...........................................  $  7,351    $ 18,178    $ 41,887
  Service revenue..........................................       242       1,428       5,951
                                                             --------    --------    --------
          Total revenues...................................     7,593      19,606      47,838
                                                             --------    --------    --------
Cost of revenues:
  System revenue costs.....................................     7,522      17,235      27,954
  Service revenue costs....................................       615       1,962       3,562
                                                             --------    --------    --------
          Total cost of revenues...........................     8,137      19,197      31,516
                                                             --------    --------    --------
          Gross profit (deficit)...........................      (544)        409      16,322
                                                             --------    --------    --------
Operating costs and expenses:
  Research and development.................................     3,094       4,983       6,975
  Sales and marketing......................................     2,981       5,374       7,486
  General and administrative...............................     2,115       2,591       3,868
                                                             --------    --------    --------
          Total operating costs and expenses...............     8,190      12,948      18,329
                                                             --------    --------    --------
          Operating loss...................................    (8,734)    (12,539)     (2,007)
Interest income (expense), net.............................       218        (220)      1,374
                                                             --------    --------    --------
          Loss before income taxes and extraordinary
            item...........................................    (8,516)    (12,759)       (633)
Income taxes...............................................         1           2           7
                                                             --------    --------    --------
Loss before extraordinary item.............................    (8,517)    (12,761)       (640)
Loss on debt extinguishment, net of taxes..................        --          --        (428)
                                                             --------    --------    --------
Net loss...................................................  $ (8,517)   $(12,761)   $ (1,068)
                                                             ========    ========    ========
Basic and diluted net loss per share data:
Loss before extraordinary item.............................  $(774.27)   $ (96.67)   $  (0.10)
Extraordinary item.........................................  $     --    $     --    $  (0.06)
                                                             --------    --------    --------
Net loss...................................................  $(774.27)   $ (96.67)   $  (0.16)
                                                             ========    ========    ========
Shares used in per share calculation.......................        11         132       6,643
                                                             ========    ========    ========
Pro forma basic and diluted net loss per share data:
Loss before extraordinary item.............................              $  (1.75)   $  (0.05)
Extraordinary item.........................................              $     --    $  (0.04)
                                                                         --------    --------
Net loss...................................................              $  (1.75)   $  (0.09)
                                                                         ========    ========
Shares used in pro forma per share calculation.............                 7,312      11,697
                                                                         ========    ========
</TABLE>

                See accompanying notes to financial statements.
                                       31
<PAGE>   32

                          CORSAIR COMMUNICATIONS, INC.

                       STATEMENTS OF STOCKHOLDERS' EQUITY
                       (In thousands, except share data)
<TABLE>
<CAPTION>
                                        CONVERTIBLE                                NOTE
                                      PREFERRED STOCK        COMMON STOCK       RECEIVABLE    ADDITIONAL
                                    -------------------   -------------------      FROM        PAID-IN       DEFERRED
                                      SHARES     AMOUNT     SHARES     AMOUNT   STOCKHOLDER    CAPITAL     COMPENSATION
                                    ----------   ------   ----------   ------   -----------   ----------   ------------
<S>                                 <C>          <C>      <C>          <C>      <C>           <C>          <C>
Balances as of December 31,
  1994............................   5,413,340    $  5            --    $ --      $(3,000)     $16,210       $    --
Collection of stockholders'
  notes...........................          --      --            --      --        3,000           --            --
Exercise of common stock
  options.........................          --      --        50,750      --           --           15            --
Issuance of convertible preferred
  stock warrants in conjunction
  with debt financing.............          --      --            --      --           --           30            --
Issuance of Series B convertible
  preferred stock, net of issuance
  costs of $34....................   1,328,084       2            --      --           --        8,789            --
Net loss..........................          --      --            --      --           --           --            --
                                    ----------    ----    ----------    ----      -------      -------       -------
Balances as of December 31,
  1995............................   6,741,424       7        50,750      --           --       25,044            --
Exercise of common stock
  options.........................          --      --       553,344       1         (136)         230            --
Issuance of convertible preferred
  stock warrants in conjunction
  with debt financings............          --      --            --      --           --          131            --
Issuance of Series C convertible
  preferred stock, net of issuance
  costs of $56....................   2,424,864       2            --      --           --       19,948            --
Deferred compensation related to
  grant of stock options..........          --      --            --      --           --           73           (73)
Amortization of deferred
  compensation....................          --      --            --      --           --           --             4
Net loss..........................          --      --            --      --           --           --            --
                                    ----------    ----    ----------    ----      -------      -------       -------
Balances as of December 31,
  1996............................   9,166,288       9       604,094       1         (136)      45,426           (69)
Exercise of common stock
  options.........................          --      --       730,416       1           --          402            --
Issuance of Series D convertible
  preferred stock, net of issuance
  costs of $3.....................     266,668      --            --      --           --        2,996            --
Deferred compensation related to
  grant of stock options..........          --      --            --      --           --        1,129        (1,129)
Conversion of preferred stock to
  common stock....................  (9,432,956)     (9)    9,432,956       9           --           --            --
Issuance of common stock net of
  issuance costs of $1,049........          --      --     2,875,000       3           --       39,055            --
Repurchase of common stock........          --      --        (7,026)     --           --           (3)           --
Amortization of deferred
  compensation....................          --      --            --      --           --           --           550
Net loss..........................          --      --            --      --           --           --            --
                                    ----------    ----    ----------    ----      -------      -------       -------
Balances as of December 31,
  1997............................          --    $ --    13,635,440    $ 14      $  (136)     $89,005       $  (648)
                                    ==========    ====    ==========    ====      =======      =======       =======

<CAPTION>

                                                      TOTAL
                                    ACCUMULATED   STOCKHOLDERS'
                                      DEFICIT        EQUITY
                                    -----------   -------------
<S>                                 <C>           <C>
Balances as of December 31,
  1994............................   $ (5,942)      $  7,273
Collection of stockholders'
  notes...........................         --          3,000
Exercise of common stock
  options.........................         --             15
Issuance of convertible preferred
  stock warrants in conjunction
  with debt financing.............         --             30
Issuance of Series B convertible
  preferred stock, net of issuance
  costs of $34....................         --          8,791
Net loss..........................     (8,517)        (8,517)
                                     --------       --------
Balances as of December 31,
  1995............................    (14,459)        10,592
Exercise of common stock
  options.........................         --             95
Issuance of convertible preferred
  stock warrants in conjunction
  with debt financings............         --            131
Issuance of Series C convertible
  preferred stock, net of issuance
  costs of $56....................         --         19,950
Deferred compensation related to
  grant of stock options..........         --             --
Amortization of deferred
  compensation....................         --              4
Net loss..........................    (12,761)       (12,761)
                                     --------       --------
Balances as of December 31,
  1996............................    (27,220)        18,011
Exercise of common stock
  options.........................         --            403
Issuance of Series D convertible
  preferred stock, net of issuance
  costs of $3.....................         --          2,996
Deferred compensation related to
  grant of stock options..........         --             --
Conversion of preferred stock to
  common stock....................         --             --
Issuance of common stock net of
  issuance costs of $1,049........         --         39,058
Repurchase of common stock........         --             (3)
Amortization of deferred
  compensation....................         --            550
Net loss..........................     (1,068)        (1,068)
                                     --------       --------
Balances as of December 31,
  1997............................   $(28,288)      $ 59,947
                                     ========       ========
</TABLE>

                See accompanying notes to financial statements.
                                       32
<PAGE>   33

                          CORSAIR COMMUNICATIONS, INC.

                            STATEMENTS OF CASH FLOWS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31,
                                                              -------------------------------
                                                               1995        1996        1997
                                                              -------    --------    --------
<S>                                                           <C>        <C>         <C>
Cash flows from operating activities:
  Net loss..................................................  $(8,517)   $(12,761)   $ (1,068)
  Adjustments to reconcile net loss to net cash provided by
     (used in) operating activities:
     Depreciation and amortization..........................      472       1,013       2,001
     Amortization of deferred compensation..................       --           4         550
     Extraordinary loss on extinguishment of debt...........       --          --         428
     Loss on disposition of fixed assets....................       --          --         100
     Changes in operating assets and liabilities:
       Trade accounts receivable............................     (808)     (2,453)       (576)
       Other receivables....................................       --         (28)       (711)
       Inventories..........................................    1,551      (6,965)        969
       Prepaid expenses and other assets....................     (162)       (199)     (2,235)
       Accounts payable and accrued expenses................      302       4,870         556
       Deferred revenue.....................................    1,423       3,024       5,882
                                                              -------    --------    --------
          Net cash (used in) provided by operating
            activities......................................   (5,739)    (13,495)      5,896
                                                              -------    --------    --------
Cash flows from investing activities:
  Purchase of short-term investments........................   (1,957)     (2,452)    (64,452)
  Proceeds from sales and maturities of short-term
     investments............................................       --       1,957      23,170
  Purchases of property and equipment.......................   (1,528)       (605)     (2,292)
                                                              -------    --------    --------
          Net Cash used in investing activities.............   (3,485)     (1,100)    (43,574)
                                                              -------    --------    --------
Cash flows from financing activities:
  Proceeds from sale of preferred stock, net of offering
     costs..................................................    8,791      19,950       2,996
  Proceeds from issuance of common stock, net of offering
     costs..................................................       --          --      39,055
  Proceeds from exercise of common stock options............       15          95         403
  Proceeds from notes payable...............................      970       4,925          --
  Proceeds from issuance of warrants........................       30         131          --
  Payments on note payable..................................      (82)       (230)     (6,011)
  Payments on capital lease obligations.....................      (12)       (232)       (391)
  Loan to stockholder.......................................       --         (64)         --
  Repayment of notes payable to ESL Incorporated............   (3,235)         --          --
  Proceeds from note receivable from stockholders...........    3,000          --          --
                                                              -------    --------    --------
          Net cash provided by financing activities.........    9,477      24,575      36,052
                                                              -------    --------    --------
Net increase (decrease) in cash and cash equivalents........      253       9,980      (1,626)
Cash and cash equivalents, beginning of year................    6,819       7,072      17,052
                                                              -------    --------    --------
Cash and cash equivalents, end of year......................  $ 7,072    $ 17,052    $ 15,426
                                                              =======    ========    ========
Cash paid during the year:
  Interest..................................................  $   112    $    458    $    533
                                                              =======    ========    ========
  Income taxes..............................................  $     1    $      2    $      7
                                                              =======    ========    ========
Noncash financing and investing activities
  Assets recorded under capital leases......................  $   165    $    979    $    366
                                                              =======    ========    ========
  Common stock issued upon exercise of stock options in
     exchange for stockholder note..........................  $    --    $    136    $     --
                                                              =======    ========    ========
  Deferred compensation relating to stock option grants.....  $    --    $     73    $  1,129
                                                              =======    ========    ========
  Conversion of preferred stock to common stock.............  $    --    $     --    $ 31,737
                                                              =======    ========    ========
</TABLE>

                See accompanying notes to financial statements.
                                       33
<PAGE>   34

                          CORSAIR COMMUNICATIONS, INC.

                         NOTES TO FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997

1.  BUSINESS

     Corsair Communications, Inc. (the Company) was incorporated in the state of
Delaware in December 1994 to develop an open architecture hardware and software
system that can serve as a platform for the delivery of multiple products and
services to the wireless telecommunications industry. The Company sells and
markets its products to wireless telecommunications carriers domestically and
internationally.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  Revenue Recognition

     System revenue is comprised of hardware sales and software licensing, net
of estimated allowances. Revenue from hardware sales is recognized upon
commissioning of the product (the activation of the cell site equipment,
following testing, integration and implementation), unless a sales agreement
contains specific acceptance criteria, in which case hardware revenue is
recognized upon achievement of such criteria. Revenue from the licensing of
system software, which includes post-contract customer support and certain
product enhancements, is recognized ratably over the term of the license period.

     Service revenue is comprised of field maintenance and other services.
Revenue from field maintenance contracts is recognized ratably over the term of
the maintenance period. Revenue from other sources is recognized as the services
are performed.

     Deferred revenue primarily includes deferred software license and
maintenance revenue and deposits received from customers after shipment but
prior to installation of systems.

  Concentration of Credit Risk

     Financial instruments that potentially expose the Company to concentrations
of credit risk principally consist of cash, cash equivalents, short-term
investments, and accounts receivable.

     The Company limits the amounts invested in any one type of investment. The
Company maintains its cash investments with several financial institutions.
Management believes the financial risks associated with such deposits are
minimal.

     The Company has historically sold its products directly to wireless
telecommunications carriers. Sales generally are not collateralized, credit
evaluations are performed as appropriate, and allowances are provided for
estimated credit losses. The Company has not experienced significant losses on
trade receivables from any particular customer or geographic region.

  Cash Equivalents and Short-Term Investments

     Cash equivalents consist of instruments with remaining maturities of 90
days or less at the date of acquisition. Certain cash equivalents and all of the
Company's investments are classified as available-for-sale. The securities are
carried at fair value, which approximates cost. To date, the fair value of the
securities has not differed significantly from the cost basis of the securities.

     The amortized cost of available-for-sale debt securities is adjusted for
amortization of premiums and accretion of discounts to maturity. Realized gains
and losses, and declines in value judged to be other than temporary on
available-for-sale securities, if any, are included in interest income, net. The
cost of securities sold is based on the specific identification method. Interest
and dividends on securities classified as available-for-sale are included in
interest income, net.

                                       34
<PAGE>   35
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

     Investments, all of which are debt securities maturing in one year or less
and are classified as available-for-sale, consisted of the following (in
thousands):

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                            -----------------
                                                             1996      1997
                                                            ------    -------
<S>                                                         <C>       <C>
Commercial paper..........................................  $3,955    $10,874
Corporate debt securities.................................      --     24,505
Certificates of deposit...................................     525     13,994
                                                            ------    -------
                                                            $4,480    $49,373
                                                            ======    =======
</TABLE>

  Inventories

     Inventories, including evaluation inventory, are stated at the lower of
first-in, first-out cost, or market. Evaluation inventory is comprised of
finished hardware units delivered to a customer which are pending commissioning
of the product.

  Property and Equipment

     Property and equipment are recorded at cost. Equipment recorded under
capital leases is stated at the lower of fair value or the present value of
minimum lease payments at the inception of the lease. Depreciation is calculated
under the straight-line method over the estimated useful lives of the assets,
generally three to five years. Equipment recorded under capital leases is
amortized over the shorter of the lease term or the estimated useful life of the
asset. Leasehold improvements are amortized on a straight-line method over the
shorter of the lease term or the estimated useful life of the asset.

  Software Research and Development Costs

     All costs incurred to establish the technological feasibility of software
are expensed as incurred. Costs incurred subsequent to establishing
technological feasibility are capitalized and amortized on a straight-line basis
over their estimated useful lives. The Company determines that technological
feasibility has been established once a product design and working model have
been completed and tested. No software research and development costs have been
capitalized to date as qualified amounts have not been significant.

  Other Assets

     Included in other assets are spare parts that are generally amortized on a
straight-line basis over the course of their respective useful lives, generally
two years.

  Income Taxes

     Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years that those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.

  Use of Estimates

     The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the

                                       35
<PAGE>   36
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.

  Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of

     The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. SFAS No. 121 requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. The adoption of SFAS No. 121 did not have a material impact on the
Company's financial position, results of operations, or liquidity.

  Net Loss Per Share

     During 1997, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 128, Earnings Per Share. SFAS No. 128 requires the
presentation of basic earnings per share (EPS) and, for companies with
potentially dilutive securities, such as options, diluted EPS. Basic earnings
per share is computed using the weighted average number of shares of common
stock outstanding. Diluted earnings per share is computed using the weighted
average number of shares of common stock and, when dilutive, convertible
preferred stock outstanding on an as-if converted basis and common equivalent
shares from options to purchase common stock and warrants outstanding using the
treasury stock method. The Company has excluded the impact of approximately
1,043,958, 973,927 and 946,219 outstanding options to purchase common stock and
outstanding warrants to purchase 27,073, 157,907, and 157,907 shares of common
stock as of December 31, 1995, 1996 and 1997, respectively, since their
inclusion in diluted and pro forma diluted per share results would have been
antidilutive.

     The difference between diluted and pro forma basic and diluted net loss per
share data as reported are the assumed conversion of the Company's series of
convertible preferred stock (converted at the effectiveness of the Company's
initial public offering) from the date of their respective issuances.

     Effective February 3, 1998, the Securities and Exchange Commission (SEC)
issued Staff Accounting Bulletin (SAB) No. 98, which changes the calculation of
earnings per share in periods prior to initial public offerings, as previously
applied under SAB No. 83. When a registrant issued common stock, warrants,
options, or other potentially dilutive instruments for consideration or with
exercise prices below the initial public offering price, within a one year
period prior to the filing of a registration statements relating to an initial
public offering, SAB No. 83 required such equity instruments to be treated as
outstanding for all periods covered by income statements in the filing, using
the anticipated initial public offering price and the treasury stock method.
Under SAB No. 98 equity securities issued or granted for nominal consideration
are to be reflected in per share calculations for all periods presented. The
Company has concluded that during all periods prior to the Company's initial
public offering, no equity instruments were issued for nominal consideration.

     In accordance with SFAS No. 128 and SAB No. 98, the Company has restated
the basic and diluted net loss per share data from the previously reported per
share results for the years ended December 31, 1997 and 1996 of $(0.09) and
$(1.44), respectively.

  Reclassifications

     Certain amounts reported in previous years have been reclassified to
conform to the fiscal 1997 presentation.
                                       36
<PAGE>   37
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

3.  BALANCE SHEET AND STATEMENT OF OPERATIONS COMPONENTS

  Inventories

     Inventories consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                             ----------------
                                                              1996      1997
                                                             ------    ------
<S>                                                          <C>       <C>
Raw materials..............................................  $2,371    $1,479
Work in process............................................   1,026       189
Finished goods.............................................     452     1,950
                                                             ------    ------
                                                             $3,849    $3,618
                                                             ======    ======
</TABLE>

  Property and Equipment

     Property and equipment consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                             ----------------
                                                              1996      1997
                                                             ------    ------
<S>                                                          <C>       <C>
Computer equipment.........................................  $1,779    $2,914
Furniture and fixtures.....................................     589       740
Purchased software.........................................     407       665
Leasehold improvements.....................................     524       892
Machinery and equipment....................................     579     1,324
                                                             ------    ------
                                                              3,878     6,535
Less accumulated depreciation and amortization.............   1,454     3,024
                                                             ------    ------
                                                             $2,424    $3,511
                                                             ======    ======
</TABLE>

     The total amount of assets recorded under capital leases included in
property and equipment is approximately $1,109,000 and $1,473,000 as of December
31, 1996 and 1997, respectively. Accumulated amortization thereon was $214,000
and $401,000 as of December 31, 1996 and 1997, respectively.

  Accrued Expenses

     Accrued expenses consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                             ----------------
                                                              1996      1997
                                                             ------    ------
<S>                                                          <C>       <C>
Accrued benefits...........................................  $  820    $1,204
Accrued warranty costs.....................................     140       949
Accrued professional fees..................................     163       782
Accrued retrofit...........................................     912       622
Other......................................................     467     2,233
                                                             ------    ------
                                                             $2,502    $5,790
                                                             ======    ======
</TABLE>

                                       37
<PAGE>   38
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

  Significant Customers

     The following tables summarize the Company's significant customers as of
and for the years ended December 31, 1995, 1996 and 1997:

<TABLE>
<CAPTION>
                                                             PERCENTAGE OF
                                                             TOTAL REVENUES
                                                          --------------------
                                                          1995    1996    1997
                                                          ----    ----    ----
<S>                                                       <C>     <C>     <C>
Customer A..............................................   56%     --      --
Customer B..............................................   40%     15%      6%
Customer C..............................................   --      18%      5%
Customer D..............................................   --      27%     13%
Customer E..............................................   --      13%      2%
Customer F..............................................   --       9%     15%
Customer G..............................................   --       5%     14%
Customer H..............................................   --      --      10%
</TABLE>

<TABLE>
<CAPTION>
                                                              PERCENTAGE OF TRADE
                                                              ACCOUNTS RECEIVABLE
                                                              -------------------
                                                                1996       1997
                                                              --------   --------
<S>                                                           <C>        <C>
Customer D..................................................     48%        14%
Customer I..................................................     --         18%
Customer J..................................................     17%        12%
</TABLE>

4.  DEBT

     In August 1995, the Company entered into a loan and security agreement with
a lending institution pursuant to which the Company borrowed $1.0 million,
secured by the Company's inventory and fixed assets, at a 14.95% stated interest
rate. In July 1996, the Company entered into additional agreements with two
lending institutions pursuant to which the Company borrowed $5.0 million at a
14.55% stated interest rate. These creditors were granted a security interest in
certain of the Company's tangible and intangible assets. The Company issued
warrants in conjunction with both debt financing to purchase an aggregate
157,907 shares of Series B convertible preferred stock at an exercise price of
$5.91 to $6.65 per share. The warrants, exercisable until July 2002, were
assigned an aggregate value of $161,000, with the value being amortized over the
term of the loan and recorded as interest expense. As of December 31, 1997, no
warrants had been exercised.

     In the third quarter of 1997, the Company recorded an extraordinary loss of
$428,000 in connection with the payment of $5.1 million in principal and
interest for the early extinguishment of all three loan and security agreements.
The loss was comprised of pre-payment penalties and amortization of the
remaining discount on the debt associated with the warrants issued along with
the notes payable.

     In June 1997, the Company signed a Loan and Security Agreement which made
available a $3.0 million equipment term loan facility at prime plus 0.75% (9.25%
at December 31, 1997). The loan facility is available through July 1998 and is
secured by any underlying equipment purchased. As of December 31, 1997, the
Company did not have any borrowings under the equipment term loan.

                                       38
<PAGE>   39
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

5.  INCOME TAXES

     A reconciliation of the federal statutory rate of 34% to the Company's
effective tax rate is as follows (in thousands):

<TABLE>
<CAPTION>
                                                    YEAR ENDED DECEMBER 31,
                                                  ---------------------------
                                                   1995       1996      1997
                                                  -------    -------    -----
<S>                                               <C>        <C>        <C>
Benefit at U.S. federal statutory rate..........  $(2,895)   $(4,338)   $(215)
Unutilized net operating losses.................    2,856      4,244        7
State income taxes..............................        1          2        7
Nondeductible expenses..........................       39         94      208
                                                  -------    -------    -----
Total tax expense...............................  $     1    $     2    $   7
                                                  =======    =======    =====
</TABLE>

     The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below (in thousands):

<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                              --------------------
                                                                1996        1997
                                                              --------    --------
<S>                                                           <C>         <C>
Deferred tax assets:
  Inventory, due to reserves and additional amounts
     capitalized for tax....................................  $    553    $    401
  Other accruals and reserves not currently deductible for
     tax purposes...........................................       761       1,185
  Technology asset..........................................     1,817       1,677
  Net operating loss carryforward and deferred start-up
     costs..................................................     7,548       7,706
  Credit carryforwards......................................       543       1,014
  Property and equipment....................................        --         182
  Other.....................................................       104          54
                                                              --------    --------
Gross deferred tax assets...................................    11,326      12,219
  Less valuation allowance..................................   (11,326)    (12,219)
                                                              --------    --------
  Net deferred tax assets...................................  $     --    $     --
                                                              ========    ========
</TABLE>

     The net change in the valuation allowance for the years ended December 31,
1996 and 1997, was an increase of approximately $4,955,000 and $893,000,
respectively. Management believes that sufficient uncertainty exists as to
whether the deferred tax assets will be realized, and accordingly, a valuation
allowance is required.

     As of December 31, 1997, the Company had net federal and California
operating loss carryforwards of approximately $18.6 million and $14.4 million,
respectively, for income tax reporting. The federal net operating loss
carryforwards expire beginning in 2009 through 2012.

     The Company also has research and experimental tax credits aggregating
approximately $497,000 and $377,000 for federal and California purposes,
respectively. The federal credits expire beginning in 2009 through 2012. The
California credits carry over indefinitely until utilized.

     There are also California credit carryforwards for qualified manufacturing
and research and development equipment of approximately $140,000; these credits
expire in 2006.

     The Tax Reform Act of 1986 imposed substantial restrictions on the
utilization of net operating losses and tax credits in the event of an
"ownership change" of a corporation. An "ownership change" occurred in

                                       39
<PAGE>   40
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

October 1996. The approximate amounts of carryforward items affected by this
restriction are as follows (in thousands):

<TABLE>
<CAPTION>
                                                          FEDERAL    CALIFORNIA
                                                          -------    ----------
<S>                                                       <C>        <C>
Net operating losses....................................  $16,500     $12,900
Research credits........................................      230         180
Manufacturing credits...................................       --          70
</TABLE>

     The "ownership change" restrictions are not expected to impair the
Company's ability to utilize the affected carryforward items. If there should be
a subsequent "ownership change", as defined, of the Company, its ability to
utilize all stated carryforwards could be further reduced.

6.  STOCKHOLDERS' EQUITY

  Preferred Stock

     Upon the Company's initial public offering of its common stock on July 29,
1997, all shares of issued and outstanding preferred stock were converted to
9,432,956 shares of common stock. Following the conversion, the Company had no
preferred stock outstanding.

  1997 Stock Incentive Plan

     In May 1997, the Company adopted the 1997 Stock Incentive (the Plan) and
authorized 1,337,633 shares of the Company's common stock to be issued under the
Plan. Under provisions of the Plan, options are granted at fair market value at
date of grant for incentive stock options or no less than 85% of fair market
value for nonqualified options. Options generally vest over 4 years with 25%
vesting on the first anniversary of the vesting commencement date and monthly
thereafter. Options generally expire 10 years from the date of grant.

     Included in the Plan is a provision for the automatic grant of nonstatutory
options to nonemployee Board of Director members of 1,500 shares per annum. The
options are exercisable at the then current fair market value and generally vest
over a 12-month period beginning one month after the grant date. The option
grants to nonemployees expire 10 years from grant date.

     The 1997 Plan succeeds the 1996 Stock Option/Stock Issuance Plan and the
1997 Officer Stock Option Plan.

  1997 Employee Stock Purchase Plan

     In May 1997, the Board adopted the 1997 Employee Stock Purchase Plan (the
Purchase Plan) and reserved 166,667 shares of common stock for issuance under
the Purchase Plan. As of December 31, 1997, no shares have been issued under the
Purchase Plan.

  Accounting for Stock-based Compensation

     The Company uses the intrinsic value-based method to account for all of its
stock-based employee compensation plans. The Company recorded deferred
compensation costs totaling $1,202,000 related to its stock option plans for the
difference between the exercise price of each option and the fair market value
of the underlying common stock as of the grant date for each stock option. This
amount is being amortized over the vesting period of the individual options,
generally four years. Amortization of deferred compensation totaled $4,000 and
$550,000 in 1996 and 1997 respectively, and has been charged to operating
expenses.

     Compensation cost for the Company's stock option and employees purchase
plans been determined consistent with the fair value approach enumerated in SFAS
No. 123 Accounting for Stock-Based Compensa-

                                       40
<PAGE>   41
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

tion, the Company's 1995 and 1996 net losses would not have been materially
impacted. For pro forma purposes, the Company's 1997 net loss would have been as
follows (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                        AS REPORTED    PRO FORMA
                                                        -----------    ---------
<S>                                                     <C>            <C>
Net loss..............................................    $(1,068)      $(1,638)
Basic and diluted net loss per share..................    $ (0.16)      $ (0.25)
</TABLE>

     The fair value of each option under the Plan is estimated based on the date
of grant using the minimum value method in 1995 and 1996 and the Black-Scholes
method in 1997, using the following weighted-average assumptions:

<TABLE>
<CAPTION>
                                                           1995 AND 1996   1997
                                                           -------------   -----
<S>                                                        <C>             <C>
Expected life (years)..................................         2.50        2.86
Expected stock price volatility........................            0%         19%
Risk-free interest rate................................         6.00%       6.12%
</TABLE>

     No dividend impact was considered as the Company has never declared, and
does not have plans to declare any future dividends.

     The pro forma net loss and loss per share include expenses related to the
Purchase Plan. The weighted average fair value of purchase rights granted during
1997 under the Purchase Plan is $6.48. The fair value is estimated using the
Black-Scholes model assuming no expected dividends on the date of grant, a
risk-free rate of 6.2%, volatility of 60%, and an expected life of 1.34 years.
No employee stock purchase plan was in place in 1996.

  Stock Option Activity

     The following table summarizes activity under the Plan:

<TABLE>
<CAPTION>
                                                            WEIGHTED-     OPTIONS        WEIGHTED-
                                                             AVERAGE     VESTED AT        AVERAGE
                                                            EXERCISE      PERIOD-      FAIR VALUE OF
                                                SHARES        PRICE         END       OPTIONS GRANTED
                                               ---------    ---------    ---------    ---------------
<S>                                            <C>          <C>          <C>          <C>
Outstanding as of December 31, 1994..........         --      $  --
  Options granted............................  1,223,543       0.33                        $0.04
                                                                                           =====
  Options exercised..........................    (50,750)      0.30
  Options canceled...........................   (128,835)      0.30
                                               ---------      -----
Outstanding as of December 31, 1995..........  1,043,958       0.34       148,351
                                                                          =======
  Options granted............................    644,634       0.70                        $0.20
                                                                                           =====
  Options exercised..........................   (553,344)      0.42
  Options canceled...........................   (161,321)      0.50
                                               ---------      -----
Outstanding as of December 31, 1996..........    973,927       0.51       243,699
                                                                          =======
  Options granted............................    733,345       8.54                        $4.61
                                                                                           =====
  Options exercised..........................   (730,416)      0.55
  Options canceled...........................    (30,637)      1.17
                                               ---------      -----
Outstanding as of December 31, 1997..........    946,219      $6.67       159,962
                                               =========      =====       =======
</TABLE>

                                       41
<PAGE>   42
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

     The following table summarizes information about fixed stock options
outstanding as of December 31, 1997:

<TABLE>
<CAPTION>
                                    OUTSTANDING                             EXERCISABLE
                  -----------------------------------------------   ----------------------------
                              WEIGHTED-AVERAGE
                  NUMBER OF      REMAINING       WEIGHTED-AVERAGE   NUMBER OF   WEIGHTED-AVERAGE
EXERCISE PRICES    SHARES     CONTRACTUAL LIFE    EXERCISE PRICE     SHARES     EXERCISE PRICES
---------------   ---------   ----------------   ----------------   ---------   ----------------
<S>               <C>         <C>                <C>                <C>         <C>
 $0.30 -  $0.68    341,068          7.51              $ 0.51         137,410         $ 0.43
 $0.83 -  $1.13    141,690          8.48              $ 0.98          18,178         $ 0.83
          $7.50    201,305          5.19              $ 7.50              --             --
 $9.75 - $18.63    226,006          9.68              $16.71           2,916         $12.00
$18.88 - $25.25     36,150          9.79              $19.62           1,458         $19.50
---------------    -------          ----              ------         -------         ------
 $0.30 - $25.25    946,219          7.77              $ 6.67         159,962         $ 0.86
===============    =======          ====              ======         =======         ======
</TABLE>

     As of December 31, 1997, employees held 530,710 shares of common stock
outstanding by virtue of option exercises which were subject to repurchase by
the Company at prices ranging from $0.30 to $0.69 per share. The Company's right
of repurchase expires 25% on the first anniversary of the original issuance date
and monthly thereafter, over a four-year period.

  Notes Receivable from Stockholder

     In November 1996, the Company issued an aggregate of 370,101 shares of
common stock in connection with option exercises by the Company's President.

     In connection with such issuance, the Company's President paid for the
stock by issuing a note payable (secured pursuant to a pledge agreement for
370,101 shares of common stock held by the Company's President) to the Company.
The Company has the right to repurchase such stock at the original purchase
price per share upon the purchaser's cessation of service prior to vesting in
such shares. The repurchase right lapses over the following four years. As of
December 31, 1997, 121,694 of such shares of common stock are included in the
530,710 total shares of common stock subject to repurchase by the Company. The
secured note payable bears interest at the rate of 7% per annum with the entire
principal balance of the note, together with all accrued or unpaid interest, due
and payable on the earlier of (a) November 13, 2000; (b) the expiration of the
60-day period following the date the Company's President ceases employment on a
regular or full-time basis with the Company; (c) the expiration of the 190-day
period following the date the Company completes a successful IPO; or (d) the
date on which the Company completes a transaction where 50% of the outstanding
shares of common stock of the Company is acquired by a single purchaser or by a
group of purchasers acting together.

7.  COMMITMENTS AND CONTINGENCIES

  Leases

     In August 1995, the Company entered into a leasing agreement to finance the
purchase of up to $1.0 million in equipment. In 1996, the Company entered into a
second leasing agreement to finance the purchase of an additional $500,000 in
equipment. Lease terms under both agreements are for 42 months and are accounted
for as capital leases. As of December 31, 1997, the Company had no remaining
amounts available under these leasing agreements.

     The Company is obligated under certain noncancelable operating leases for
office space and equipment expiring at various dates through 1999. Total rental
expense was approximately $508,000, $461,000 and $775,000 for the years ended
December 31, 1995, 1996, and 1997 respectively.

                                       42
<PAGE>   43
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

     Future minimum payments under capital and operating leases that have
initial or remaining noncancelable lease terms in excess of one year are as
follows (in thousands):

<TABLE>
<CAPTION>
                   YEAR ENDING                      CAPITAL    OPERATING
                   DECEMBER 31,                     LEASES      LEASES
                   ------------                     -------    ---------
<S>                                                 <C>        <C>
  1998............................................   $487       $1,466
  1999............................................    377        1,660
  2000............................................     82        1,710
  2001............................................     --        1,761
  Thereafter......................................                 743
                                                     ----       ------
Total minimum lease payments......................   $946       $7,340
                                                                ======
Less amount representing interest.................     71
                                                     ----
                                                      875
Less current portion of obligations under capital
  lease...........................................    437
                                                     ----
Long-term portion of capital lease obligations....   $438
                                                     ====
</TABLE>

  Litigation

     The Company is involved in various legal matters that have arisen in the
normal course of business. Management believes, after consultation with counsel,
any liability that may result from the disposition of such legal matters will
not have a material adverse effect on the Company's financial condition or
results of operations.

8.  INDUSTRY AND GEOGRAPHIC INFORMATION

     The Company operates in a single industry segment and markets its products
in the United States and in foreign countries primarily through its direct sales
force.

     Revenue by geographic region were comprised primarily of sales within the
United States of 81.1% of total revenues for the year ended December 31, 1997.
All other geographical regions comprised 18.9% of total revenues, with no one
region exceeding 10%. The Company did not have export sales in 1995 or 1996,
respectively.

     The Company has no material operating assets outside of the United States.

                                       43
<PAGE>   44

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

     None

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     (a) Identification of Directors. The information under the heading
         "Election of Directors," appearing in the Proxy Statement, is
         incorporated herein by reference.

     (b) Identification of Executive Officers. The information under the heading
         "Executive Officers," appearing in the Proxy Statement, is incorporated
         herein by reference.

     (c) Section 16(a) Beneficial Ownership Reporting Compliance. Based solely
         upon a review of copies of Forms 3, 4 and 5 and amendments thereto
         furnished to the Registrant, or written representations that no Form 5s
         were required, the Company believes that, during January 1, 1997
         through December 31, 1997, all Section 16(a) filing requirements
         applicable to its officers, directors and greater that 10% stockholders
         were satisfied.

ITEM 11.  EXECUTIVE COMPENSATION

     Pursuant to General Instruction G (3) to Form 10-K, the information
required by this item is incorporated by reference to the information contained
in the section captioned "Executive Compensation and Other Matters" in the Proxy
Statement.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required by this item is incorporated by reference to the
information contained in the section captioned "Ownership of Securities" in the
Proxy Statement.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by this item is incorporated by reference to the
information contained in the section captioned "Certain Relationships and
Related Transactions" in the Proxy Statement.

                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K

     (a) (1) Financial Statements

          The financial statements of the Company are included herein as
     required under Item 8 of this Annual Report on Form 10-K. See Index to
     Financial Statements on page 28.

     (2) Financial Statement Schedules

          Schedule II: Valuation of Qualifying Accounts                  page 48

          All other schedules for which provision is made in the applicable
     accounting regulations of the Securities and Exchange Commission are not
     required under the related instructions or are inapplicable, and therefore
     have been omitted.

     (b) No reports on Form 8-K have been filed during the last quarter of the
period covered by this Annual Report.

                                       44
<PAGE>   45

     (c) Exhibits

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                            DESCRIPTION
-------                           -----------
<S>       <C>
 3.1 +    Amended and Restated Certificate of Incorporation of the
          Company (Exhibit 3.2)
 3.2 +    Restated Bylaws of the (Exhibit 3.3)
 4.1 +    Form of Certificate for Common Stock.
10.1 +    Series A Preferred Stock Purchase Agreement between the
          Company and the purchasers listed on Schedule A thereto,
          dated December 10, 1994.
10.2 +    Asset Purchase Agreement between the Company and ESL
          Incorporated, dated December 14, 1994.
10.3 +    Series A Preferred Stock Purchase Agreement between the
          Company and ESL Incorporated, dated December 14, 1994.
10.4 +    License and Technical Assistance Agreement between the
          Company, TRW Inc. and ESL Incorporated, dated December 14,
          1994.
10.5 +    AirTouch Assignment Agreement between the Company and ESL
          Incorporated, dated December 14, 1994.
10.6 +    Development and License Agreement between ESL Incorporated
          and PacTel Corporation, dated October 4, 1993.
10.7 +    First Amendment to the Development and License Agreement
          between ESL Incorporated and PacTel Corporation, dated
          October 23, 1994.
10.8 +    Second Amendment to and Consent of Assignment of the
          Development and License Agreement between the Company and
          AirTouch, dated December 14, 1994.
10.9 +    Third Amendment to the Development and License Agreement
          between the Company and AirTouch, dated August 18, 1995.
10.10+    1995 Stock Option/Stock Issuance Plan.
10.11+    1995 Stock Option/Stock Issuance Plan Form of Notice of
          Grant.
10.12+    1995 Stock Option/Stock Issuance Plan Form of Stock Option
          Agreement.
10.13+    1995 Stock Option/Stock Issuance Plan Form of Stock Purchase
          Agreement.
10.14+    Patent License Agreement.
10.15+    Master Lease Agreement, as amended, and Schedules VL-1 and
          VL-2 between the Company and Comdisco, Inc., dated August
          31, 1995.
10.16+    Loan and Security Agreement between the Company and
          Comdisco, Inc., dated August 31, 1995.
10.17+    Secured Promissory Note from the Company to Comdisco, Inc.,
          dated August 31, 1995.
10.18+    Warrant granted to Comdisco, Inc. to purchase Series B
          Preferred Stock, dated August 31, 1995.
10.19+    Series B Preferred Stock Purchase Agreement between the
          Company and 10.20+ 1996 Stock Option/Stock Issuance Plan, as
          amended.
10.21+    1996 Stock Option/Stock Issuance Plan Form of Notice of
          Grant, as amended.
10.22+    1996 Stock Option/Stock Issuance Plan Form of Stock Option
          Agreement.
10.23+    1996 Stock Option/Stock Issuance Plan Form of Stock Purchase
          Agreement, as amended.
10.24+    Promissory Note from Martin Silver to the Company, dated
          April 10, 1996.
10.25+    Promissory Note from Martin Silver to the Company, dated
          April 10, 1996.
10.26+    Loan and Security Agreement between the Company and
          Comdisco, Inc., dated July 31, 1996.
10.27+    Warrant granted to Comdisco, Inc. to purchase Series B
          Preferred Stock, dated July 31, 1996.
10.28+    Secured Promissory Note from the Company to Comdisco, Inc.,
          dated July 31, 1996.
10.29+    Loan and Security Agreement between the Company and MMC/GATX
          Partnership No. 1, dated July 31, 1996.
10.30+    Warrant granted to MMC/GATX Partnership No. 1 to purchase
          Series B Preferred Stock, dated July 31, 1996.
</TABLE>

                                       45
<PAGE>   46

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                            DESCRIPTION
-------                           -----------
<S>       <C>
10.31+    Secured Promissory Note from the Company to MMC/GATX
          Partnership No. 1, dated July 31, 1996.
10.32+    Warrant granted to Comdisco, Inc. to purchase Series B
          Preferred Stock, dated August 5, 1996.
10.33+    Loan and Security Agreement between the Company and Silicon
          Valley Bank, dated August 30, 1996.
10.34+    Series C Preferred Stock Purchase Agreement between the
          Company and the investors listed on Schedule A thereto,
          dated October 30, 1996.
10.35+    Amended and Restated Investors' Rights Agreement between the
          Company and various stockholders, dated October 30, 1996.
10.36+    Amendment No. 1 to the Amended and Restated Investors'
          Rights Agreement between the Company and various
          stockholders, dated March 7, 1997.
10.37+    Directed Share Agreement between the Company and the
          investors listed on Exhibit A thereto, dated October 30,
          1996.
10.38+    Promissory Note from Mary Ann Byrnes to the Company, dated
          November 14, 1996, as amended.
10.39+    1997 Officer Stock Option Plan.
10.40+    1997 Officer Stock Option Plan Form of Stock Option
          Agreement, as amended.
10.41+    1997 Employee Stock Purchase Plan.
10.42+    1997 Stock Incentive Plan.
10.43+    1997 Stock Incentive Plan Form of Notice of Grant.
10.44+    1997 Stock Incentive Plan Form of Stock Option Agreement.
10.45+    Lease dated January 10, 1997 between the Company and San
          Thomas Investment Company.
10.46+    Series D Preferred Stock Purchase Agreement between the
          Company and the investors listed on Schedule A thereto,
          dated March 7, 1997.
10.47+    Form of Master Purchase and Licensing Agreement.
10.48+    Form of Confidential Disclosure Agreement.
10.49+    Form of Indemnification Agreement between the Company and
          each of its directors.
10.50+    Form of Indemnification Agreement between the Company and
          each of its officers.
10.51+    Form of Written Consent of Holders of Series A, Series B,
          Series C and Series D Preferred Stock to conversion.
10.52+    Form of Waiver of Registration Rights.
23.1 *    Consent of KPMG Peat Marwick LLP, Independent Accountants.
24.1 *    Power of Attorney (See page 47).
27.1 *    Financial Data Schedule
</TABLE>

---------------
* Filed herewith.

+ Incorporated by reference to the same numbered exhibit (except as otherwise
  indicated) to the Company's Registration Statement on Form S-1 (no.
  333-28519), filed on June 4, 1997 as amended.

SUPPLEMENTAL INFORMATION

     Copies of the Registrant's Proxy Statement for the annual Meeting of
Stockholders to be held June 4, 1998 and copies of the form of proxy to be used
for such Annual Meeting will be furnished to the Securities and Exchange
Commission prior to the time they are distributed to the Registrant's
stockholders.

                                       46
<PAGE>   47

                                   SIGNATURES

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

     Date: March 31, 1998                 Corsair Communications, Inc.

                                          By: /s/ MARY ANN BYRNES

                                            ------------------------------------
                                            Mary Ann Byrnes
                                            President and Chief Executive
                                              Officer

                               POWER OF ATTORNEY

     Know all men by these presents, that each person whose signature appears
below constitutes and appoints Mary Ann Byrnes, his or her attorney-in-fact,
with power of substitution in any and all capacities, to sign any amendments to
this Annual Report on Form 10-K, and to file the same with exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that the attorney-in-fact or his
or her substitute or substitutes may do or cause to be done by virtue hereof.

     Pursuant to the requirements of the Securities and 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:

<TABLE>
<CAPTION>
                     SIGNATURE                                     TITLE                     DATE
                     ---------                                     -----                     ----
<C>                                                  <S>                                <C>

               /s/ KEVIN R. COMPTON                  Chairman of the Board of           March 31, 1998
---------------------------------------------------  Directors
                 Kevin R. Compton

                /s/ MARY ANN BYRNES                  Director                           March 31, 1998
---------------------------------------------------
                  Mary Ann Byrnes

               /s/ PETER L.S. CURRIE                 Director                           March 31, 1998
---------------------------------------------------
                 Peter L.S. Currie

                /s/ STEPHEN M. DOW                   Director                           March 31, 1998
---------------------------------------------------
                  Stephen M. Dow

                 /s/ DAVID H. RING                   Director                           March 31, 1998
---------------------------------------------------
                   David H. Ring

              /s/ ROLAND L. ROBERTSON                Director                           March 31, 1998
---------------------------------------------------
                Roland L. Robertson
</TABLE>

\

                                       47
<PAGE>   48

                                                                     SCHEDULE II

                          CORSAIR COMMUNICATIONS, INC.

                       VALUATION AND QUALIFYING ACCOUNTS
                                 (in thousands)

Reserve for bad debt and allowances

<TABLE>
<CAPTION>
                                            BALANCE AT THE    CHARGED TO                  BALANCE AT THE
                                             BEGINNING OF     COSTS AND                       END OF
               DESCRIPTION                     THE YEAR        EXPENSES     DEDUCTIONS       THE YEAR
               -----------                  --------------    ----------    ----------    --------------
<S>                                         <C>               <C>           <C>           <C>
Year ended December 31, 1995..............       $ --            $404          $ --            $404
Year ended December 31, 1996..............       $404            $ --          $ --            $404
Year ended December 31, 1997..............       $404            $ 97          $ --            $501
</TABLE>

                                       48
<PAGE>   49

                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
                                                                        SEQUENTIAL
EXHIBIT                                                                    PAGE
NUMBER                            DESCRIPTION                             NUMBER
-------                           -----------                           ----------
<S>       <C>                                                           <C>
 3.1 +    Amended and Restated Certificate of Incorporation of the
          Company (Exhibit 3.2)
 3.2 +    Restated Bylaws of the (Exhibit 3.3)
 4.1 +    Form of Certificate for Common Stock.
10.1 +    Series A Preferred Stock Purchase Agreement between the
          Company and the purchasers listed on Schedule A thereto,
          dated December 10, 1994.
10.2 +    Asset Purchase Agreement between the Company and ESL
          Incorporated, dated December 14, 1994.
10.3 +    Series A Preferred Stock Purchase Agreement between the
          Company and ESL Incorporated, dated December 14, 1994.
10.4 +    License and Technical Assistance Agreement between the
          Company, TRW Inc. and ESL Incorporated, dated December 14,
          1994.
10.5 +    AirTouch Assignment Agreement between the Company and ESL
          Incorporated, dated December 14, 1994.
10.6 +    Development and License Agreement between ESL Incorporated
          and PacTel Corporation, dated October 4, 1993.
10.7 +    First Amendment to the Development and License Agreement
          between ESL Incorporated and PacTel Corporation, dated
          October 23, 1994.
10.8 +    Second Amendment to and Consent of Assignment of the
          Development and License Agreement between the Company and
          AirTouch, dated December 14, 1994.
10.9 +    Third Amendment to the Development and License Agreement
          between the Company and AirTouch, dated August 18, 1995.
10.10+    1995 Stock Option/Stock Issuance Plan.
10.11+    1995 Stock Option/Stock Issuance Plan Form of Notice of
          Grant.
10.12+    1995 Stock Option/Stock Issuance Plan Form of Stock Option
          Agreement.
10.13+    1995 Stock Option/Stock Issuance Plan Form of Stock Purchase
          Agreement.
10.14+    Patent License Agreement.
10.15+    Master Lease Agreement, as amended, and Schedules VL-1 and
          VL-2 between the Company and Comdisco, Inc., dated August
          31, 1995.
10.16+    Loan and Security Agreement between the Company and
          Comdisco, Inc., dated August 31, 1995.
10.17+    Secured Promissory Note from the Company to Comdisco, Inc.,
          dated August 31, 1995.
10.18+    Warrant granted to Comdisco, Inc. to purchase Series B
          Preferred Stock, dated August 31, 1995.
10.19+    Series B Preferred Stock Purchase Agreement between the
          Company and 10.20+ 1996 Stock Option/Stock Issuance Plan, as
          amended.
10.21+    1996 Stock Option/Stock Issuance Plan Form of Notice of
          Grant, as amended.
10.22+    1996 Stock Option/Stock Issuance Plan Form of Stock Option
          Agreement.
10.23+    1996 Stock Option/Stock Issuance Plan Form of Stock Purchase
          Agreement, as amended.
10.24+    Promissory Note from Martin Silver to the Company, dated
          April 10, 1996.
10.25+    Promissory Note from Martin Silver to the Company, dated
          April 10, 1996.
10.26+    Loan and Security Agreement between the Company and
          Comdisco, Inc., dated July 31, 1996.
10.27+    Warrant granted to Comdisco, Inc. to purchase Series B
          Preferred Stock, dated July 31, 1996.
10.28+    Secured Promissory Note from the Company to Comdisco, Inc.,
          dated July 31, 1996.
10.29+    Loan and Security Agreement between the Company and MMC/GATX
          Partnership No. 1, dated July 31, 1996.
</TABLE>

                                       49
<PAGE>   50

<TABLE>
<CAPTION>
                                                                        SEQUENTIAL
EXHIBIT                                                                    PAGE
NUMBER                            DESCRIPTION                             NUMBER
-------                           -----------                           ----------
<S>       <C>                                                           <C>
10.30+    Warrant granted to MMC/GATX Partnership No. 1 to purchase
          Series B Preferred Stock, dated July 31, 1996.
10.31+    Secured Promissory Note from the Company to MMC/GATX
          Partnership No. 1, dated July 31, 1996.
10.32+    Warrant granted to Comdisco, Inc. to purchase Series B
          Preferred Stock, dated August 5, 1996.
10.33+    Loan and Security Agreement between the Company and Silicon
          Valley Bank, dated August 30, 1996.
10.34+    Series C Preferred Stock Purchase Agreement between the
          Company and the investors listed on Schedule A thereto,
          dated October 30, 1996.
10.35+    Amended and Restated Investors' Rights Agreement between the
          Company and various stockholders, dated October 30, 1996.
10.36+    Amendment No. 1 to the Amended and Restated Investors'
          Rights Agreement between the Company and various
          stockholders, dated March 7, 1997.
10.37+    Directed Share Agreement between the Company and the
          investors listed on Exhibit A thereto, dated October 30,
          1996.
10.38+    Promissory Note from Mary Ann Byrnes to the Company, dated
          November 14, 1996, as amended.
10.39+    1997 Officer Stock Option Plan.
10.40+    1997 Officer Stock Option Plan Form of Stock Option
          Agreement, as amended.
10.41+    1997 Employee Stock Purchase Plan.
10.42+    1997 Stock Incentive Plan.
10.43+    1997 Stock Incentive Plan Form of Notice of Grant.
10.44+    1997 Stock Incentive Plan Form of Stock Option Agreement.
10.45+    Lease dated January 10, 1997 between the Company and San
          Thomas Investment Company.
10.46+    Series D Preferred Stock Purchase Agreement between the
          Company and the investors listed on Schedule A thereto,
          dated March 7, 1997.
10.47+    Form of Master Purchase and Licensing Agreement.
10.48+    Form of Confidential Disclosure Agreement.
10.49+    Form of Indemnification Agreement between the Company and
          each of its directors.
10.50+    Form of Indemnification Agreement between the Company and
          each of its officers.
10.51+    Form of Written Consent of Holders of Series A, Series B,
          Series C and Series D Preferred Stock to conversion.
10.52+    Form of Waiver of Registration Rights.
23.1 *    Consent of KPMG Peat Marwick LLP, Independent Accountants.
24.1 *    Power of Attorney (See page 47).
27.1 *    Financial Data Schedule
</TABLE>

---------------
* Filed herewith.

+ Incorporated by reference to the same numbered exhibit (except as otherwise
  indicated) to the Company's Registration Statement on Form S-1 (no.
  333-28519), filed on June 4, 1997 as amended.

                                       50