CORSAIR COMMUNICATIONS INC, 424B1, 1997-07-30

CORSAIR COMMUNICATIONS INC
424B1, 1997-07-30
RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT

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Filed Pursuant to Rule 424(b)(1)
Registration No. 333-28519

[LOGO OF CORSAIR COMMUNICATIONS]
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2,500,000 SHARES
COMMON STOCK
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All of the 2,500,000 shares of Common Stock, par value $.001 per share
("Common Stock"), are being sold by Corsair Communications, Inc. ("Corsair"
or the "Company"). Prior to this offering (the "Offering"), there has been no
public market for the Common Stock. See "Underwriting" for a discussion of
the factors considered in determining the initial public offering price. The
Common Stock has been approved for listing on the Nasdaq National Market
under the symbol "CAIR."

FOR INFORMATION CONCERNING CERTAIN RISK FACTORS WHICH SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS, SEE "RISK FACTORS" COMMENCING ON PAGE 5.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
<S> <C> <C> <C>
Per Share $15.00 $1.05 $13.95
Total(3) $37,500,000 $2,625,000 $34,875,000
</TABLE>

(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses estimated at $900,000, payable by the Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up
to 375,000 additional shares of Common Stock solely to cover over-
allotments, if any. If such option is exercised in full, the total Price
to Public, Underwriting Discount and Proceeds to Company will be
$43,125,000, $3,018,750 and $40,106,250, respectively. See
"Underwriting."

The shares of Common Stock are offered by the Underwriters, subject to prior
sale, when, as and if delivered to and accepted by them, and subject to
approval of certain legal matters by counsel and certain other conditions.
The Underwriters reserve the right to withdraw, cancel or modify such offer
and to reject orders in whole or in part. Delivery of the shares of Common
Stock offered hereby to the Underwriters is expected to be made in New York,
New York on or about August 4, 1997.

DEUTSCHE MORGAN GRENFELL

HAMBRECHT & QUIST

WESSELS, ARNOLD & HENDERSON

The date of this Prospectus is July 29, 1997.
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[INSIDE FRONT COVER]

Background: Green

Main inner box background: Tan

Upper box background: Blue

Text in upper box: Corsair's strategy is to deliver tomorrow's
wireless solutions.
Text in upper left box
(slightly lower): Corsair's PhonePrint System:

Text below in bullet format: Platform hardware deployed in cell sites.
Powerful, flexible distributed architecture.
Real-time roaming network.

Graphics below bullets: Multiple cellular telephone sites in various
cities depicted by antennas next to a small
building linked together through a real-time
network depicted by a blue cloud.

Text below depicted cell sites: Los Angeles
New York
Mexico City

Text in blue cloud: Real-Time Network

Text in middle left box: Corsair's Multiproduct Platform Strategy:

Text below in bullet format: Developing products for customer retention
and wireless phone location.

Continuing expansion into new U.S. and
international markets.

Leveraging relationships with the leading
wireless providers.

Graphics below bullets: Five 3-D boxes. One green box on left and
three orange boxes on right with arrows to
center blue box.

Text in left 3-D box: Fraud Prevention Application
(PhonePrint(R) RF Fingerprinting)

Text in center 3-D box: CORSAIR Multiproduct Platform

Text in right upper 3-D box: Customer Retention Application*
(Identify Out-of-Spec Phones)

Text in right center 3-D box: Location Application*
(Wireless E9-1-1 and other Commercial
Services)

Text in right lower 3-D box: Other Applications*

Text in lower left corner: CORSAIR COMMUNICATIONS (with logo)

Text in lower right corner: *Future application

PhonePrint(R) is a registered trademark and Corsair(TM) is a trademark of
the Company. All other trademarks or service marks appearing in this
Prospectus are the property of their respective holders.

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."

Except as otherwise noted, all information in this Prospectus, including
share and per share information, (i) assumes no exercise of the Underwriters'
over-allotment option, (ii) reflects a two-for-three reverse stock split of
the outstanding Common Stock effective prior to the closing of this Offering,
(iii) reflects the conversion of every three outstanding shares of the
Company's Preferred Stock into two shares of Common Stock upon the closing of
this Offering, and (iv) reflects an increase in the number of authorized
shares of Common Stock from 20,000,000 to 75,000,000 and a decrease in the
number of authorized shares of Preferred Stock from 14,548,963 to 10,000,000
effective immediately prior to the closing of this Offering.
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PROSPECTUS SUMMARY

The following summary should be read in conjunction with, and is qualified in
its entirety by, the more detailed information and financial statements and
notes thereto appearing elsewhere in this Prospectus.

THE COMPANY

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, a system that has proven highly effective in
reducing cloning fraud. The PhonePrint system has prevented over 100 million
fraudulent call attempts and some customers have reported up to a 90% 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, scaleable 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, Bell Atlantic NYNEX Mobile, BellSouth Cellular Corp.,
Comcast Cellular Communications, Inc., GTE Mobilnet Service Corp., Los Angeles
Cellular Telephone Company, Pilipino Telephone Corporation (Piltel), RadioMovil
DIPSA, S.A. de C.V. (Telcel) and Southwestern Bell Mobile Systems, Inc.

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered..................... 2,500,000 shares
Common Stock outstanding after the
offering................................ 13,261,992 shares(1)
Use of proceeds.......................... Working capital, general corporate
purposes and potentially to repay
certain indebtedness and for
acquisitions. See "Use of Proceeds."
Nasdaq National Market symbol............ CAIR
</TABLE>

SUMMARY FINANCIAL DATA
(In thousands)

<TABLE>
<CAPTION>
JUNE 30, 1997
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ACTUAL AS ADJUSTED(2)
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<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents, and short-term investments...... $20,286 $54,261
Working capital......................................... 17,519 51,494
Total assets............................................ 38,594 72,569
Total stockholders' equity.............................. 17,210 51,185
</TABLE>
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(1) Based on shares outstanding as of June 30, 1997. Does not include 896,067
shares of Common Stock issuable upon exercise of options and warrants
outstanding as of June 30, 1997.
(2) Adjusted to reflect the sale by the Company of 2,500,000 shares of Common
Stock offered hereby at the initial public offering price of $15.00 per
share and after deducting the underwriting discount and estimated offering
expenses, and the receipt of the net proceeds therefrom. See "Use of
Proceeds" and "Capitalization."

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THE COMPANY

Cloning occurs when a thief uses a scanning device to steal the mobile
identification number and electronic serial number 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. Fraud in the United
States ("U.S.") alone cost wireless telecommunications carriers in excess of
$1 billion in 1996 and cloning fraud accounted for a majority of this fraud
according to the Yankee Group. It is widely believed that cloning fraud also
poses a significant problem for carriers worldwide.

The PhonePrint system uses proprietary radio frequency ("RF") signal
analysis technology, originally developed for use by the military, 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 a description, or "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, subtle manufacturing, component and
design variances mean that no two wireless phones will generate the same
waveform. As a result, the RF fingerprint cannot be emulated by another
wireless phone.

The scaleable 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, carriers
can share RF fingerprints in real-time between PhonePrint systems in different
markets to protect against roaming fraud.

The Corsair platform has been designed as a distributed, open architecture
system into which products for wireless telecommunications carriers can be
integrated. The Company believes that its platform will provide significant
cost advantages for new products, as compared to stand-alone products offered
by others, because of the ability to leverage common designs and components.
The Company is currently developing two additional products that can be
integrated into the existing platform. The first product is intended to reduce
subscriber turnover or "churn" by reporting on the performance of subscriber
phones and is currently expected to be introduced in 1998. The second product,
currently targeted to be introduced in 1999, is intended to enable carriers to
meet a Federal Communications Commission mandate that requires all U.S.
wireless telecommunications carriers to be able to identify the location of
emergency 911 callers on wireless networks by October 2001.

The Company has installed PhonePrint in over 40 U.S. markets, as well as in
Mexico and the Philippines. The Company's customers include AT&T Wireless
Services, Bell Atlantic NYNEX Mobile, BellSouth Cellular Corp., Comcast
Cellular Communications, Inc., GTE Mobilnet Service Corp., Los Angeles
Cellular Telephone Company, Pilipino Telephone Corporation (Piltel),
RadioMovil DIPSA, S.A. de C.V. (Telcel) and Southwestern Bell Mobile Systems,
Inc.

The Company was incorporated in Delaware in December 1994. Unless the
context indicates otherwise, the "Company" or "Corsair" refer to Corsair
Communications, Inc. The Company's headquarters are located at 3408 Hillview
Avenue, Palo Alto, California 94304, and its telephone number is (415) 842-
3300.

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RISK FACTORS

An investment in the shares of Common Stock offered hereby involves a high
degree of risk. The following factors, in addition to the other information
contained in this Prospectus, should be carefully considered in evaluating the
Company and its business before purchasing shares of Common Stock offered
hereby. This Prospectus contains 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 below and
in "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business" as well as those discussed elsewhere in this
Prospectus.

LIMITED OPERATING HISTORY; LACK OF 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. The Company has incurred
net losses in each quarter since its incorporation, resulting in an
accumulated deficit of $31.7 million as of June 30, 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
achieve or sustain profitability on a quarterly or annual basis. Operating
results for future periods are subject to numerous uncertainties specified
elsewhere in this Prospectus. 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 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 other
intellectual property litigation. If the Company is not successful in
addressing such risks, as well as the others set forth in this Prospectus, the
Company's business, operating results and financial condition will be
materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

DEPENDENCE ON PHONEPRINT; DEPENDENCE ON ANALOG NETWORKS. To date, all of the
Company's revenues have 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 are the potential customers
for PhonePrint. A majority of the analog carriers in the largest U.S. markets
have already begun to implement cloning fraud solutions, and the Company
anticipates that the growth rate of demand for cloning fraud solutions in the
U.S. will slow and demand may potentially decline over the next few years. If
not offset by growth in international markets, this trend would have a
material adverse effect on PhonePrint sales. 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.

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There can be no assurance that the market for cloning fraud solutions will
grow as 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. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Business--The PhonePrint System" and "--Product
Development."

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 that the Company is developing. 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 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 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

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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. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Product Development."

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. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

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. See "Business--Sales, Marketing,
Distribution and Customer Support."

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

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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., Signal Science, Inc. (a subsidiary of The Allen Group) and
Coral Systems, 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 Cellular Telephone
Industry Association is currently supervising a study conducted by a third
party to determine whether PhonePrint and the cloning fraud prevention system
marketed by CTS are able to operate with each other. The Company is not able
to predict the effect of this study on competition. An increase in competition
could result in price reductions or the loss of market share by the Company
and could have a material adverse effect on the Company's business, operating
results and financial condition.

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

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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. See "Business--Competition."

RISKS ASSOCIATED WITH INTERNATIONAL EXPANSION. To date, the Company has
conducted a limited number of deployments of PhonePrint systems
internationally. The Company intends to devote significant marketing and sales
efforts over the next several years to increase its sales 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

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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.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and "Business--Sales, Marketing, Distribution and Customer
Support."

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. 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 in 1996, and collectively accounted for over 70% of
the Company's total revenues in 1996. AirTouch Communications, Inc. and AT&T
Wireless Services accounted for virtually all of the Company's total revenues
in 1995. A relatively small number of analog network carriers are the
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 that 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. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Sales, Marketing, Distribution and Customer
Support."

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 June 30, 1997, the Company had one
issued U.S. patent, six pending U.S. patent applications, one issued foreign
patent and ten 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.

10
<PAGE>

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.

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.
See "Business--Patents and Proprietary Rights."

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

11
<PAGE>

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. See
"Management."

MANAGEMENT OF GROWTH. The Company is at an early stage of development and
has rapidly and significantly expanded its operations. The number of employees
grew from 36 on January 1, 1995 to 132 on June 30, 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 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. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

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

12
<PAGE>

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. See "Business--Product Development."

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.

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. and
Aurora Wireless Technologies, Ltd. ("Aurora"). To date, the Company has not
recognized any revenues under the agreement with Motorola, Inc. Aurora has
placed a PhonePrint system with a carrier in the Philippines, but consistent
with the Company's accounting practices, the Company will not recognize any
revenue from this

13
<PAGE>

installation until the Company has completed a field test demonstrating that
this PhonePrint System meets performance specifications with respect to the
disconnection of fraudulent calls and the lack of impact on legitimate
subscriber calls which is required to gain acceptance. The Company seeks to
pursue distribution agreements with other companies, and the Company believes
that its dependence on distributors 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 and the Company does not expect to have any guarantees of
continuing orders from any distributor. There can be no assurance that any
existing or future distributors 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 to generate significant revenues could have a
material adverse effect on the Company's business, operating results and
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business--Sales, Marketing,
Distribution and Customer Support."

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 the
combination of the net proceeds of this Offering, 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. 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. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

POTENTIAL ACQUISITIONS. The Company 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.

CONCENTRATION OF STOCK OWNERSHIP; CONTROL BY MANAGEMENT AND EXISTING
STOCKHOLDERS. Upon completion of this Offering, the Company's directors and
executive officers, and their respective affiliates will beneficially own
approximately 42.8% of the outstanding Common Stock (approximately 41.7% if
the Underwriters' over-allotment option is

14
<PAGE>

exercised in full). As a result, these stockholders will be able to exercise
significant influence over all matters requiring stockholder approval,
including the election of directors and approval of significant corporate
transactions. Such concentration of ownership may also have the effect of
delaying or preventing a change in control of the Company that may be favored
by other stockholders. See "Management" and "Principal Stockholders."

BENEFITS OF THE OFFERING TO EXISTING STOCKHOLDERS. The existing stockholders
of the Company will recognize significant benefits from this Offering. These
benefits include the creation of a public market for the Company's Common
Stock, which will afford existing stockholders the ability to liquidate their
investments, subject in certain cases to volume limitations and other
limitations and restrictions upon the sale of the Common Stock. See "Shares
Eligible For Future Sale." None of the Company's stockholders are selling
shares in this Offering. The shares of Common Stock owned by the Company's
existing stockholders were purchased at prices ranging from $0.30 to $11.25
per share, with an aggregate consideration paid of approximately $48,500,000.
Based on the initial public offering price of $15.00, the aggregate value of
the shares owned by the Company's existing stockholders is approximately
$161,400,000, an increase of approximately $112,900,000 over the aggregate
consideration paid by the Company's existing stockholders. Accordingly, after
this Offering, these stockholders will have substantial unrealized gains on
their shares. See "Dilution," "Principal Stockholders" and "Certain
Transactions."

SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS. Sales of a substantial
number of shares of Common Stock in the public market following this Offering
could adversely affect the market price of the Common Stock. The 2,500,000
shares sold in this Offering will be freely tradeable without restriction or
further registration under the Securities Act, except that any shares
purchased by "affiliates" of the Company ("Affiliates"), as that term is
defined in Rule 144 under the Securities Act of 1933, as amended (the
"Securities Act") may generally be sold only in compliance with certain of the
limitations of Rule 144 described below. The remaining approximately
10,762,000 shares of Common Stock are deemed "Restricted Shares" under Rule
144. Subject to the lock-up restrictions described below, (i) approximately
334,000 Restricted Shares will be eligible for sale in the public market
immediately after this Offering pursuant to Rule 144(k) under the Securities
Act, and (ii) approximately 7,737,000 additional Restricted Shares will be
eligible for sale in the public market in accordance with Rule 144 or Rule 701
under the Securities Act beginning 90 days after the date of this Prospectus.
The holders of approximately 10,756,000 Restricted Shares have agreed not to
sell or otherwise dispose of any of their shares for a period of 180 days
after the date of this Prospectus without Deutsche Morgan Grenfell Inc.'s
prior written consent. Deutsche Morgan Grenfell Inc. may, in its sole
discretion, and at any time without notice, release all or any portion of the
Restricted Shares subject to lock-up agreements. Upon expiration of the lock-
up agreements 180 days after the date of this Prospectus, approximately
10,496,000 shares of Common Stock will be available for sale in the public
market; the remaining approximately 266,000 shares will become eligible for
sale under Rule 144 at various dates thereafter as the holding period
provisions of Rule 144 are satisfied. In addition, the Company has registered
a total of approximately 1,338,000 shares of Common Stock subject to
outstanding options or reserved for issuance under the Company's 1997 Stock
Incentive Plan and 167,000 shares of Common Stock reserved for issuance under
its 1997 Employee Stock Purchase Plan. Any sales of such Common Stock may have
an adverse effect on the Company's ability to raise needed capital through an
offering of its equity, convertible debt or other securities and may
materially adversely affect the prevailing market price of the Common Stock.
See "Shares Eligible for Future Sale" and "Description of Capital Stock--
Registration Rights."

NO PRIOR MARKET FOR COMMON STOCK. Prior to this Offering, there has been no
public market for the Company's Common Stock, and there can be no assurance
that an active trading market will develop or be sustained after this Offering
or that investors will be able to sell the Common Stock should they desire to
do so. The initial public offering price was determined by

15
<PAGE>

negotiations between the Company and the representatives of the Underwriters
and may bear no relationship to the price at which the Common Stock will trade
upon completion of this Offering. See "Underwriting" for a discussion of the
factors considered in determining the initial public offering price.

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 Factors" 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.
See "Description of Capital Stock--Preferred Stock" and "Description of
Capital Stock--Possible Antitakeover Effects of Certain Charter Provisions."

IMMEDIATE AND SUBSTANTIAL DILUTION. Purchasers of Common Stock in this
Offering will suffer immediate and substantial dilution of $11.14 per share in
the net tangible book value of the Common Stock from the initial public
offering price. To the extent that outstanding options and warrants to
purchase the Company's Common Stock are exercised, there will be further
dilution. See "Dilution."

16
<PAGE>

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 2,500,000 shares of
Common Stock offered hereby are estimated to be approximately $34.0 million
($39.2 million if the Underwriters' over-allotment option is exercised in
full), at the initial public offering price of $15.00 per share and after
deducting the underwriting discount and estimated offering expenses. The
primary purposes of this Offering are to increase the Company's equity
capital, to create a public market for the Company's Common Stock and to
facilitate future access to public markets.

The Company intends to use the net proceeds, including the interest thereon,
of this Offering for general corporate purposes, including sales and marketing
and administrative expenses, research and development, working capital and
capital expenditures. The Company may use a portion of the net proceeds of
this Offering to repay approximately $4.3 million in debt as of June 30, 1997
that has a maturity date of January 31, 2000 and bears interest at the rate of
14.55% per annum. The Company may also use a portion of the net proceeds for
the acquisition of complementary businesses, products or technologies. There
are at present no arrangements or agreements for any such acquisitions.

DIVIDEND POLICY

The Company has never declared or paid dividends on its capital stock, and
the Company does not anticipate paying any cash dividends in the foreseeable
future. In addition, certain of the Company's loan agreements prohibit the
Company from paying cash dividends on its capital stock without the lender's
written consent or waiver.

17
<PAGE>

CAPITALIZATION

The following table sets forth as of June 30, 1997 (i) the actual
capitalization of the Company after giving effect to the two-for-three reverse
stock split, (ii) the pro forma capitalization of the Company after giving
effect to the conversion of all outstanding shares of Preferred Stock into
Common Stock at the closing of this Offering and (iii) the capitalization of
the Company as adjusted to reflect the foregoing and to give effect to the
sale by the Company of the 2,500,000 shares of Common Stock offered hereby, at
the initial public offering price of $15.00 per share less the underwriting
discount and estimated offering expenses. This table should be read in
conjunction with the Company's financial statements and the notes thereto
included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
JUNE 30, 1997
-----------------------------------
ACTUAL PRO FORMA AS ADJUSTED(2)
-------- --------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term obligations, less current
portion.................................... $ 3,489 $ 3,489 $ 3,489
Stockholders' equity:
Convertible preferred stock, $.001 par
value; 14,548,963 shares authorized
actual and pro forma; 9,432,956 shares
issued and outstanding actual; 10,000,000
shares authorized as adjusted; no shares
issued and outstanding pro forma and as
adjusted................................. 9 -- --
Common stock, $.001 par value; 20,000,000
shares authorized actual and pro forma;
1,329,036 shares issued and outstanding
actual; 10,761,992 shares issued and
outstanding pro forma; 75,000,000 shares
authorized as adjusted; and 13,261,992
shares issued and outstanding as adjusted
(1)...................................... 2 11 13
Note receivable from stockholder.......... (136) (136) (136)
Additional paid-in capital................ 49,951 49,951 83,924
Deferred compensation..................... (960) (960) (960)
Accumulated deficit....................... (31,656) (31,656) (31,656)
-------- -------- --------
Total stockholders' equity............... 17,210 17,210 51,185
-------- -------- --------
Total capitalization........................ $ 20,699 $ 20,699 $ 54,674
======== ======== ========
</TABLE>
- --------
(1) Based on shares outstanding as of June 30, 1997. Does not include (i)
738,160 shares of Common Stock issuable upon exercise of options
outstanding as of June 30, 1997 at a weighted average exercise price of
approximately $3.03 per share and (ii) 157,907 shares of Common Stock
issuable upon the exercise of warrants outstanding at June 30, 1997 at a
weighted average exercise price of $6.52 per share.
(2) Assumes the Company does not use a portion of the net proceeds of this
Offering to repay approximately $4.8 million in debt.

18
<PAGE>

DILUTION

The net tangible book value of the Company at June 30, 1997 was
approximately $17.2 million or $1.60 per share of Common Stock. Net tangible
book value per share of Common Stock represents the amount of total tangible
assets of the Company less total liabilities divided by the number of shares
of Common Stock outstanding. After giving effect to the sale of the 2,500,000
shares of Common Stock offered hereby, at the initial public offering price of
$15.00 per share and after deducting the underwriting discount and estimated
offering expenses payable by the Company, the Company's net tangible book
value as of June 30, 1997 would have been approximately $51.2 million or $3.86
per share of Common Stock. This represents an immediate increase in net
tangible book value per share of Common Stock of $2.26 to existing
stockholders and immediate dilution in net tangible book value of $11.14 per
share to new investors purchasing Common Stock in this Offering. The following
table illustrates the per share dilution:

<TABLE>
<S> <C> <C>
Initial public offering price per share......................... $15.00
Net tangible book value per share at June 30, 1997............ $1.60
Increase per share attributable to new investors.............. 2.26
-----
Net tangible book value per share after this Offering........... 3.86
------
Dilution per share to new investors (1)......................... $11.14
======
</TABLE>
- --------
(1) If the Underwriters' over-allotment option is exercised in full, dilution
per share to new investors would be $10.86.

The following table summarizes, on a pro forma basis as of June 30, 1997,
the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price per share paid by the existing
stockholders and by new investors purchasing shares in this Offering (before
deduction of the underwriting discount and estimated offering expenses):

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------ ------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders....... 10,761,992 81.1% $48,464,806 56.4% $ 4.50
New investors............... 2,500,000 18.9 37,500,000 43.6 15.00
---------- ----- ----------- -----
Total..................... 13,261,992 100.0% $85,964,806 100.0%
========== ===== =========== =====
</TABLE>

All of the above computations assume no exercise of outstanding options or
warrants to purchase Common Stock. As of June 30, 1997, options to purchase
738,160 shares of Common Stock were outstanding at a weighted average exercise
price of approximately $3.03 per share under the Company's stock option plans.
As of June 30, 1997, warrants to purchase 157,907 shares of Common Stock were
outstanding at a weighted average price of $6.52 per share. To the extent
these options and warrants are exercised, there will be further dilution to
new investors. As of June 30, 1997, the Company also had an additional 599,473
shares of Common Stock available for grant pursuant to the Company's stock
option plan. Further dilution may result from the exercise of such options.
See "Management--Benefit Plans."

19
<PAGE>

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 in this Prospectus. 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 and 1996 and "Balance Sheet Data" as of December 31,
1995 and 1996 are derived from the financial statements of the Company, which
have been audited by KPMG Peat Marwick LLP, independent auditors. The
financial statements are included elsewhere in this Prospectus. The selected
financial data presented below as of December 31, 1994 are derived from the
financial statements of Corsair Communications, Inc., which financial
statements have been audited by KPMG Peat Marwick LLP, independent
accountants, but are not included elsewhere in this Prospectus. The selected
financial data presented below for the six months ended June 30, 1996 and
1997, and as of June 30, 1997, are derived from the unaudited financial
statements of the Company. The unaudited financial statements have been
prepared by the Company on a basis consistent with the Company's audited
financial statements and in the opinion of management include all adjustments,
consisting only of normal recurring accruals, necessary for a fair
presentation of the Company's operating results and financial position for the
periods and dates to which such statements relate. The operating results for
the periods presented are not necessarily indicative of the results to be
expected for any future interim period or any future fiscal year.

<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 5, 1994 YEAR ENDED SIX MONTHS
(INCEPTION) TO DECEMBER 31, ENDED JUNE 30,
DECEMBER 31, ----------------- ----------------
1994 1995 1996 1996 1997
---------------- ------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Total revenues........... $ -- $ 7,593 $ 19,606 $ 4,892 $20,320
Total cost of revenues... -- 8,137 19,197 5,443 16,503
------- ------- -------- ------- -------
Gross profit (deficit)... -- (544) 409 (551) 3,817
Operating costs and
expenses:
Research and
development............ 507 3,094 4,983 2,142 2,994
Sales and marketing..... 62 2,981 5,374 2,031 3,331
General and
administrative......... 498 2,115 2,591 1,206 1,968
Write-off of in-process
research and
development............ 4,894 -- -- -- --
------- ------- -------- ------- -------
Total operating costs
and expenses........... 5,961 8,190 12,948 5,379 8,293
------- ------- -------- ------- -------
Operating loss........... (5,961) (8,734) (12,539) (5,930) (4,476)
Interest income
(expense), net.......... 20 218 (220) 55 43
------- ------- -------- ------- -------
Loss before income
taxes................... (5,941) (8,516) (12,759) (5,875) (4,433)
Income taxes............. 1 1 2 -- 3
------- ------- -------- ------- -------
Net loss................. $(5,942) $(8,517) $(12,761) $(5,875) $(4,436)
======= ======= ======== ======= =======
Pro forma net loss per
share (1)............... $ (1.44) $(0.69) $ (0.40)
======== ======= =======
Shares used in per share
computation(1).......... 8,870 8,499 10,962
======== ======= =======
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1994 1995 1996 1997
------- ------- ------- --------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA: (IN THOUSANDS)
Cash, cash equivalents, and short-term
investments................................. $ 6,819 $ 9,029 $19,504 $20,286
Working capital.............................. 9,560 9,767 19,682 17,519
Total assets................................. 11,305 14,156 34,911 38,594
Long-term obligations........................ 3,010 1,155 4,394 3,489
Total stockholders' equity................... 7,273 10,592 18,011 17,210
</TABLE>
- -------
(1) See Note 2 of Notes to Financial Statements for information concerning the
computation of pro forma net loss per share and shares used in computing
pro forma net loss per share.

20
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with
"Selected Financial Data" and the Company's financial statements and notes
thereto included elsewhere in this Prospectus. This Prospectus contains
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 below and in "Risk Factors"
and "Business" as well as those discussed elsewhere in this Prospectus.

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 the six months ended June 30, 1997,
the Company generated revenues of $20.3 million based upon sales of PhonePrint
to 15 customers. See "Risk Factors--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. See "Risk
Factors--Dependence on PhonePrint; Dependence on Analog Networks."

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 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 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 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,

21
<PAGE>

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 has
certain programs in place intended to reduce the costs of certain components
of the system.

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

The Company continues to make efforts to achieve profitability by increasing
sales volume and decreasing costs of goods sold and through certain other
measures. Although the Company is attempting to control certain costs in order
to achieve profitability, the Company's operating expenses continue to
increase as the Company seeks to develop the infrastructure necessary to
support a growing business. The Company believes that continued expansion of
its operations is essential to achieving its strategy and therefore may
continue to increase expenditures in all operational areas. The Company has
not been profitable in any period to date, and there can be no assurance that
the Company will achieve or sustain profitability. See "Risk Factors--Limited
Operating History; Lack of Profitability."

RESULTS OF OPERATIONS--SIX MONTHS ENDED JUNE 30, 1997 AND 1996

Revenues. For the six months ended June 30, 1997, total revenues were $20.3
million, compared with $4.9 million for the comparable 1996 period. This
increase resulted primarily from an increase in sales of PhonePrint systems.
System revenue was $18.3 million for the six months ended June 30, 1997,
compared with $4.4 million for the comparable 1996 period. Service revenue was
$2.0 million for the six months ended June 30, 1997, compared with $455,000
for the comparable 1996 period. The increase in service revenue was
attributable to growth in the installed base of PhonePrint units covered by
service contracts ($850,000) and initial revenue attributable to the Company's
PhonePrint Roaming Network service ($720,000). For the six month periods ended
June 30, 1997 and 1996, international revenues comprised 17.3% and 0.0% of
total revenues respectively.

Gross Profit (Deficit). Gross profit increased to $3.8 million in the six
months ended June 30, 1997 from a gross deficit of $551,000 in the comparable
1996 period. The increase in gross profit was due primarily to system revenue
which contributed $3.3 million in gross profit for the six months ended June
30, 1997 as compared to a gross deficit of $235,000 in the comparable 1996
period. In the first six months of 1997, total gross margin was 18.8%
consisting of 18.2% system gross margin and 23.9% service gross margin.

Research and Development. Research and development expenses were $3.0
million, or 14.7% of total revenues, for the six months ended June 30, 1997,
compared with $2.1 million for the comparable 1996 period. This increase in
expenditures was due primarily to the hiring of additional engineering
personnel related to the continued development of PhonePrint and incremental
development work on new products. The Company believes that continued

22
<PAGE>

investment in research and development is critical to attaining its strategic
objectives, and as a result, expects absolute dollars spent on product
development to increase.

Sales and Marketing. Sales and marketing expenses were $3.3 million, or
16.4% of total revenues, during the six months ended June 30, 1997, compared
with $2.0 million for the comparable 1996 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 Company expects its sales and marketing expenses to
increase in absolute dollars as it expands the scope of these efforts.

General and Administrative. General and administrative expenses increased to
$2.0 million or 9.7% of total revenues, in the six months ended June 30, 1997,
compared with $1.2 million for the comparable 1996 period. This increase in
expenditures was due primarily to higher personnel expenses related to
increased staffing.

Interest Income (Expense), Net. Net interest income was $43,000 in the six
months ended June 30, 1997 as compared to net interest income of $55,000 in
the comparable 1996 period. 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.

Income Taxes. The income tax expense in the six months ended June 30, 1997
and 1996 represents minimum state tax liabilities. Due to the losses incurred
in these periods, there was no income tax provision.

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

Revenues. In 1996, total revenues were $19.6 million, compared with $7.6
million in 1995. This increase resulted primarily from an increase in sales of
PhonePrint systems. System revenue was $18.2 million in 1996 compared with
$7.4 million revenue in 1995. Service revenue was $1.4 million in 1996
compared with $242,000 in 1995. The increase in service revenue was
attributable to growth in the installed base of PhonePrint units ($1.1
million) covered by service contracts and the increase in customers
subscribing to the PhonePrint Roaming Network service ($94,000).

Gross Profit (Deficit). Gross profit increased to $409,000 in 1996 from a
gross deficit of $544,000 in 1995. The improvement in gross profit was due
primarily to system revenue which contributed $943,000 in gross profit in 1996
as compared to gross deficit of $171,000 in 1995.

Research and Development. Research and development expenses were $5.0
million, or 25.4% of total revenues, in 1996, compared with $3.1 million, or
40.8% of total revenues, in 1995. This increase was due primarily to the
hiring of additional engineering personnel ($540,000) and increased consulting
expenses ($730,000) related to the continued development and enhancement of
PhonePrint and the development of new products.

Sales and Marketing. Sales and marketing expenses were $5.4 million, or
27.4% of total revenues, in 1996, compared with $3.0 million, or 39.3% of
total revenues, in 1995. The increase in expenses in 1996 resulted from the
hiring of sales and marketing personnel to support the increased sales of
PhonePrint ($1.3 million) and increased sales commissions ($1.1 million).

General and Administrative. General and administrative expenses increased to
$2.6 million, or 13.2% of total revenues, in 1996, compared with $2.1 million,
or 27.9% of total revenues, in 1995. This increase in expenditures was due
primarily to higher personnel expenses related to increased staffing.

23
<PAGE>

Interest Income (Expense), Net. Net interest expense was $220,000 in 1996 as
compared to net interest income of $218,000 in 1995. The $438,000 increase in
1996 interest expense as compared to 1995 expenses was primarily due to
increased interest costs on additional equipment leases and other loans.

Income Taxes. The 1996 income tax expense represents minimum state tax
liabilities. Due to the losses incurred in these periods, there was no income
tax provision.

QUARTERLY RESULTS OF OPERATIONS

The following tables present unaudited statement of operations data for each
of the six quarters in the period ended June 30, 1997. This information has
been prepared by the Company on a basis consistent with the Company's audited
financial statements and includes all adjustments (consisting only of normal
recurring adjustments) that management considers necessary for a fair
presentation of the data.

<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1996 1996 1996 1996 1997 1997
-------- -------- --------- -------- -------- --------
Revenues: (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
System revenue........ $ -- $ 4,437 $ 5,552 $ 8,189 $ 8,167 $10,135
Service revenue....... 146 309 372 601 929 1,089
------- ------- ------- ------- ------- -------
Total revenues...... 146 4,746 5,924 8,790 9,096 11,224
Cost of revenues:
Cost of system reve-
nue.................. 42 4,630 5,165 7,398 7,480 7,487
Cost of service reve-
nue.................. 213 558 548 643 829 707
------- ------- ------- ------- ------- -------
Total cost of reve-
nues............... 255 5,188 5,713 8,041 8,309 8,194
------- ------- ------- ------- ------- -------
Gross profit (deficit).. (109) (442) 211 749 787 3,030
Operating costs and ex-
penses:
Research and develop-
ment................. 951 1,191 1,259 1,582 1,382 1,612
Sales and marketing... 832 1,199 1,374 1,969 1,548 1,783
General and adminis-
trative.............. 567 639 581 804 991 977
------- ------- ------- ------- ------- -------
Total operating ex-
penses............. 2,350 3,029 3,214 4,355 3,921 4,372
------- ------- ------- ------- ------- -------
Operating loss.......... (2,459) (3,471) (3,003) (3,606) (3,134) (1,342)
Interest income (ex-
pense), net............ 73 (18) (150) (125) (3) 46
------- ------- ------- ------- ------- -------
Loss before income tax-
es..................... (2,386) (3,489) (3,153) (3,731) (3,137) (1,296)
Income taxes............ -- -- 1 1 3 --
------- ------- ------- ------- ------- -------
Net loss................ $(2,386) $(3,489) $(3,154) $(3,732) $(3,140) $(1,296)
======= ======= ======= ======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUES
-----------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1996 1996 1996 1996 1997 1997
Revenues: -------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
System revenue........ 0.0% 93.5% 93.7% 93.2% 89.8% 90.3%
Service revenue....... 100.0 6.5 6.3 6.8 10.2 9.7
-------- ----- ----- ----- ----- -----
Total revenues...... 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenues:
Cost of system reve-
nue.................. 28.8 97.5 87.2 84.2 82.2 66.7
Cost of service reve-
nue.................. 145.9 11.8 9.2 7.3 9.2 6.3
-------- ----- ----- ----- ----- -----
Total cost of reve-
nues............... 174.7 109.3 96.4 91.5 91.4 73.0
-------- ----- ----- ----- ----- -----
Gross profit (deficit).. (74.7) (9.3) 3.6 8.5 8.6 27.0
Operating expenses:
Research and develop-
ment................. 651.4 25.1 21.3 18.0 15.2 14.4
Sales and marketing... 569.9 25.2 23.2 22.4 17.0 15.9
General and adminis-
trative.............. 388.3 13.5 9.8 9.1 10.9 8.7
-------- ----- ----- ----- ----- -----
Total operating ex-
penses............. (1,609.6) (63.8) (54.3) (49.5) (43.1) (39.0)
-------- ----- ----- ----- ----- -----
Loss from operations.... (1,684.3) (73.1) (50.7) (41.0) (34.5) (12.0)
Interest income (ex-
pense), net............ 50.0 (0.4) (2.5) (1.4) (0.0) 0.5
Loss before income tax-
es..................... (1,634.3) (73.5) (53.2) (42.4) (34.5) (11.5)
Income taxes............ 0.0 0.0 0.0 0.0 0.0 0.0
-------- ----- ----- ----- ----- -----
Net loss................ (1,634.3)% (73.5)% (53.2)% (42.4)% (34.5)% (11.5)%
======== ===== ===== ===== ===== =====
</TABLE>

24
<PAGE>

These quarterly results are not necessarily indicative of future results of
operations and may fluctuate, depending on: the level and timing of revenues
associated with PhonePrint; the timing of the introduction or acceptance of
product enhancements and new products and services offered by the Company and
its competitors; changes in regulations affecting the wireless
telecommunications industry; technological changes or developments in the
wireless telecommunications industry; dependence on a single product; size,
product mix and timing of significant orders; timing of system revenue;
competition and pricing in the markets in which the Company competes; possible
recalls; lengthy sales cycles; production or quality problems; timing of
development expenditures; further expansion of sales and marketing operations;
changes in material costs; disruptions in sources of supply; capital spending;
timing of payments by customers; and changes in general economic conditions.
This information should be read in conjunction with the Company's financial
statements and notes thereto included elsewhere in this Prospectus. See "Risk
Factors--Fluctuations in Quarterly Financial Results; Lengthy Sales Cycle."

Total revenues increased in each of the quarters presented. System revenue
increased due to an increase in the number of units commissioned and accepted.
Service revenue increased due to a larger installed base of units covered by
maintenance contracts and the introduction of the Company's PhonePrint Roaming
Network. Despite these recent increases in the Company's quarterly revenues,
there can be no assurance that the Company will experience similar increases,
if any, in future quarters.

Gross profit (deficit) has improved in each of the quarters presented
largely due to increased unit volumes, manufacturing efficiencies and cost
reductions. System gross margin was negatively impacted by retrofit accruals
of approximately $500,000 and $200,000 recorded in the quarters ended
September 30 and December 31, 1996, respectively. In the quarter ended June
30, 1997, service gross margin was higher than in prior periods due to
increased service revenue and a favorable inventory variance of approximately
$110,000. As the Company has grown, total operating expenses have increased
each quarter. Research and development expenses have varied due to expenses
for prototypes and consulting fees related to certain projects. Sales and
marketing expenses have generally increased as unit volumes have increased,
but decreased in the first quarter of 1997 due to a change in the Company's
sales commission structure.

The Company recorded noncash deferred compensation of $1.1 million and
$73,000 in connection with certain stock options granted during the six months
ended June 30, 1997 and the year ended December 31, 1996, respectively, and
recognized approximately $238,000 and $4,000 in amortization of deferred
compensation in the six months ended June 30, 1997 and the year ended December
31, 1996, respectively. The unamortized balance of the deferred compensation
will be expensed over the four-year vesting periods of the options and,
therefore, will continue to affect the Company's operating results through
2001.

LIQUIDITY AND CAPITAL RESOURCES

The Company has funded its operations primarily through a series of
Preferred Stock and debt financings. From its incorporation through June 30,
1997, the Company completed four Preferred Stock financings providing
aggregate net proceeds of approximately $47.9 million. The debt financings
provided aggregate net proceeds of approximately $5.9 million. At June 30,
1997, the Company had cash and cash equivalents of approximately $20.3 million
and working capital of approximately $17.5 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 June 30, 1997). The loan

25
<PAGE>

facility is available through July 1998 and is secured by any underlying
equipment purchased. As of June 30, 1997, the Company did not have any
borrowings under the equipment term loan, and any future borrowings will be
repaid over three years.

The Company also has available a $3.0 million revolving line of credit under
a facility that is available through August 30, 1997 and bears interest at a
floating rate of prime plus 0.5%. At June 30, 1997, the prime rate was 8.5%.
Borrowings under this credit facility are secured by accounts receivable and
inventory and are subject to certain maximum advance percentages against
eligible accounts receivable and inventory. The Company did not have any
borrowings outstanding under the line of credit as of June 30, 1997, and the
Company does not intend to renew this credit facility.

The Company's operating activities used cash of $722,000 for the six months
ended June 30, 1997, and $13.5 million and $5.7 million for the years ended
December 31, 1996 and 1995, respectively. In the first six months of 1997,
cash used by operations decreased by $5.9 million over the comparable 1996
period. The decrease in cash used by operations in 1996 as compared to 1995
was due primarily to increased cash collections in accounts receivable. As of
June 30, 1997, trade accounts receivable were significantly lower than at
March 31, 1997 due to the timing of the recognition of certain significant
revenue transactions and successful cash collection efforts during the
quarter. There can be no guarantee that such trends will continue.

The Company's investing activities used cash of $8.2 million for the six
months ended June 30, 1997, and $1.1 million and $3.5 million for the years
ended December 31, 1996 and 1995, respectively. In each period, cash 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 $2.4 million for the
six months ended June 30, 1997, and $24.6 million and $9.5 million for the
years ended December 31, 1996 and 1995, respectively. In the quarter ended
June 30, 1997, cash provided by financing activities was primarily from a $3.0
million Preferred Stock financing. In 1996, cash provided by financing
activities was primarily from an approximately $20.0 million Preferred Stock
financing and an approximately $4.9 million debt financing. In 1995, the cash
provided by financing activities was primarily from a $8.8 million Preferred
Stock financing.

The Company believes that the combination of the net proceeds of this
Offering, 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, when required by the Company.

26
<PAGE>

BUSINESS

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, a system that has proven highly effective in
reducing cloning fraud. The PhonePrint system has prevented over 100 million
fraudulent call attempts and some customers have reported up to a 90%
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, scaleable 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, Bell Atlantic NYNEX Mobile, BellSouth Cellular Corp.,
Comcast Cellular Communications, Inc., GTE Mobilnet Service Corp., Los Angeles
Cellular Telephone Company, Pilipino Telephone Corporation (Piltel),
RadioMovil DIPSA, S.A. de C.V. (Telcel) and Southwestern Bell Mobile Systems,
Inc.

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.

Carriers began to deploy digital networks in the late 1980s and more
extensively during the 1990s, in large part to overcome capacity constraints
associated with analog networks. In the U.S. many carriers that operate analog
networks have deployed digital networks alongside their existing analog
networks to supplement capacity and to compete with new carriers deploying
digital networks. Carriers have elected to implement different digital
transmission standards, including Time Division Multiple Access ("TDMA"), Code
Division Multiple Access ("CDMA") and Global System for Mobile Communications
("GSM"). These transmission standards are not compatible with each other or
with analog standards. The lack of a single digital standard in the U.S. has
led many digital network carriers to use existing analog networks to provide
roaming

27
<PAGE>

service when compatible digital networks are not available. To provide roaming
service to digital subscribers, the industry has developed "multi-mode"
digital/analog phones that default to analog mode in the absence of a
compatible digital transmission standard. Internationally, digital networks
have developed at varying speeds. In Europe, digital networks have grown
quickly in many areas due in part to the convergence upon a single digital
transmission standard, GSM. In other parts of the world, digital networks
employing various standards are being installed as new carriers enter existing
markets and as new markets are opened to wireless telecommunications. In many
of these countries, analog networks are expected to coexist with digital
networks.

The Company believes that analog networks will continue to play a
significant role in the provision of wireless telecommunications services 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. Additionally, there are many smaller markets in the U.S.
that are not expected to deploy digital technology. International Data
Corporation forecasts that the number of digital subscribers will not exceed
the number of analog subscribers in the U.S. until 2000.

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 anticipating 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.

These 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, also 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 telecommunications carriers in the U.S. are also seeking cost-
effective means to comply with new industry regulations. An 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.

28
<PAGE>

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. Wireless telecommunications
carriers are forced to incur significant operating costs associated with
roaming fraud settlements with other carriers, interconnect fees and long
distance toll charges, the creation of internal fraud management departments,
customer service efforts to retain subscribers who have been affected by fraud
and infrastructure costs to replace the capacity used by fraudulent calls.

Cloning Fraud in Wireless Telecommunications Networks

The Company believes that cloning fraud accounts for most fraud losses in
analog networks and is also the most widespread and fastest growing form of
wireless telecommunications fraud today. 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. Calls made on clones are charged to the
legitimate subscriber's account. Stolen MIN/ESN numbers can be used locally
within the legitimate subscriber's local service area or can be sold in other
markets and programmed in phones that will then roam on another carrier's
network. In a number of instances, roaming settlement charges have been so
large that the defrauded carrier has temporarily terminated the ability of all
of its customers to roam in certain high fraud markets. These temporary
interruptions of service result in lost carrier revenue and customer
inconvenience.

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 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 digital
carriers and is expected to be used in a large number of digital 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.
In addition, recent announcements relating to breaches of other wireless
encryption algorithms have heightened concerns about the vulnerability of
authentication processes to fraud.

29
<PAGE>

THE CORSAIR SOLUTION

Corsair's PhonePrint system provides highly effective cloning fraud
prevention to wireless telecommunications carriers by using proprietary 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 scaleable 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, carriers can share RF fingerprints in
real-time between PhonePrint systems in different markets to protect against
losses associated with roaming fraud.

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, including churn
reduction, phone location and other 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 Domestic Markets. The Company intends to leverage its
reputation and experience as a leading provider of RF fingerprinting solutions
to increase its share of the domestic market for cloning fraud prevention
solutions. The Company plans to capitalize on the PhonePrint system's initial
success in reducing cloning fraud and the resulting desire of carriers to
deploy PhonePrint in other parts of their network. In addition, the Company
intends to develop programs to facilitate purchases by new customers in both
urban and rural markets.

Pursue International Markets. The Company believes that carriers in
international markets are experiencing substantial cloning fraud on their
analog networks and may ultimately present an even greater 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

30
<PAGE>

its products in international markets. To date, the Company has deployed
PhonePrint in Mexico and the Philippines.

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 hardware and software designs and components of its open, scaleable
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.

Leverage Core Expertise to Develop 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
is currently developing products designed to run on the Corsair platform that
would address challenges facing the wireless telecommunications industry
relating to customer churn and the FCC phone location mandate.

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
scaleable 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.

31
<PAGE>

The following chart illustrates the PhonePrint architecture.

LOGO
[DESCRIPTION OF PHONEPRINT(R) SYSTEM ARCHITECTURE]

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

32
<PAGE>

IP network. Carriers can 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 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.

PRODUCT DEVELOPMENT

The current focus of the Company's product development efforts is on
enhancing the PhonePrint system and developing new products to address
potential market opportunities. Future releases of PhonePrint are being
developed to support additional signal transmission standards. Additional
research and 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 developing a churn reduction product that is intended to
report on the performance of subscribers' phones and is expected to be
introduced in 1998. This product is being developed to use RF data obtained by
the PhonePrint system as part of its fraud prevention operation to determine
the performance of wireless phones. Carriers would be able to use the
information provided by this product to determine which subscribers are likely
to be receiving poor call quality due to phone problems and who are therefore
more likely to terminate service. The Company expects to market this churn
reduction product primarily to its existing carrier customers. The product is
being designed to integrate into the Corsair platform.

The Company is also developing a phone location product, currently targeted
to be introduced in 1999, that 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 Company believes that certain hardware and software
designs and components of the PhonePrint system can be integrated with a phone
location product to accelerate development and reduce cost and cell site space
requirements. 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

33
<PAGE>

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.

During 1996 and 1995, total research and development expenditures were $5.0
million and $3.1 million, 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 two 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 June 30, 1997, 41 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 "Risk Factors--Dependence on Personnel."

CUSTOMERS

The end users of the Company's PhonePrint system are both domestic and
international wireless telecommunications carriers. Los Angeles Cellular
Telephone Company, AT&T Wireless Services, Southwestern Bell Mobile Systems,
Inc. and Comcast Cellular Communications, Inc. each accounted for greater than
10% of the Company's total revenues in 1996, and collectively accounted for
over 70% of the Company's total revenues in 1996. AT&T Wireless Services and
AirTouch Communications, Inc. accounted for virtually all of the Company's
total revenues in 1995. See "Risk Factors--Customer Concentration."

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

<TABLE>
<S> <C>
American Cellular Communications Corporation Houston Cellular Telephone Company
AT&T Wireless Services Los Angeles Cellular Telephone
Bell Atlantic NYNEX Mobile Company
BellSouth Cellular Corp. Pilipino Telephone Corporation
Centennial Cellular Corporation (Piltel)
Comcast Cellular Communications, Puerto Rico Cellular Telephone
Inc. Company
CCPR Services, Inc. (Cellular One Puerto Rico) RadioMovil DIPSA, S.A. de C.V. (Telcel)
GTE Mobilnet Service Corp. Southwestern Bell Mobile Systems, Inc.
Vanguard Cellular Financial Corp.
United States Cellular Corporation
</TABLE>
34
<PAGE>

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 two 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 "Risk Factors--
Fluctuations in Quarterly Financial Results; Lengthy Sales Cycle" and
"Customer Concentration."

For the six months ended June 30, 1997, international revenues accounted for
approximately 17.3% of the Company's total revenues. Revenue from
international customers did not account for any of the Company's total
revenues in 1996. The Company expects that revenue from international
customers may account for a material portion of the Company's total revenues
at various times in the future. 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 "Risk Factors--Risks Associated with
International Expansion."

The Company is actively seeking to enter into distribution agreements and
other marketing arrangements. While no revenue has been generated from
distributors to date, the Company believes it will depend on distributors in
the future, both with respect to PhonePrint and new products, if any, that the
Company may offer. Recently, the Company entered into a distribution agreement
with Motorola, Inc. ("Motorola"), which provides Motorola with the ability to
distribute PhonePrint worldwide on a non-exclusive basis. To date, the Company
has not recognized any revenues under this agreement. 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
this arrangement, Aurora has placed a PhonePrint system with a carrier in the
Philippines, but consistent with the Company's accounting practices, the
Company will not recognize any revenue from this installation until the
Company has completed a field test demonstrating that this PhonePrint System
meets performance specifications with respect to the disconnection of
fraudulent calls and the lack of impact on legitimate subscriber calls which
is required to gain acceptance. See "Risk Factors--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 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

35
<PAGE>

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.

36
<PAGE>

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
"Risk Factors--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 June 30, 1997, the Company had one issued U.S. patent, six
pending U.S. patent applications, one issued foreign patent and ten 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.

37
<PAGE>

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.

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.

EMPLOYEES

As of June 30, 1997, the Company had 132 employees, including 38 in sales
and marketing, 18 in manufacturing, 41 in research and development, 19 in
operations, field service and customer support and 16 in finance and
administration. None of the Company's employees are represented by a
collective bargaining agreement, nor has the Company experienced any work

38
<PAGE>

stoppages. The Company believes that its relations with its employees are
good. See "Risk Factors--Dependence on Personnel."

FACILITIES

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.

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<PAGE>

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth certain information regarding the executive
officers and directors of the Company as of June 30, 1997:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Kevin R. Compton (1)............. 38 Chairman of the Board and Director
Mary Ann Byrnes.................. 40 President, Chief Executive Officer and
Director
Martin J. Silver................. 40 Chief Financial Officer and Secretary
Evan J. McDowell................. 50 Vice President, Sales
Thomas C. Meyer.................. 40 Vice President, Operations
Donald R. Oestreicher............ 52 Vice President, Engineering
Walter M. Price.................. 37 Vice President, Manufacturing
Jeannette Robinson............... 46 Vice President, Human Resources
John F. Scott.................... 33 Vice President, Strategy and Business
Development
David G. Thompson................ 36 Vice President, Marketing
Peter L.S. Currie (1)............ 40 Director
Stephen M. Dow (2)............... 42 Director
David H. Ring (2)................ 42 Director
Roland L. Robertson.............. 62 Director
</TABLE>
- --------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.

KEVIN R. COMPTON. Mr. Compton has served as Chairman of the Board and a
Director of the Company since December 1994 and served as Secretary of the
Company from December 1994 to December 1995. Since 1990, Mr. Compton has
served as a general partner of Kleiner Perkins Caufield & Byers, a venture
capital investment firm. Mr. Compton is a director of Citrix Systems, Inc.,
Digital Generation Systems, Inc. and Global Village Communication, Inc., and
is also a director of several privately-held companies.

MARY ANN BYRNES. Ms. Byrnes has served as President of the Company since
December 1994; as a Director of the Company since February 1995 and as Chief
Executive Officer since July 1995. Before joining Corsair, from June 1987 to
November 1994, Ms. Byrnes served at Bay Area Cellular Telephone Company, a
wireless telecommunications carrier, as Vice President of Sales and Marketing
and Vice President of Operations. Ms. Byrnes holds a BA in economics from
Wellesley College and an MBA from Harvard Business School.

MARTIN J. SILVER. Mr. Silver has served as Chief Financial Officer and
Secretary of the Company since January 1996. Mr. Silver most recently served
as Chief Financial Officer and Treasurer at Superconductivity, Inc., a
developer of magnets for use by utilities to store energy, from January 1993
to December 1995. Prior to that, Mr. Silver served as Chief Financial Officer
and Corporate Secretary at Credence Systems Corporation, a developer of
testing devices for semiconductors, from November 1988 to December 1992. Mr.
Silver holds a BS in electrical engineering from Purdue University and an MBA
from The University of Pennsylvania, The Wharton School of Business.

EVAN J. MCDOWELL. Mr. McDowell has served as Vice President, Sales of the
Company since January 1997. Prior to joining Corsair, Mr. McDowell was
employed by Polycom, Inc., a telecommunications products company, where he
served as Vice President of Sales and Marketing from November 1993 to January
1997. From March 1989 to November 1993,

40
<PAGE>

Mr. McDowell served as General Manager of the Voice Information Services
Division at Octel Communications Corporation, a voice messaging company. Mr.
McDowell holds a BS in accounting and an MBA from San Diego State University.

THOMAS C. MEYER. Mr. Meyer has served as Vice President, Operations of the
Company since April 1996. Before joining Corsair, Mr. Meyer was Senior Vice
President of Operations at Blyth Software Inc., a software development
company, from April 1994 to March 1996. Previous to that, he was Vice
President and General Manager of the Customer Services Division of Pyramid
Technology Corporation, a company that develops open systems servers for the
commercial computing market, from January 1990 to March 1994. Mr. Meyer holds
a BS in computer engineering from the University of Bridgeport in Connecticut.

DONALD R. OESTREICHER. Dr. Oestreicher has served as Vice President,
Engineering of the Company since joining the Company in July 1996. Prior to
joining Corsair, Dr. Oestreicher was employed by AirSoft, Inc., a software
development company, where he was Vice President of Engineering from July 1995
to July 1996. Dr. Oestreicher served as Vice President, Research & Development
at Blyth Software Inc., a software development company, from January 1993 to
June 1995. From August 1990 to December 1992, Dr. Oestreicher was Director,
Software Product Development for Dow Jones & Company Inc., a publishing
company. Dr. Oestreicher holds a BS in economics from the Massachusetts
Institute of Technology, a PhD in computer science from the University of
Utah, and an MBA from Santa Clara University.

WALTER M. PRICE. Mr. Price joined the Company in May 1995 as Director of
Manufacturing and was promoted to Vice President, Manufacturing of the Company
in January 1997. Prior to joining Corsair, Mr. Price was Operations Director
at Ericsson-Raynet Corporation, a fiber optics telecommunications company,
from June 1993 to May 1995. From February 1989 to June 1993, Mr. Price served
in various positions including Marketing Operations Manager, Supply Planning
Manager and Process Engineering Manager while at Sun Microsystems, Inc., a
provider of network-based distributed computing systems. Mr. Price holds a BS
in industrial engineering from Stanford University and an MBA from Santa Clara
University.

JEANNETTE ROBINSON. Ms. Robinson joined the Company in January 1996 as
Director of Human Resources and was promoted to Vice President, Human
Resources of the Company in January 1997. Prior to joining Corsair, Ms.
Robinson was employed by Cisco Systems Inc., a provider of internetworking
products, where she held several human resources management and recruiting
positions from June 1990 to January 1996. Ms. Robinson holds a BS in business
administration and a BA in sociology from San Jose State University.

JOHN F. SCOTT. Mr. Scott has served as Vice President, Strategy and Business
Development of the Company since January 1995. Prior to joining Corsair, Mr.
Scott served as Director of Marketing Strategy and Marketing Product Manager
at Bay Area Cellular Telephone Company from September 1992 to January 1995.
Mr. Scott served as a consultant with Boston Consulting Group, a consulting
firm, from August 1990 to March 1992, and served as an independent consultant
from April 1992 to September 1992. Mr. Scott holds a BA in economics from
Claremont McKenna College and an MBA from Harvard Business School.

DAVID G. THOMPSON. Mr. Thompson has served as Vice President, Marketing of
the Company since January 1995. Mr. Thompson also served as Vice President,
Sales of the Company from January 1995 to January 1997. Prior to joining
Corsair, Mr. Thompson served as Director of Marketing at Digital Pictures,
Inc., a software development company, from August 1994 to January 1995.
Previous to that, he was Director of Marketing and Manager of Marketing
Strategy at Bay Area Cellular Telephone Company from March 1992 to August
1994. Mr. Thompson holds a BA in economics from Harvard University.

41
<PAGE>

PETER L.S. CURRIE. Mr. Currie has served as a Director of the Company since
December 1995. Mr. Currie is currently Senior Vice President and Chief
Financial Officer of Netscape Communications Corporation, an internet and
intranet software company, where he has been employed since April 1995. From
April 1989 to March 1995, Mr. Currie held various management positions at
McCaw Cellular Communications, Inc., a wireless telecommunications carrier,
including Executive Vice President of Corporate Development and Chief
Financial Officer.

STEPHEN M. DOW. Mr. Dow has served as a Director of the Company since May
1996. Since 1983, Mr. Dow has served as a general partner of Sevin Rosen
Funds, a venture capital investment firm. Mr. Dow is a director of Arqule
Inc., Citrix Systems, Inc. and Viropharma Incorporated, and is also a director
of several privately-held companies.

DAVID H. RING. Mr. Ring has served as a Director of the Company since July
1995. Since April 1996, Mr. Ring has served as Chairman of the Board of
Tzabaco Group, Inc., a direct marketing company, and has also served as Chief
Executive Officer of Tzabaco Group, Inc. since October 1996. From December
1988 to November 1993, Mr. Ring served as Vice President of Manufacturing for
Cisco Systems Inc. where he also served as a Director from November 1993 to
November 1995. Mr. Ring was also a Director of Global Village Communication,
Inc. from May 1991 to July 1996.

ROLAND L. ROBERTSON. Mr. Robertson has served as a Director of the Company
since April 1996. Since February 1997, Mr. Robertson has served as Vice
President and Deputy General Manager for Operations of the System Integration
Group of TRW Inc., a company focused primarily on government engineering
contracting. From January 1991 through January 1997, Mr. Robertson served as
President and General Manager of TRW Environmental Safety Systems, Inc., a
subsidiary of TRW Inc.

All executive officers are appointed annually by and serve at the discretion
of the Board. All of the Company's executive officers are employed by the
Company at will.

BOARD COMPOSITION AND COMPENSATION

Members of the Board currently hold office and serve until the next annual
meeting of the stockholders of the Company or until their respective
successors have been elected. The Board is currently comprised of six
Directors. Under the Company's Restated Bylaws, beginning with the next annual
meeting of stockholders the Company's Board will be classified into three
classes of Directors serving staggered three-year terms, with one class of
Directors to be elected at each annual meeting of stockholders. The
classification of directors has the effect of making it more difficult to
change the composition of the Board. See "Description of Capital Stock--
Possible Anti-takeover Effects of Certain Charter Provisions."

The Company reimburses its Directors for all reasonable and necessary travel
and other incidental expenses incurred in connection with their attendance at
meetings of the Board. Directors are not currently compensated in cash for
serving on the Board. No Director who is an employee of the Company will
receive separate compensation for services rendered as a director. After this
Offering, on the date of each annual meeting of the Company's stockholders
held after 1997, each non-employee Director who is a director immediately
after such meeting will receive an option to purchase 1,500 shares of Common
Stock. See "--Benefit Plans--1997 Stock Incentive Plan."

In April 1996, Mr. Currie received an option to purchase 33,334 shares of
Common Stock for his service as a Director. In August 1995, Mr. Ring received
an option to purchase

42
<PAGE>

50,750 shares of Common Stock for his service as a Director. Each of these
options vests monthly over a four-year period from the date of grant. In May
1997, Mr. Compton and Mr. Dow each received an option to purchase 7,500 shares
of Common Stock for their service as Directors. Each of these options vests
monthly over a three-year period from the date of grant.

LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS

The Company's Amended and Restated Certificate of Incorporation eliminates,
subject to certain exceptions, Directors' personal liability to the Company or
its stockholders for monetary damages for breaches of fiduciary duties. The
Amended and Restated Certificate of Incorporation does not, however, eliminate
or limit the personal liability of a Director for (i) any breach of the
Director's duty of loyalty to the Company or its stockholders, (ii) acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) unlawful payments of dividends or unlawful
stock repurchases or redemptions as provided in Section 174 of the Delaware
General Corporation Law or (iv) any transaction from which the Director
derived an improper personal benefit.

The Company's Restated Bylaws provide that the Company shall indemnify its
Directors and executive officers to the fullest extent permitted under the
Delaware General Corporation Law and may indemnify its other officers,
employees and other agents as set forth in the Delaware General Corporation
Law. In addition, the Company has entered into indemnification agreements with
its Directors and officers. The indemnification agreements contain provisions
that require the Company, among other things, to indemnify its Directors and
officers against certain liabilities (other than liabilities arising from
intentional or knowing and culpable violations of law) that may arise by
reason of their status or service as Directors or executive officers of the
Company or other entities to which they provide service at the request of the
Company and to advance expenses they may incur as a result of any proceeding
against them as to which they could be indemnified. The Company believes that
these provisions and agreements are necessary to attract and retain qualified
Directors and officers. The Company has obtained an insurance policy covering
Directors and officers for claims that such Directors and officers may
otherwise be required to pay or for which the Company is required to indemnify
them, subject to certain exclusions.

COMMITTEES OF THE BOARD OF DIRECTORS

The Company has a standing Compensation Committee currently composed of Mr.
Ring and Mr. Dow. The Compensation Committee reviews and acts on matters
relating to compensation levels and benefit plans for executive officers and
certain employees of the Company, including salary and stock options. The
Committee is also responsible for granting stock awards, stock options and
stock appreciation rights and other awards to be made under the Company's
existing incentive compensation plans. The Company also has a standing Audit
Committee composed of Mr. Compton and Mr. Currie. The Audit Committee assists
in selecting the Company's independent auditors and in designating services to
be performed by, and maintaining effective communication with, those auditors.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

None of the members of the Compensation Committee is an officer or employee
of the Company. No interlocking relationship exists between the Company's
Board or Compensation Committee and the board of directors or compensation
committee of any other company, nor has such an interlocking relationship
existed in the past.

43
<PAGE>

EXECUTIVE COMPENSATION

Summary Compensation Table. The following table sets forth the aggregate
compensation paid by the Company to the President and Chief Executive Officer
and to each of the four other most highly compensated executive officers who
in 1996 earned over $100,000 in salary and bonus (the "Named Executive
Officers") for services rendered in all capacities to the Company for the year
ended December 31, 1996.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------- ---------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITION YEAR(1) SALARY(2) BONUS OPTIONS/SARS(#)
- --------------------------- ------- -------------------- ---------------
<S> <C> <C> <C> <C>
Mary Ann Byrnes................ 1996 $ 165,000 $ 82,500 66,667
President and Chief Executive
Officer
David G. Thompson.............. 1996 $ 128,334 $ 456,550(3) 26,667
Vice President, Marketing
Martin J. Silver............... 1996 $ 140,000 $ 55,800 20,000
Chief Financial Officer and
Secretary
John F. Scott.................. 1996 $ 110,000 $ 46,200 26,667
Vice President, Strategy and
Business Development
Walter M. Price................ 1996 $ 106,307 $ 22,324 15,334
Vice President, Manufacturing
</TABLE>
- --------
(1) Pursuant to Instruction to Item 402(b) of Regulation S-K promulgated by
the Securities and Exchange Commission (the "Commission"), information
with respect to fiscal years prior to 1996 has not been included as the
Company was not a reporting company pursuant to Section 13(a) or 15(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
the information has not been previously reported to the Commission in
response to a filing requirement.
(2) Includes amounts deferred pursuant to the Company's 401(k) Plan.
(3) Includes $455,000 earned as commissions while serving as Vice President,
Sales and Marketing.

44
<PAGE>

Option Grants. The following table sets forth information concerning stock
option grants made to each of the Named Executive Officers for the year ended
December 31, 1996. The Company granted no stock appreciation rights ("SARs")
to Named Executive Officers during 1996.

OPTION GRANTS IN 1996

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF % OF TOTAL RATES OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(4)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ---------------------
NAME GRANTED(1) FISCAL YEAR(2) PER SHARE(3) DATE 5% 10%
- ---- ---------- -------------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Mary Ann Byrnes......... 66,667 10.3% $0.69 9/24/2006 $ 28,510 $ 72,250
David G. Thompson....... 16,667 2.6 $0.69 1/8/2006 7,128 18,063
10,000 1.6 $0.69 9/24/2006 4,276 10,837
Martin J. Silver........ 20,000 3.1 $0.69 9/24/2006 8,553 21,675
John F. Scott........... 16,667 2.6 $0.69 1/8/2006 7,128 18,063
10,000 1.6 $0.69 9/24/2006 4,276 10,837
Walter M. Price......... 10,000 1.6 $0.69 1/8/2006 4,276 10,837
5,334 0.8 $0.69 9/24/2006 2,281 5,780
</TABLE>
- --------
(1) The rights of the optionees vest at various times over a four-year period.
While the options are fully exercisable upon grant, any shares purchased
by the optionee which do not vest prior to the termination of the
optionee's employment may be repurchased by the Company at cost. In
accordance with the terms of the 1996 Stock Option/Stock Issuance Plan
under which the options were granted, all rights of the optionee will
accelerate and vest in full upon an acquisition of the Company unless the
options are assumed or replaced by or the Company's repurchase rights are
assigned to the acquiring corporation. Under the terms of the 1996 Stock
Option/Stock Issuance Plan, following any acquisition of the Company in
which the rights of the optionees do not accelerate and vest in full, the
rights of each optionee shall accelerate and vest (or the Company's
repurchase rights will lapse in the case of exercised options) with
respect to one-half of the then unvested shares if the employment of the
optionee is involuntarily terminated within one year of the acquisition.
(2) The Company granted options to purchase a total of 644,634 shares to
employees in fiscal year 1996.
(3) The exercise price per share of options granted represented the fair
market value of the underlying shares of Common Stock on the dates the
respective options were granted as determined by the Board, considering
all relevant factors. The exercise price may be paid in cash or in shares
of Common Stock valued at fair market value on the exercise date or a
combination of cash or shares or any other form of consideration approved
by the Board. After the effective date of the Registration Statement of
which this Prospectus is a part, the fair market value of shares of Common
Stock will be determined in accordance with certain provisions of the 1997
Stock Incentive Plan based on the closing selling price of a share of
Common Stock on the date in question on the primary exchange or national
market system on which the Company's common stock is listed or reported.
If shares of the Common Stock are neither listed or admitted to trading on
any stock exchange nor traded on the Nasdaq National Market, then the fair
market value shall be determined by the Plan Administrator after taking
into account such factors as the Plan Administrator shall deem
appropriate.
(4) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Commission. The price used for computing this
appreciation is the exercise price of the options, not the price of Common
Stock in this Offering. There is no assurance provided to any Named
Executive Officer or any other holder of the Company's securities that the
actual stock price appreciation over the 10-year option term will be at
the assumed 5% or 10% levels or at any other defined level.

45
<PAGE>

OPTION EXERCISES AND UNEXERCISED OPTION HOLDINGS. The following table
provides information concerning option exercises during 1996 by the Named
Executive Officers and the value of unexercised options held by each of the
Named Executive Officers as of December 31, 1996. No SARs were exercised
during 1996 or outstanding as of December 31, 1996.

AGGREGATE OPTION EXERCISES IN 1996 AND 1996 YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
ACQUIRED DECEMBER 31, 1996 AT DECEMBER 31, 1996(3)
ON VALUE ---------------------------- ----------------------------
NAME EXERCISE REALIZED (1) EXERCISABLE(2) UNEXERCISABLE EXERCISABLE(2) UNEXERCISABLE
- ---- -------- ------------ -------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mary Ann Byrnes......... 370,101 $169,302 0 0 $ 0 0
David G. Thompson....... -- -- 90,000 0 $37,250 0
Martin J. Silver........ -- -- 100,000 0 $15,000 0
John F. Scott........... -- -- 90,000 0 $37,250 0
Walter M. Price......... 13,334 $ 7,000 22,000 0 $ 5,800 0
</TABLE>
- --------
(1) "Value realized" is calculated on the basis of the fair market value of
the Common Stock on the date of exercise minus the exercise price and does
not necessarily indicate that the optionee sold such stock, and does not
take into account that some of such shares are subject to rights of
repurchase on the part of the Company which lapse at various times over
four years after the date of grant.
(2) The options are immediately exercisable; however, any shares purchased
upon exercise may be subject to rights of repurchase on the part of the
Company which lapse at various times over four years after the date of
grant.
(3) "Value" is defined as fair market price of the Common Stock at fiscal
year-end ($0.83) less exercise price.

EMPLOYMENT ARRANGEMENTS

Options granted to Named Executive Officers are immediately exercisable;
however, any shares purchased upon exercise are subject to rights of
repurchase on the part of the Company that generally expire over four or five
years from the date of option grant. In accordance with the terms of the 1996
Stock Option/Stock Issuance Plan and the 1997 Officer Stock Option Plan under
which options were granted to Named Executive Officers, all of the Named
Executive Officers' options will immediately vest and the Company's repurchase
rights will immediately lapse with respect to shares held by the Named
Executive Officers upon an acquisition of the Company, unless the options are
assumed or replaced by, or the Company's repurchase rights are assigned to,
the acquiring entity. Following any acquisition of the Company in which
options remain subject to vesting and repurchase rights do not lapse in the
manner provided above, 50% of a Named Executive Officer's options will vest
and the repurchase rights with respect to 50% of such Named Executive
Officer's shares will lapse if the employment of the Named Executive Officer
is involuntarily terminated within one year of the acquisition.

BENEFIT PLANS

1997 Stock Incentive Plan. The 1997 Stock Incentive Plan (the "Plan") serves
as the successor equity incentive program to the Company's 1996 Stock
Option/Stock Issuance Plan, and the 1997 Officer Stock Option Plan (the "Prior
Plans"). The Plan was adopted by the Board on May 20, 1997 and subsequently
approved by the stockholders on May 27, 1997. 1,337,633 shares of Common Stock
have initially been authorized for issuance under the Plan including, (i) the
shares that remain available for issuance under the Company's 1996 Stock
Option/Stock Issuance Plan, including the shares subject to outstanding
options thereunder, plus (ii) the shares that remain available for issuance
under the Company's 1997 Officer Stock Option Plan, including the shares
subject to outstanding options thereunder, plus (iii) an additional increase
of 333,334 shares. The number of shares of Common Stock included in the Plan
will

46
<PAGE>

automatically be increased by an additional two percent of the outstanding
number of shares of capital stock of the Company per year.

No further option grants will be made under any of the Prior Plans. However,
options incorporated from the Prior Plans will continue to be governed by
their existing terms, unless the Plan Administrator (described below) elects
to extend one or more features of the Plan to those options. However, except
as otherwise noted below, the outstanding options under the Prior Plans
contain substantially the same terms and conditions summarized below for the
Discretionary Option Grant Program in effect under the Plan.

The Plan is divided into four separate components: (i) the Discretionary
Option Grant Program, under which eligible individuals in the Company's employ
or service (including officers and other employees, non-employee Board members
and independent consultants) may, at the discretion of the Plan Administrator,
be granted options to purchase shares of Common Stock at an exercise price not
less than 85% of their fair market value on the grant date, (ii) the Stock
Issuance Program, under which such individuals may, in the Plan
Administrator's discretion, be issued shares of Common Stock directly, through
the purchase of such shares at a price not less than 100% of their fair market
value at the time of issuance or as a bonus tied to the past performance of
services, (iii) the Salary Investment Option Grant Program, under which
executive officers and other highly compensated employees may elect to apply a
portion of their base salary to the acquisition of special stock options, and
(iv) the Automatic Option Grant Program, under which option grants will
automatically be made at periodic intervals to eligible non-employee Board
members to purchase shares of Common Stock at an exercise price equal to 100%
of their fair market value on the grant date.

The Discretionary Option Grant, Stock Issuance and Salary Investment Option
Grant Programs will generally be administered by the Board or one or more
committees appointed by the Board except that a committee consisting of two or
more non-employee Directors will administer each of these programs with
respect to any person subject to Section 16 of the Securities and Exchange Act
of 1934, as amended (the "Plan Administrator"). The Plan Administrator, will
have complete discretion to determine which eligible individuals will receive
option grants or stock issuances, the time or times at which such option
grants or stock issuances are to be made, the number of shares subject to each
such grant or issuance, the vesting schedule to be in effect for the option
grant or stock issuance, the maximum term for which any granted option is to
remain outstanding and whether an option will be granted as an incentive stock
option or a non-statutory stock option under the Federal tax laws. The
administration of the Automatic Option Grant Program will be self-executing in
accordance with the express provisions of such Program. All employees,
Directors and consultants or independent contractors of the Company are
eligible to receive option grants or stock issuances under the Plan.

In the event the Plan Administrator elects to activate the Salary Investment
Option Grant Program for one or more calendar years, each executive officer
and other highly compensated employee of the Company selected for
participation may elect, prior to the start of the calendar year, to reduce
his or her base salary for that calendar year by a specified dollar amount not
less than $10,000 nor more than $50,000. If such election is approved by the
Plan Administrator, the officer will be granted, as soon as possible after the
start of the calendar year for which the salary reduction is to be in effect,
a non-statutory option to purchase that number of shares of Common Stock
determined by dividing the total salary reduction amount by an amount equal to
at least one-third and no more than two-thirds (the exact amount to be
established by the Plan Administrator) of the fair market value per share of
Common Stock on the grant date. The option will be exercisable at a price per
share equal to the difference between the amount of the salary reduction
agreed to by the optionee for the option and the fair market value of the

47
<PAGE>

option shares on the grant date. As a result, upon exercise of the options
issued under the Salary Investment Option Grant Program, the optionee will
have paid 100% of the fair market value of the option shares as of the grant
date through the payment of the exercise price and the agreed salary
reduction. The option will become exercisable in a series of twelve (12) equal
monthly installments over the calendar year for which the salary reduction is
in effect and will become fully exercisable upon certain changes in the
ownership or control of the Company or sale of its assets.

Under the Automatic Option Grant Program, at each annual stockholders
meeting, beginning with the 1998 Annual Stockholders Meeting, each non-
employee Board member will receive an option to purchase 1,500 shares of
Common Stock. Each option granted pursuant to the Automatic Option Grant
Program will have an exercise price equal to the fair market value per share
of Common Stock on the grant date and will have a maximum term of 10 years,
subject to earlier termination following the optionee's cessation of Board
service. The grant of 1,500 shares will vest in 12 equal monthly installments
following the grant date during which the optionee continues to serve as a
Board member. In addition, the option shares will become fully vested upon (i)
certain changes in the ownership or control of the Company or (ii) the death
or disability of the optionee while serving as a Board member. The options may
only be exercised to the extent vested.

Payment of the exercise price for the shares of Common Stock subject to
options granted under the Discretionary Option Grant Program, the Salary
Investment Option Grant Program and the Automatic Option Grant Program may be
made in cash, by check or in shares of Common Stock valued at fair market
value on the exercise date. Payment of the exercise price for the shares of
Common Stock subject to option grants made under the Stock Issuance Program
may be made in cash, by check or with past performance of services. The
optionee may elect to make payment for the option shares upon exercise through
a same-day sale program, which enables the optionee to purchase the option
shares without making any cash payment. In addition, the Plan Administrator
may provide financial assistance to one or more optionees in the exercise of
their outstanding options by allowing such individuals to deliver a full-
recourse, interest-bearing promissory note in full payment of the exercise
price and associated withholding taxes incurred in connection with such
exercise.

In the event that the Company is acquired by merger or asset sale, the
unvested portion of each outstanding option under the Discretionary Option
Grant Program that is not to be assumed by the successor corporation and each
outstanding option under the Salary Investment Option Grant Program will
automatically vest in full. Similarly, unless the Company assigns the
repurchase rights associated with any unvested shares issued under such
programs or the Stock Issuance Program to the successor corporation, such
unvested shares will vest in full. Any outstanding options assumed by the
successor corporation and shares that remain subject to repurchase rights
assigned to the successor corporation will not vest immediately, but will vest
in accordance with their original vesting schedule. The Plan Administrator
will have the authority under the Discretionary Option Grant, Salary
Investment Option Grant and Stock Issuance Programs to grant options and to
structure repurchase rights so that the shares subject to those options or
repurchase rights will automatically vest in the event the individual's
service is terminated, whether involuntarily or through a resignation for good
reason, within a specified period (not to exceed 12 months) following (i) a
merger or asset sale in which those options are assumed or those repurchase
rights are assigned, (ii) a hostile change in control of the Company effected
by a successful tender offer for more than 50% of the outstanding voting stock
or by proxy contest for the election of Board members or (iii) the sale,
transfer or disposition of all or substantially all of the Company's assets
(each a "Corporate Transaction"). The Plan Administrator will also have the
discretion to provide for the automatic acceleration of

48
<PAGE>

options and the lapse of any repurchase rights upon (i) a hostile change in
control of the Company effected by a successful tender offer for more than 50%
of the Company's outstanding voting stock or by proxy contest for the election
of Board members or (ii) the termination of the individual's service, whether
involuntarily or through a resignation for good reason, within a specified
period (not to exceed 18 months) following such a hostile change in control.
Pursuant to the terms of the option agreements the unvested portion of the
options currently outstanding under the Prior Plans will accelerate and such
options will terminate and cease to be exercisable upon an acquisition of the
Company by merger or asset sale, unless those options are assumed by the
acquiring entity. One-half of the unvested portion of any options assumed by
the successor corporation will automatically accelerate upon the involuntary
termination of the optionee's service within 12 months following the
occurrence of a Corporate Transaction in which the options are assumed or
replaced by the successor corporation.

Stock appreciation rights may be issued in tandem with option grants made
under the Discretionary Option Grant Program. The holders of these rights will
have the opportunity to elect between the exercise of their outstanding stock
options for shares of Common Stock or the surrender of those options for an
appreciation distribution from the Company equal to the excess of (i) the fair
market value of the vested shares of Common Stock subject to the surrendered
option over (ii) the aggregate exercise price payable for such shares. The
appreciation distribution may be made in cash or in shares of Common Stock.
There are currently no outstanding stock appreciation rights.

The Plan Administrator has the authority to effect the cancellation of
outstanding options under the Discretionary Option Grant Program (including
options incorporated from the Prior Plans), with the consent of the holders of
such options, in return for the grant of new options for the same or a
different number of option shares with an exercise price per share based upon
the fair market value of the Common Stock on the new grant date.

The Board may amend or modify the Plan at any time. The Plan will terminate
10 years from its effective date unless otherwise terminated by the Board
prior to such date.

Employee Stock Purchase Plan. The Company's Employee Stock Purchase Plan
(the "Purchase Plan") was adopted by the Board on May 20, 1997 and was
subsequently approved by the stockholders on May 27, 1997. The Purchase Plan
is designed to allow eligible employees of the Company to purchase shares of
Common Stock, at semi-annual intervals, through periodic payroll deductions
under the Purchase Plan. A reserve of 166,667 shares of Common Stock has been
established for this purpose.

The Purchase Plan will be implemented in a series of successive offering
periods, each with a maximum duration of 24 months. However, the initial
offering period will begin on the day the underwriting agreement is executed
in connection with this Offering and will end on the last business day in July
1999, unless sooner terminated.

Individuals who are eligible employees on the start date of any offering
period may enter the Purchase Plan on that start date or on any subsequent
semi-annual entry date (February 1 or August 1 each year). Individuals who
become eligible employees after the start date of the offering period may join
the Purchase Plan on any subsequent semi-annual entry date within that period.

Payroll deductions may not exceed 10% of the participant's base salary for
each semi-annual period of participation, and the accumulated payroll
deductions will be applied to the purchase of shares on the participant's
behalf on each semi-annual purchase date (the last business day of January and
July each year, with the first purchase date to occur on the last

49
<PAGE>

business day of January 1998) at a purchase price per share not less than 85%
of the LOWER of (i) the fair market value of the Common Stock on the
participant's entry date into the offering period or (ii) the fair market
value of the Common Stock on the semi-annual purchase date. Should the fair
market value of the Common Stock on any semi-annual purchase date be less than
the fair market value of the Common Stock on the first day of the offering
period, then the current offering period will automatically end and a new 24-
month offering period will begin, based on the lower fair market value.

50
<PAGE>

CERTAIN TRANSACTIONS

Since its formation in December 1994, the Company has issued, in private
placement transactions, shares of its Preferred Stock (as adjusted in price
and number of shares to show the number of shares of Common Stock into which
the Preferred Stock will automatically convert upon the completion of this
Offering at a conversion ratio of 1 to 1) as follows: 5,413,340 shares of
Series A Preferred Stock at a price of $3.00 per share in December 1994;
1,328,084 shares of Series B Preferred Stock at a price of $6.65 per share in
October 1995; 2,424,864 shares of Series C Preferred Stock at a price of $8.25
per share in October 1996; and 266,668 shares of Series D Preferred Stock at a
price of $11.25 per share in March 1997. The purchasers of Preferred Stock
include, among others, the following Directors and holders of more than five
percent of the Company's outstanding stock and their respective affiliates:

<TABLE>
<CAPTION>
PREFERRED STOCK
------------------------------------
EXECUTIVE OFFICERS,
DIRECTORS AND 5% TOTAL
STOCKHOLDERS SERIES A SERIES B SERIES C SERIES D CONSIDERATION
- ------------------- --------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Kevin R. Compton (1)....... 1,333,334 248,308 121,212 -- $6,650,001
Stephen M. Dow (2)......... 1,333,334 37,624 60,606 -- 4,750,002
Roland L. Robertson (3).... 1,346,568 -- -- -- 4,039,700
David H. Ring (4).......... -- 7,526 6,062 -- 100,002
Entities affiliated with
Kleiner Perkins Caufield &
Byers (1)................. 1,333,334 248,308 121,212 -- 6,650,001
Entities affiliated with
Sevin Rosen Funds (2)..... 1,333,334 37,624 60,606 -- 4,750,002
Entities affiliated with
Norwest Equity Partners
(5)....................... 1,066,768 165,538 207,274 -- 6,010,300
TRW Inc. (3)............... 1,346,568 -- -- -- 4,039,700
Entities affiliated with
Accel Partners (6)........ -- 526,714 121,214 -- 4,500,000
</TABLE>
- --------
(1) Includes 1,693,616 shares purchased by Kleiner Perkins Caufield & Byers
VII and 9,238 shares purchased by KPCB Information Sciences Zaibatsu Fund
II. Mr. Compton is a Director of the Company and a general partner of each
of Kleiner Perkins Caufield & Byers VII and KPCB Information Sciences
Zaibatsu Fund II. Mr. Compton disclaims beneficial ownership of such
shares except to the extent of his pecuniary interest therein.
(2) Includes 1,428,230 shares purchased by Sevin Rosen Fund IV L.P. and 3,334
shares purchased by Sevin Rosen Bayless Management Company. Mr. Dow is a
Director of the Company, a general partner of SRB Associates IV L.P., the
general partner of Sevin Rosen Fund IV L.P., and an officer of Sevin Rosen
Bayless Management Company. Mr. Dow disclaims beneficial ownership of such
shares except to the extent of his pecuniary interest therein.
(3) Includes 1,346,568 shares purchased by ESL Incorporated and subsequently
transferred to TRW Inc. Mr. Robertson is a Director of the Company and an
officer of TRW Inc. Because Mr. Robertson does not have voting or
dispository control over such shares, he disclaims beneficial ownership of
such shares.
(4) Includes 7,526 shares purchased by Eureka Investments, L.P. and 6,062
shares purchased by the David H. Ring Charitable Remainder Unitrust. Mr.
Ring is a director of the Company, a general partner of Eureka
Investments, L.P. and the trustee of the David H. Ring Charitable
Remainder Unitrust. Mr. Ring disclaims beneficial ownership of the shares
held by Eureka Investments, L.P. and the David H. Ring Charitable
Remainder Unitrust except to the extent of his pecuniary interest therein.
(5) Includes 1,066,768 shares purchased by Norwest Equity Partners, IV and
372,812 shares purchased by Norwest Equity Partners, V.
(6) Includes 593,498 shares purchased by Accel IV L.P., 27,862 shares
purchased by Accel Investors '95 L.P., 12,312 shares purchased by Accel
Keiretsu L.P. and 14,256 shares purchased by Ellmore C. Patterson
Partners.

Holders of Preferred Stock are entitled to certain registration rights with
respect to the Common Stock issued or issuable upon conversion thereof. See
"Description of Capital Stock--Registration Rights."

In December 1994, the Company sold 5,413,340 shares of its Series A
Preferred Stock to ESL Incorporated ("ESL"), a subsidiary of TRW Inc., and
various venture capital funds, including

51
<PAGE>

funds which are principal stockholders of the Company and/or are affiliated
with directors of the Company, in a private placement pursuant to which the
Company received $13,240,000 and various promissory notes in the aggregate
principal amount of $3,000,000, bearing interest at a rate of 6.34% per annum.
All principal and interest accrued with respect to the notes has been repaid
to the Company and the notes have been cancelled.

In December 1994, the Company purchased from ESL certain in-process research
and development and assets relating to wireless telecommunications fraud
prevention, including its rights and obligations under a certain Development
and License Agreement with AirTouch Communications, Inc. (the "Acquired
Technology"), in exchange for $6,240,000 and a promissory note in the
principal amount of $3,000,000 bearing interest at a rate of 6.66% per annum
(the "$3,000,000 Note"). In connection with its purchase of the Acquired
Technology, the Company also obtained a perpetual license with respect to
certain trade secrets and know-how related to the Acquired Technology for use
in the fields of wireless telecommunications, transportation and systems
integration (the "License"). The price of the Acquired Technology and the
License was determined based on negotiations between the Company and ESL, and
was not fixed based on a third party's independent appraisal. All principal
and interest with respect to the $3,000,000 Note has been repaid by the
Company and the $3,000,000 Note has been cancelled.

In December 1994, in connection with the purchase of the Acquired
Technology, the Company entered into an Assignment and Assumption Agreement
with ESL providing for the assignment to the Company of and the assumption by
the Company of all of ESL's right, title and interest under a certain lease
with Westminster Management Corporation (the "Lease") with respect to a
certain facility located at 207 East Java Drive in Sunnyvale, California. The
Lease expired on February 15, 1995.

In April 1996, the Company made a loan in the amount of $100,000 to Martin
J. Silver, the Chief Financial Officer of the Company, which loan is
represented by two promissory notes, each in the principal amount of $50,000,
and is secured pursuant to a Deed of Trust by Mr. Silver's residence. Both
promissory notes bear annual interest at the greater of 5.5% or the lowest
applicable federal rate of interest as published by the Internal Revenue
Service. One of the promissory notes is to be forgiven at a rate of 20% per
year on each anniversary date of such note for so long as Mr. Silver continues
to be employed as a full-time employee of the Company, and otherwise the
outstanding principal and accrued interest with respect to such note is due
and payable upon the expiration of the 60-day period following the date Mr.
Silver ceases to be a full-time employee of the Company. The other promissory
note is due and payable upon the earlier of: (i) April 10, 1999; (ii) the
expiration of the 60-day period following the date Mr. Silver ceases to be a
full-time employee of the Company; (iii) the expiration of the 190-day period
following the closing of the Company's initial public offering; (iv) the
expiration of the 10-day period following the date on which Mr. Silver sells
or transfers his residence; or (v) upon the occurrence of certain corporate
transactions. The entire principal amount and accrued interest (other than
amounts forgiven in accordance with the description above) on the loan to Mr.
Silver remains outstanding as of the date hereof.

In November 1996, the Company made a loan in the amount of $200,000 to Mary
Ann Byrnes, the President and Chief Executive Officer of the Company, which
loan is represented by a promissory note and is secured pursuant to a pledge
agreement by 370,101 shares of Common Stock of the Company held by Ms. Byrnes.
The promissory note is due and payable upon the earlier of: (i) November 13,
2000; (ii) the expiration of the 60-day period following the date Ms. Byrnes
ceases to be a full-time employee of the Company; (iii) the expiration of the
190-day period following the closing of the Company's initial public offering;
or (iv) upon the occurrence of certain corporate transactions, and bears
interest at the rate of 7% per annum.

52
<PAGE>

The entire principal amount and accrued interest on the loan to Ms. Byrnes
remains outstanding as of the date hereof.

All of the Company's officers are employed by the Company at will. The
Company has entered into indemnification agreements with each of its directors
and executive officers. See "Management--Limitations on Liability and
Indemnification Matters."

At the request of the Company, the Underwriters have reserved for sale at
the initial public offering price to persons designated by the Company a
number of shares of Common Stock not to exceed five percent of the total
number of shares of Common Stock in this Offering. The number of shares
available for sale to the general public will be reduced to the extent such
persons purchase these shares.

The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. The Company expects that all future transactions
between the Company and its officers, directors and principal stockholders and
their affiliates will be approved in accordance with the Delaware General
Corporation Law by a majority of the Board, as well as by a majority of the
independent and disinterested directors, and will be on terms no less
favorable to the Company than could be obtained from unaffiliated third
parties.

53
<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of June 30, 1997, and as adjusted to reflect
the sale of the shares of the Common Stock offered hereby by the Company, by
(i) all those known by the Company to be beneficial owners of more than 5% of
its outstanding Common Stock, (ii) each Director of the Company, (iii) each of
the Named Executive Officers and (iv) all Directors and executive officers of
the Company as a group.

<TABLE>
<CAPTION>
PERCENTAGE BENEFICIALLY
OWNED(2)
--------------------------------
NAME AND ADDRESS OF BENEFICIAL NUMBER OF
OWNER SHARES(1) PRIOR TO OFFERING AFTER OFFERING
- ------------------------------ --------- ----------------- --------------
<S> <C> <C> <C>
Kleiner Perkins Caufield & 1,702,854 15.8% 12.8%
Byers(3)..........................
2750 Sand Hill Road
Menlo Park, CA 94025
Sevin Rosen Funds(4)............... 1,431,564 13.3% 10.8%
Two Galleria Tower
13455 Noel Road, Suite 1670
Dallas, TX 75240
Norwest Equity Partners(5)......... 1,439,580 13.4% 10.9%
245 Lytton Avenue, Suite 250
Palo Alto, CA 94301
TRW Inc............................ 1,346,568 12.5% 10.2%
1 Federal System Park Drive
Fairfax, VA 22033
Accel Partners(6).................. 647,928 6.0% 4.9%
One Embarcadero Center, Suite 3820
San Francisco, CA 94111
Kevin R. Compton(7)................ 1,710,354 15.9% 12.9%
Mary Ann Byrnes(8)................. 454,520 4.2% 3.4%
Stephen M. Dow(9).................. 1,439,064 13.4% 10.8%
Roland L. Robertson(10)............ 1,346,568 12.5% 10.2%
David H. Ring(11).................. 64,338 * *
Peter L.S. Currie(12).............. 33,334 * *
David G. Thompson(13).............. 109,762 1.0% *
Martin J. Silver(14)............... 120,000 1.1% *
John F. Scott(15).................. 108,001 1.0% *
Walter M. Price(16)................ 66,982 * *
All directors and executive
officers as a group
(14 persons)(17).................. 5,844,802 52.5% 42.8%
</TABLE>
- --------
* Less than 1%
(1) Except as indicated in the footnotes to this table, the persons named in
the table have sole voting and investment power with respect to all
shares of Common Stock shown as beneficially owned by them. Shares of
Common Stock subject to options that are currently exercisable or
exercisable within 60 days of June 30, 1997 are deemed to be outstanding
and to be beneficially owned by the person holding such options for the
purpose of computing the percentage ownership of such person but are not
treated as outstanding for the purpose of computing the percentage
ownership of any other person.
(2) Percentage ownership is calculated pursuant to Commission Rule 13d-
3(d)(1).
(3) Includes 1,693,616 shares held by Kleiner Perkins Caufield & Byers VII
and 9,238 shares held by KPCB Information Sciences Zaibatsu Fund II.
(4) Includes 1,428,230 shares held by Sevin Rosen Fund IV L.P. and 3,334
shares held by Sevin Rosen Bayless Management Company.
(5) Includes 1,066,768 shares held by Norwest Equity Partners, IV and 372,812
shares held by Norwest Equity Partners, V.

54
<PAGE>

(6) Includes 593,498 shares held by Accel IV L.P., 27,862 shares held by
Accel Investors '95 L.P., 12,312 shares held by Accel Keiretsu L.P. and
14,256 shares held by Ellmore C. Patterson Partners.
(7) Includes 1,693,616 shares held by Kleiner Perkins Caufield & Byers VII
and 9,238 shares held by KPCB Information Sciences Zaibatsu Fund II. Mr.
Compton is a Director of the Company and a general partner of each of
Kleiner Perkins Caufield & Byers VII and KPCB Information Sciences
Zaibatsu Fund II. Mr. Compton disclaims beneficial ownership of such
shares except to the extent of his pecuniary interest therein. Also
includes 7,500 shares issuable to Mr. Compton upon the exercise of
options exercisable within 60 days of June 30, 1997.
(8) Includes 75,754 shares issuable upon the exercise of options exercisable
within 60 days of June 30, 1997.
(9) Includes 1,428,230 shares held by Sevin Rosen Fund IV L.P. and 3,334
shares held by Sevin Rosen Bayless Management Company. Mr. Dow is a
Director of the Company, a general partner of SRB Associates IV L.P., the
general partner of Sevin Rosen Fund IV L.P., and an officer of Sevin
Rosen Bayless Management Company. Mr. Dow disclaims beneficial ownership
of such shares except to the extent of his pecuniary interest therein.
Also includes 7,500 shares issuable to Mr. Dow upon the exercise of
options exercisable within 60 days of June 30, 1997.
(10) Includes 1,346,568 shares held by TRW Inc. Mr. Robertson is a Director of
the Company and an officer of TRW Inc. Because Mr. Robertson does not
have voting or dispository control over such shares, he disclaims
beneficial ownership of all of such shares.
(11) Includes 7,526 shares held by Eureka Investments, L.P. and 6,062 shares
held by the David H. Ring Charitable Remainder Unitrust. Mr. Ring is a
Director of the Company, a general partner of Eureka Investments, L.P.
and the trustee of the David H. Ring Charitable Remainder Unitrust. Mr.
Ring disclaims beneficial ownership of the shares held by Eureka
Investments, L.P. and the David H. Ring Charitable Remainder Unitrust
except to the extent of his pecuniary interest therein.
(12) Includes 33,334 shares issuable upon the exercise of options exercisable
within 60 days of June 30, 1997.
(13) Includes 26,627 shares issuable upon the exercise of options exercisable
within 60 days of June 30, 1997.
(14) Includes 20,000 shares issuable upon the exercise of options exercisable
within 60 days of June 30, 1997.
(15) Includes 18,000 shares issuable upon the exercise of options exercisable
within 60 days of June 30, 1997.
(16) Includes 40,315 shares issuable upon the exercise of options exercisable
within 60 days of June 30, 1997.
(17) Includes 380,677 shares issuable upon the exercise of options exercisable
within 60 days of June 30, 1997.

55
<PAGE>

DESCRIPTION OF CAPITAL STOCK

Upon completion of this Offering, the Company will be authorized to issue
75,000,000 shares of Common Stock, $.001 par value per share, of which
approximately 13,262,000 shares will be issued and outstanding, and 10,000,000
shares of undesignated Preferred Stock, $.001 par value per share, of which no
shares will be issued and outstanding.

COMMON STOCK

At June 30, 1997, there were 10,761,992 shares of Common Stock outstanding
and held of record by approximately 120 stockholders. The holders of Common
Stock are entitled to one vote for each share held of record on all matters
submitted to a vote of the stockholders. Subject to preferences that may be
applicable to any outstanding shares of Preferred Stock, holders of Common
Stock are entitled to receive ratably such dividends as may be declared by the
Board out of funds legally available. See "Dividend Policy." All outstanding
shares of Common Stock are fully paid and nonassessable.

PREFERRED STOCK

After completion of this Offering, the Board will have the authority,
without further action by the stockholders, to issue up to 10,000,000 shares
of Preferred Stock in one or more series and to fix the rights, priorities,
preferences, qualifications, limitations and restrictions of such shares,
including dividend rights, conversion rights, voting rights, terms of
redemption, terms of sinking funds, liquidation preferences and the number of
shares constituting any series or the designation of such series, which could
decrease the amount of earnings and assets available for distribution to
holders of Common Stock or adversely affect the rights and powers, including
voting rights, of the holders of the Common Stock. The issuance of Preferred
Stock could have the effect of delaying or preventing a change in control of
the Company or make removal of management more difficult. Additionally, the
issuance of Preferred Stock may have the effect of decreasing the market price
of the Common Stock and may adversely affect the voting and other rights of
the holders of Common Stock.

WARRANTS

In August 1995, in conjunction with a Master Lease Agreement, the Company
issued a warrant to Comdisco, Inc. to purchase 27,073 shares of Common Stock
at $5.91 per share which is exercisable until August 31, 2005. In connection
with the financing of additional equipment under this Master Lease Agreement,
the Company issued an additional warrant to Comdisco, Inc. to purchase 5,834
shares of Common Stock at $6.65 per share which is exercisable until August 5,
2006. Each warrant contains provisions for the adjustment of the exercise
price and the aggregate number of shares issuable upon exercise of the warrant
under certain circumstances, including stock dividends, stock splits,
reorganizations, reclassifications or consolidations. Each warrant provides
that the warrant holder may exercise the warrant without payment of cash by
surrendering the warrant and receiving shares of Common Stock equal to the
value of the warrant surrendered.

In July 1996, the Company issued warrants to Comdisco, Inc. and MMC/GATX
Partnership No. 1 to purchase 50,000 and 75,000 shares of Common Stock,
respectively, at $6.65 per share which are exercisable before July 31, 2006.
These warrants contain provisions for the adjustment of the exercise price and
the aggregate number of shares issuable upon exercise of the warrant under
certain circumstances, including stock dividends, stock splits,
reorganizations, reclassifications or consolidations. Each warrant provides
that the warrant holder may exercise

56
<PAGE>

the warrant without payment of cash by surrendering the warrant and receiving
shares of Common Stock equal to the value of the warrant surrendered.

REGISTRATION RIGHTS

The holders of approximately 9,433,000 shares of Common Stock or their
permitted transferees (the "Holders") are entitled to certain rights with
respect to the registration of such shares under the Securities Act. Under the
terms of agreements between the Company and such Holders, if the Company
proposes to register any of its securities under the Securities Act for its
own account, such Holders are entitled to notice of such registration and are
entitled to include shares of such Common Stock therein, provided, among other
conditions, that the underwriters of any such offering have the right to limit
the number of shares included in such registration in certain ways. In
addition, Holders of at least 33% of approximately 9,433,000 shares of Common
Stock with demand registration rights may require the Company to prepare and
file a registration statement under the Securities Act with respect to the
shares entitled to demand registration rights, and provided that the aggregate
offering price, net of underwriting discounts and commissions, exceeds $2.5
million, the Company is required to use its best efforts to effect such
registration, subject to certain conditions and limitations. The Company is
not obligated to effect more than two of these stockholder-initiated
registrations nor to effect such a registration until six months after this
Offering. The Holders of approximately 9,433,000 shares of Common Stock may
also request the Company to register such shares on Form S-3 provided the
shares registered have an aggregate market value of at least $1.0 million. The
Company is not obligated to effect more than two of these registrations
pursuant to Form S-3 per year. Generally, the Company is required to bear the
expense of all such registrations. The registration rights of the Holders
expire on the fifth anniversary of the effective date of this Offering. All
rights of the Holders to require registration of the resale of their shares in
connection with this Offering have been waived. In addition, holders of
warrants to purchase approximately 125,000 shares of Common Stock have similar
registration rights (other than demand registration rights) for the Common
Stock underlying such warrants.

POSSIBLE ANTITAKEOVER EFFECTS OF CERTAIN CHARTER PROVISIONS

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION AND RESTATED BYLAWS. The
Company's Amended and Restated Certificate of Incorporation authorizes the
Board to establish one or more series of undesignated Preferred Stock, the
terms of which can be determined by the Board at the time of issuance. See "--
Preferred Stock." The Amended and Restated Certificate of Incorporation also
provides that all stockholder action must be effected at a duly called meeting
of stockholders and not by a consent in writing. 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. See
"Management--Executive Officers and Directors." In addition, the Restated
Bylaws will not permit stockholders of the Company to call a special meeting
of stockholders; only the Company's Chief Executive Officer, President,
Chairman of the Board or a majority of the Board will be permitted to call a
special meeting of stockholders. The Restated Bylaws will also require that
stockholders give advance notice to the Company's secretary of any nominations
for Director or other business to be brought by stockholders at any
stockholders' meeting and will require a supermajority vote of members of the
Board and/or stockholders to amend certain Bylaw provisions. These provisions
of the Amended and Restated Certificate of Incorporation and the Restated
Bylaws could discourage potential acquisition proposals and could delay or
prevent a change in control of the Company. Such provisions may also have the
effect of preventing changes in the management of the Company. See "Risk
Factors--Antitakeover Effects of Charter, Bylaws and Delaware Law."

57
<PAGE>

DELAWARE TAKEOVER STATUTE. The Company is subject to Section 203 of the
Delaware General Corporation Law ("Section 203") which, subject to certain
exceptions, prohibits a Delaware corporation from engaging in any business
combination with any interested stockholder (defined as any person or entity
that is the beneficial owner of at least 15% of a corporation's voting stock)
for a period of three years following the time that such stockholder became an
interested stockholder, unless: (i) prior to such time, the board of directors
of the corporation approved either the business combination or the transaction
that resulted in the stockholder's becoming an interested stockholder; (ii)
upon consummation of the transaction that resulted in the stockholder's
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding, for purposes of determining the number of
shares outstanding, those shares owned (x) by persons who are directors and
also officers and (y) by employee stock plans in which employee participants
do not have the right to determine confidentially whether shares held subject
to the plan will be tendered in a tender or exchange offer; or (iii) at or
subsequent to such time, the business combination is approved by the Board and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least two-thirds of the outstanding
voting stock that is not owned by the interested stockholder.

Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii)
any sale, lease, exchange, mortgage, transfer, pledge or other disposition
involving the interested stockholder and 10% or more of the assets of the
corporation; (iii) subject to certain exceptions, any transaction which
results in the issuance or transfer by the corporation of any stock of the
corporation to the interested stockholder; (iv) any transaction involving the
corporation that has the effect of increasing the proportionate share of the
stock of any class or series of the corporation beneficially owned by the
interested stockholder; or (v) the receipt by the interested stockholder of
the benefit of any loans, advances, guarantees, pledges or other financial
benefits provided by or through the corporation.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is BankBoston, N.A.

58
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this Offering, the Company will have approximately
13,262,000 shares of Common Stock outstanding (assuming no exercise of options
or other convertible securities or issuances of Common Stock subsequent to
June 30, 1997). The 2,500,000 shares sold in this Offering will be freely
tradeable without restriction or further registration under the Securities
Act, except that any shares purchased by "affiliates" of the Company, as that
term is defined in Rule 144 under the Securities Act ("Affiliates"), may
generally be sold only in compliance with certain of the limitations of Rule
144 described below.

The remaining approximately 10,762,000 shares of Common Stock are deemed
"Restricted Shares" under Rule 144. Subject to the lockup restrictions
described below, (i) approximately 334,000 Restricted Shares will be eligible
for sale in the public market immediately after this Offering pursuant to Rule
144(k) under the Securities Act, and (ii) approximately 7,737,000 additional
Restricted Shares will be eligible for sale in the public market in accordance
with Rule 144 or Rule 701 under the Securities Act beginning 90 days after the
date of this Prospectus. The holders of approximately 10,756,000 Restricted
Shares have agreed not to sell or otherwise dispose of any of their shares for
a period of 180 days after the date of this Prospectus without Deutsche Morgan
Grenfell Inc.'s prior written consent. Deutsche Morgan Grenfell Inc. may, in
its sole discretion, and at any time without notice, release all or any
portion of the Restricted Shares subject to lock-up agreements.

Upon expiration of the lock-up agreements 180 days after the date of this
Prospectus, approximately 10,496,000 shares of Common Stock will be available
for sale in the public market; the remaining approximately 266,000 shares will
become eligible for sale under Rule 144 at various dates thereafter as the
holding period provisions of Rule 144 are satisfied.

In general, under Rule 144, beginning approximately 90 days after the
effective date of the Registration Statement of which this Prospectus is a
part, a stockholder, including an Affiliate, who has beneficially owned his or
her restricted securities (as that term is defined in Rule 144) for at least
one year from the later of the date such securities were acquired from the
Company or (if applicable) the date they were acquired from an Affiliate is
entitled to sell, within any three-month period, a number of such shares that
does not exceed the greater of 1% of the then outstanding shares of Common
Stock (approximately 133,000 shares immediately after this Offering) or the
average weekly trading volume in the Common Stock during the four calendar
weeks preceding the date on which notice of such sale was filed under Rule
144, provided certain requirements concerning availability of public
information, manner of sale and notice of sale are satisfied. In addition,
under Rule 144(k), if a period of at least two years has elapsed between the
later of the date restricted securities were acquired from the Company or (if
applicable) the date they were acquired from an Affiliate of the Company, a
stockholder who is not an Affiliate of the Company at the time of sale and has
not been an Affiliate of the Company for at least three months prior to the
sale is entitled to sell the shares immediately without compliance with the
foregoing requirements of Rule 144.

Securities issued in reliance on Rule 701 (such as shares of Common Stock
that may be acquired pursuant to the exercise of certain options granted prior
to this Offering) are also restricted securities and, beginning 90 days after
the date of this Prospectus, may be sold by stockholders other than Affiliates
of the Company subject only to the manner of sale provisions of Rule 144 and
by an Affiliate under Rule 144 without compliance with its one-year holding
period requirement.

Prior to this Offering, there has been no public market for the Common
Stock. No prediction can be made as to the effect, if any, that market sales
of shares or the availability of shares for

59
<PAGE>

sale will have on the market price of the Common Stock prevailing from time to
time. The Company is unable to estimate the number of shares that may be sold
in the public market pursuant to Rule 144, since this will depend on the
market price of the Common Stock, the personal circumstances of the sellers
and other factors. Nevertheless, sales of significant amounts of the Common
Stock of the Company in the public market could adversely affect the market
price of the Common Stock and could impair the Company's ability to raise
capital through an offering of its equity securities.

In addition, the Company has registered a total of approximately 1,338,000
shares of Common Stock subject to outstanding options or reserved for issuance
under the Plan and approximately 167,000 shares of Common Stock reserved for
issuance under the Purchase Plan. Further, upon expiration of the lock-up
agreements described above, holders of approximately 9,433,000 shares of
Common Stock will be entitled to certain registration rights with respect to
such shares. If such holders, by exercising their registration rights, cause a
large number of shares to be registered and sold in the public market, such
sales could have a material adverse effect on the market price for the Common
Stock.

60
<PAGE>

UNDERWRITING

The Underwriters named below, for whom Deutsche Morgan Grenfell Inc.,
Hambrecht & Quist LLC and Wessels, Arnold & Henderson, L.L.C. are acting as
representatives (the "Representatives"), have severally agreed, subject to the
terms and conditions contained in the Underwriting Agreement (the form of
which will be filed as an exhibit to the Company's Registration Statement, of
which this Prospectus is a part), to purchase from the Company the respective
number of shares of Common Stock indicated below opposite their respective
names. The Underwriters are committed to purchase all of the shares, if they
purchase any.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Deutsche Morgan Grenfell Inc....................................... 900,000
Hambrecht & Quist LLC.............................................. 675,000
Wessels, Arnold & Henderson, L.L.C................................. 675,000
Alex. Brown & Sons Incorporated.................................... 50,000
Cowen & Company.................................................... 50,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated................. 50,000
Robertson, Stephens & Company LLC.................................. 50,000
UBS Securities LLC................................................. 50,000
---------
Total............................................................ 2,500,000
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
counsel and to various other conditions.

The Representatives have advised the Company that the Underwriters propose
initially to offer the Common Stock to the public on the terms set forth on
the cover page of this Prospectus. The Underwriters may allow to selected
dealers (who may include the Underwriters) a concession of not more than $0.60
per share. The selected dealers may reallow a concession of not more than
$0.10 per share to certain other dealers. After the initial public offering,
the price and concessions and re-allowances to dealers and other selling terms
may be changed by the Representatives. The Common Stock is offered subject to
receipt and acceptance by the Underwriters, and to certain other conditions,
including the right to reject orders in whole or in part. The Underwriters do
not intend to sell any of the shares of Common Stock offered hereby to
accounts for which they exercise discretionary authority.

The Company has granted an option to the Underwriters to purchase up to a
maximum of 375,000 additional shares of Common Stock to cover over-allotments,
if any, at the initial public offering price, less the underwriting discount
set forth on the cover page of this Prospectus. Such option may be exercised
at any time until 30 days after the date of the Underwriting Agreement. To the
extent the Underwriters exercise this option, each of the Underwriters will be
committed, subject to certain conditions, to purchase such additional shares
in approximately the same proportion as set forth in the above table. The
Underwriters may purchase such shares only to cover over-allotments made in
connection with this Offering.

In connection with this Offering, the Company and the Directors, executive
officers and certain stockholders have agreed not to offer or sell any Common
Stock until the expiration of 180 days following the date of the final
Prospectus without the prior written consent of Deutsche Morgan Grenfell Inc.

61
<PAGE>

The Underwriting Agreement provides that the Company will indemnify the
several Underwriters against certain liabilities, including civil liabilities
under the Securities Act or will contribute to payments the Underwriters may
be required to make in respect thereof.

Prior to this Offering, there has been no public market for the Common
Stock. The initial public offering price was determined by negotiations
between the Company and the Representatives. The principal factors considered
in determining the initial public offering price included the information set
forth in this Prospectus and otherwise available to the Representatives; the
history and the prospects for the industry in which the Company will compete;
the ability of the Company's management; the prospects for future earnings of
the Company; the present state of the Company's development and its current
financial condition; the general condition of the securities markets at the
time of this Offering; and the recent market prices of, and the demand for,
publicly traded common stock of generally comparable companies. Each of the
Representatives has informed the Company that it currently intends to make a
market in the shares subsequent to the effectiveness of this Offering, but
there can be no assurance that the Representatives will take any action to
make a market in any securities of the Company.

In October 1996, the Company issued 37,273 shares of Series C Preferred
Stock to Hambrecht & Quist California which will be converted into 24,849
shares of Common Stock upon completion of this Offering. Hambrecht & Quist
California is an affiliate of Hambrecht & Quist LLC. In October 1996, the
Company issued 8,181 shares of Series C Preferred Stock to certain employees
of Hambrecht & Quist LLC which will be converted into 5,454 shares of Common
Stock upon completion of this Offering. Such shares were issued as part of the
Company's private placement of 3,637,272 shares of Series C Preferred Stock at
$5.50 per share.

Certain persons participating in this Offering may over-allot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the
open market, including by entering stabilizing bids, effecting syndicate
covering transactions or imposing penalty bids. A stabilizing bid means the
placing of any bid or effecting of any purchase for the purpose of pegging,
fixing or maintaining the price of the Common Stock. A syndicate covering
transaction means the placing of any bid on behalf of the underwriting
syndicate or the effecting of any purchase to reduce a short position created
in connection with this Offering. A penalty bid means an arrangement that
permits the Underwriters to reclaim a selling concession from a syndicate
member in connection with this Offering when shares of Common Stock sold by
the syndicate member are purchased in syndicate covering transactions. Such
transactions may be effected on the Nasdaq Stock Market, in the over-the-
counter market, or otherwise. Such stabilizing, if commenced, may be
discontinued at any time.

62
<PAGE>

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company by Brobeck, Phleger & Harrison LLP, San Diego, California. Certain
legal matters in connection with this Offering will be passed upon for the
Underwriters by Wilson Sonsini Goodrich & Rosati, Professional Corporation,
Palo Alto, California. Certain attorneys of Brobeck, Phleger & Harrison LLP
own 5,436 shares of the Company's Common Stock.

EXPERTS

The financial statements and schedule of Corsair Communications, Inc. as of
December 31, 1995 and 1996, and for the period from December 5, 1994
(inception) to December 31, 1994 and for each of the years in the two-year
period ended December 31, 1996, have been included in this Prospectus and
Registration Statement in reliance upon the reports of KPMG Peat Marwick LLP,
independent accountants, appearing elsewhere herein and in the Registration
Statement, and upon the authority of said firm as experts in accounting and
auditing.

ADDITIONAL INFORMATION

The Company has filed with the Commission the Registration Statement under
the Securities Act with respect to the Common Stock offered hereby. This
Prospectus, which is part of the Registration Statement, does not contain all
of the information set forth in the Registration Statement and the exhibits
and schedules filed therewith. For further information with respect to the
Company and the Common Stock offered hereby, reference is hereby made to such
Registration Statement and to the exhibits and schedules filed therewith.
Statements contained in this Prospectus regarding the contents of any contract
or other document are not necessarily complete, and in each instance reference
is made to the copy of such contract or document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respect by
such reference. The Registration Statement, including the exhibits and
schedules thereto, may be inspected without charge at the principal office of
the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the Commission located at Seven World Trade Center, Suite
1300, New York, New York 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661, and copies of all of any part thereof may
be obtained at prescribed rates from the Commission's Public Reference Section
at such addresses. Also, the Commission maintains a World Wide Web site on the
Internet at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file
electronically with the Commission. Upon approval of the Common Stock for
quotation on the Nasdaq National Market, such reports, proxy and information
statements and other information also can be inspected at the office of Nasdaq
Operations, 1735 K Street, N.W., Washington, D.C. 20006.

63
<PAGE>

CORSAIR COMMUNICATIONS, INC.

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.............................................. F-2
Balance Sheets as of December 31, 1995 and 1996 and June 30, 1997 (unau-
dited)................................................................... F-3
Statements of Operations for the Period from December 5, 1994 (inception)
to December 31, 1994 and for the Years Ended December 31, 1995 and 1996
and the Six Months Ended June 30, 1996 and 1997 (unaudited).............. F-4
Statements of Stockholders' Equity for the Period from December 5, 1994
(inception) to December 31, 1994 and for the Years Ended December 31,
1995 and 1996 and the Six Months Ended June 30, 1997 (unaudited)......... F-5
Statements of Cash Flows for the Period from December 5, 1994 (inception)
to December 31, 1994 and for the Years Ended December 31, 1995 and 1996
and the Six Months Ended June 30, 1996 and 1997 (unaudited).............. F-6
Notes to Financial Statements............................................. F-7
</TABLE>

F-1
<PAGE>

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, 1995 and 1996, and the related statements of
operations, stockholders' equity, and cash flows for the period from December
5, 1994 (inception) to December 31, 1994 and for each of the years in the two-
year period ended December 31, 1996. 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, 1995 and 1996, and the results of its operations and
its cash flows for the period from December 5, 1994 (inception) to December
31, 1994 and for each of the years in the two-year period ended December 31,
1996, in conformity with generally accepted accounting principles.

KPMG PEAT MARWICK LLP

San Francisco, California
March 7, 1997, except as to
Note 9 which is as of June
13, 1997

F-2
<PAGE>

CORSAIR COMMUNICATIONS, INC.

BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, JUNE 30,
------------------ JUNE 30, 1997
1995 1996 1997 (NOTE 2)
-------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........ $ 7,072 $ 17,052 $ 10,500 $ 10,500
Short-term investments........... 1,957 2,452 9,786 9,786
Trade accounts receivable, less
allowance for doubtful accounts
of $404 for 1995 and 1996 and
$451 for 1997................... 807 3,260 2,964 2,964
Other receivables................ 15 43 159 159
Evaluation inventory............. -- 5,328 6,231 6,231
Inventories, net................. 2,212 3,970 5,087 5,087
Prepaid expenses................. 113 83 687 687
-------- -------- -------- --------
Total current assets........... 12,176 32,188 35,414 35,414
Property and equipment, net........ 1,814 2,424 2,815 2,815
Other assets....................... 166 299 365 365
-------- -------- -------- --------
$ 14,156 $ 34,911 $ 38,594 $ 38,594
======== ======== ======== ========

LIABILITIES AND
STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable................. $ 338 $ 3,428 $ 1,270 $ 1,270
Accrued expenses................. 722 2,502 3,240 3,240
Notes payable--current portion... 222 1,803 1,905 1,905
Current portion of obligations
under capital leases............ 44 286 379 379
Deferred revenue................. 1,083 4,487 11,101 11,101
-------- -------- -------- --------
Total current liabilities...... 2,409 12,506 17,895 17,895
Notes payable...................... 666 3,780 2,889 2,889
Obligations under capital leases,
net of current portion............ 109 614 600 600
Other long-term liabilities........ 380 -- -- --
-------- -------- -------- --------
Total liabilities.............. 3,564 16,900 21,384 21,384
-------- -------- -------- --------
Commitments and contingencies
Stockholders' equity:
Convertible preferred stock,
$.001 par value; 14,548,963
shares authorized; 6,741,424,
9,166,288, and 9,432,956 shares
issued and outstanding,
respectively; aggregate
liquidation preference of
$48,174 as of June 30, 1997;
none issued or outstanding on a
pro forma basis................. 7 9 9 --
Common stock, $.001 par value;
20,000,000 shares authorized;
50,750, 604,094, and 1,329,036
shares issued and outstanding,
respectively; 10,761,992 shares
issued and outstanding on a pro
forma basis..................... -- 1 2 11
Note receivable from stockhold-
er.............................. -- (136) (136) (136)
Additional paid-in capital....... 25,044 45,426 49,951 49,951
Deferred compensation............ -- (69) (960) (960)
Accumulated deficit.............. (14,459) (27,220) (31,656) (31,656)
-------- -------- -------- --------
Total stockholders' equity..... 10,592 18,011 17,210 17,210
-------- -------- -------- --------
$ 14,156 $ 34,911 $ 38,594 $ 38,594
======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements.

F-3
<PAGE>

CORSAIR COMMUNICATIONS, INC.

STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 5, 1994 YEAR ENDED SIX MONTHS ENDED
(INCEPTION) TO DECEMBER 31, JUNE 30,
DECEMBER 31, ----------------- ------------------
1994 1995 1996 1996 1997
---------------- ------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
System revenue........ $ -- $ 7,351 $ 18,178 $ 4,437 $ 18,302
Service revenue....... -- 242 1,428 455 2,018
------- ------- -------- -------- --------
Total revenues...... -- 7,593 19,606 4,892 20,320
------- ------- -------- -------- --------
Cost of revenues:
System revenue costs.. -- 7,522 17,235 4,672 14,967
Service revenue
costs................ -- 615 1,962 771 1,536
------- ------- -------- -------- --------
Total cost of reve-
nues............... -- 8,137 19,197 5,443 16,503
------- ------- -------- -------- --------
Gross profit (defi-
cit)............... -- (544) 409 (551) 3,817
------- ------- -------- -------- --------
Operating costs and ex-
penses:
Research and develop-
ment................. 507 3,094 4,983 2,142 2,994
Sales and marketing... 62 2,981 5,374 2,031 3,331
General and adminis-
trative.............. 498 2,115 2,591 1,206 1,968
Write-off of in-
process research and
development.......... 4,894 -- -- -- --
------- ------- -------- -------- --------
Total operating
costs and
expenses........... 5,961 8,190 12,948 5,379 8,293
------- ------- -------- -------- --------
Operating loss...... (5,961) (8,734) (12,539) (5,930) (4,476)
Interest income (ex-
pense), net............ 20 218 (220) 55 43
------- ------- -------- -------- --------
Loss before income
taxes.............. (5,941) (8,516) (12,759) (5,875) (4,433)
Income taxes............ 1 1 2 -- 3
------- ------- -------- -------- --------
Net loss............ $(5,942) $(8,517) $(12,761) $(5,875) $(4,436 )
======= ======= ======== ======== ========
Pro forma net loss per
share data (Note 2):
Pro forma net loss per
share................ $ (1.44) $ (0.69) $ (0.40)
======== ======== ========
Shares used in per
share computation.... 8,870 8,499 10,962
======== ======== ========
</TABLE>

See accompanying notes to financial statements.

F-4
<PAGE>

CORSAIR COMMUNICATIONS, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY

PERIOD FROM DECEMBER 5, 1994 (INCEPTION) TO JUNE 30, 1997

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
CONVERTIBLE NOTE
PREFERRED STOCK COMMON STOCK RECEIVABLE ADDITIONAL TOTAL
---------------- ---------------- FROM PAID-IN DEFERRED ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT STOCKHOLDER CAPITAL COMPENSATION DEFICIT EQUITY
--------- ------ --------- ------ ----------- ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of Series A
convertible preferred
stock, net of issuance
costs of $25 . 4,066,772 $ 4 -- $-- $(3,000) $12,171 $ -- $ -- $ 9,175
Issuance of Series A
convertible preferred
stock in conjunction
with asset purchase
agreement............. 1,346,568 1 -- -- -- 4,039 -- -- 4,040
Net loss............... -- -- -- -- -- -- -- (5,942) (5,942)
--------- ---- --------- ---- ------- ------- ------ -------- --------
Balances as of December
31, 1994.............. 5,413,340 5 -- -- (3,000) 16,210 -- (5,942) 7,273
Collection of
stockholders' notes... -- -- -- -- 3,000 -- -- -- 3,000
Exercise of common
stock options......... -- -- 50,750 -- -- 15 -- -- 15
Issuance of convertible
preferred stock
warrants in
conjunction with debt
financings............ -- -- -- -- -- 30 -- -- 30
Issuance of Series B
convertible preferred
stock, net of issuance
costs of $34 . 1,328,084 2 -- -- -- 8,789 -- -- 8,791
Net loss............... -- -- -- -- -- -- -- (8,517) (8,517)
--------- ---- --------- ---- ------- ------- ------ -------- --------
Balances as of December
31, 1995.............. 6,741,424 7 50,750 -- -- 25,044 -- (14,459) 10,592
Exercise of common
stock options......... -- -- 553,344 1 (136) 230 -- -- 95
Issuance of convertible
preferred stock
warrants in
conjunction with debt
financings............ -- -- -- -- -- 131 -- -- 131
Issuance of Series C
convertible preferred
stock, net of issuance
costs of $56 . 2,424,864 2 -- -- -- 19,948 -- -- 19,950
Deferred compensation
related to grant of
stock options......... -- -- -- -- -- 73 (73) -- --
Amortization of
deferred
compensation.......... -- -- -- -- -- -- 4 -- 4
Net loss............... -- -- -- -- -- -- -- (12,761) (12,761)
--------- ---- --------- ---- ------- ------- ------ -------- --------
Balances as of December
31, 1996.............. 9,166,288 9 604,094 1 (136) 45,426 (69) (27,220) 18,011
Deferred compensation
related to grant of
stock options
(unaudited)........... -- -- -- -- -- 1,129 (1,129) -- --
Amortization of
deferred compensation
(unaudited)........... -- -- -- -- -- -- 238 -- 238
Exercise of common
stock options
(unaudited)........... -- -- 724,942 1 -- 399 -- -- 400
Issuance of Series D
convertible preferred
stock, net of issuance
costs of $3
(unaudited)........... 266,668 -- -- -- -- 2,997 -- -- 2,997
Net loss (unaudited)... -- -- -- -- -- -- -- (4,436) (4,436)
--------- ---- --------- ---- ------- ------- ------ -------- --------
Balances as of June 30,
1997 (unaudited)...... 9,432,956 $ 9 1,329,036 $ 2 $ (136) $49,951 $ (960) $(31,656) $ 17,210
========= ==== ========= ==== ======= ======= ====== ======== ========
</TABLE>

See accompanying notes to financial statements.

F-5
<PAGE>

CORSAIR COMMUNICATIONS, INC.

STATEMENTS OF CASH FLOWS
(In thousands)

<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 5, 1994 YEAR ENDED SIX MONTHS ENDED
(INCEPTION) TO DECEMBER 31, JUNE 30,
DECEMBER 31, ----------------- -----------------
1994 1995 1996 1996 1997
---------------- ------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operat-
ing activities:
Net loss............... $(5,942) $(8,517) $(12,761) $(5,875) $(4,436)
Adjustments to recon-
cile net loss to net
cash used in operating
activities:
Depreciation and amor-
tization.............. 8 472 1,013 453 712
Write-off of in proc-
ess research and de-
velopment............. 4,894 -- -- -- --
Amortization of de-
ferred compensation... -- -- 4 -- 238
Loss on disposition of
fixed assets.......... -- -- -- -- 100
Changes in operating
assets and liabili-
ties:
Trade accounts re-
ceivable............. -- (808) (2,453) (418) 296
Other receivables..... -- -- (28) (38) (116)
Inventories........... -- 1,551 (7,086) (3,440) (2,020)
Prepaid expenses and
other assets......... (18) (162) (78) (49) (690)
Accounts payable and
accrued expenses..... 905 302 4,870 2,686 (1,420)
Deferred revenue...... -- 1,423 3,024 16 6,614
------- ------- -------- ------- --------
Net cash used in op-
erating activities.. (153) (5,739) (13,495) (6,665) (722)
------- ------- -------- ------- --------
Cash flows from invest-
ing activities:
Purchase of short-term
investments........... -- (1,957) (2,452) -- (13,260)
Proceeds from
sales/maturity of
short-term invest-
ments................. -- -- 1,957 1,957 5,926
Purchases of property
and equipment......... (3) (1,528) (605) (84) (889)
------- ------- -------- ------- --------
Net cash (used in)
provided by invest-
ing activities...... (3) (3,485) (1,100) 1,873 (8,223)
------- ------- -------- ------- --------
Cash flows from financ-
ing activities:
Proceeds from sale of
preferred stock, net
of offering costs..... 13,215 8,791 19,950 -- 2,997
Proceeds from exercise
of common stock op-
tions................. -- 15 95 3 400
Proceeds from notes
payable............... -- 970 4,925 -- --
Proceeds from issuance
of warrants........... -- 30 131 -- --
Principal payments on
note payable.......... -- (82) (230) (100) (789)
Principal payments on
capital lease......... -- (12) (232) (58) (215)
Loan to stockholder.... -- -- (64) -- --
Repayment of notes pay-
able to ESL Incorpo-
rated................. -- (3,235) -- -- --
Payment to ESL Incorpo-
rated for asset pur-
chase................. (6,240) -- -- -- --
Proceeds from note re-
ceivable from stock-
holders............... -- 3,000 -- -- --
------- ------- -------- ------- --------
Net cash provided by
(used in) financing
activities.......... 6,975 9,477 24,575 (155) 2,393
------- ------- -------- ------- --------
Net increase (decrease)
in cash and cash equiv-
alents................. 6,819 253 9,980 (4,947) (6,552)
Cash and cash equiva-
lents, beginning of
year/period............ -- 6,819 7,072 7,072 17,052
------- ------- -------- ------- --------
Cash and cash equiva-
lents, end of
year/period............ $ 6,819 $ 7,072 $ 17,052 $ 2,125 $ 10,500
======= ======= ======== ======= ========
Supplemental disclosures
of cash flow informa-
tion:
Cash paid during the
year/period:
Interest............... $ 10 $ 112 $ 458 $ 62 $ 431
======= ======= ======== ======= ========
Income taxes........... $ -- $ 1 $ 2 $ -- $ 3
======= ======= ======== ======= ========
Noncash financing and
investing activities:
Issuance of note pay-
able to ESL Incorpo-
rated................. $ 3,000 $ -- $ -- $ -- $ --
======= ======= ======== ======= ========
Receipt of note re-
ceivable from stock-
holders............... $ 3,000 $ -- $ -- $ -- $ --
======= ======= ======== ======= ========
Assets acquired
through capital
lease................. $ -- $ 165 $ 979 $ 402 $ 294
======= ======= ======== ======= ========
Common stock issued
upon exercise of
stock options in ex-
change for stock-
holder note........... $ -- $ -- $ 136 $ -- $ --
======= ======= ======== ======= ========
Deferred compensation
relating to stock op-
tion grants........... $ -- $ -- $ 73 $ -- $ 1,129
======= ======= ======== ======= ========
</TABLE>
See accompanying notes to financial statements.

F-6
<PAGE>

CORSAIR COMMUNICATIONS, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1995 AND 1996

(INFORMATION AS OF JUNE 30, 1996 AND 1997 AND FOR THE
SIX MONTHS THEN ENDED IS UNAUDITED)

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

Pro Forma Balance Sheet

In May 1997, the Company's Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission (SEC)
permitting the Company to sell shares of its common stock in connection with a
proposed initial public offering (IPO). If this Offering is consummated under
the terms and at the pricing presently anticipated, all the currently
outstanding preferred stock will automatically convert to common stock upon
the closing of the IPO, and the number of shares of preferred and common stock
authorized will change to 10,000,000 and 75,000,000, respectively. The effect
of the above transactions has been reflected in the accompanying pro forma
balance sheet as of June 30, 1997.

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.

F-7
<PAGE>

CORSAIR COMMUNICATIONS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AS OF JUNE 30, 1996 AND 1997 AND FOR
THE SIX MONTHS THEN ENDED IS UNAUDITED)

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 under the
provisions of Statement of Financial Accounting Standards (SFAS) No. 115,
ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES. 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.

Investments, all of which are debt securities maturing in one year or less
as of December 31, 1996 and are classified as available-for-sale, consisted of
the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1995 1996
------ ------
<S> <C> <C>
Commercial paper............................................ $ -- $3,955
U.S. Treasury notes......................................... 3,947 --
Certificates of Deposit..................................... -- 525
------ ------
$3,947 $4,480
====== ======
</TABLE>

Included in short-term investments as of December 31, 1996 is $480,000 in a
restricted access account as required under a special sale agreement.

Inventories

Inventories are stated at the lower of cost, on a first-in, first-out basis,
or market.

Evaluation inventory is comprised of finished hardware units (stated at the
lower of cost or market) delivered to a customer which are pending
commissioning of the product.

Property and Equipment

Property and equipment are recorded at cost. Equipment under capital leases
is stated at 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
held 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

F-8
<PAGE>

CORSAIR COMMUNICATIONS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AS OF JUNE 30, 1996 AND 1997 AND FOR
THE SIX MONTHS THEN ENDED IS UNAUDITED)

have been completed and tested. No software research and development costs
have been capitalized to date as such amounts have not been significant.

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 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.

Pro Forma Net Loss Per Share

Pro forma net loss per share data is based on the weighted-average number of
shares of common stock and common equivalent shares from stock options and
warrants outstanding, using the treasury stock method, and convertible
preferred stock on an "as if converted" basis.

Pursuant to certain SEC Staff Accounting Bulletins, common stock and
convertible preferred stock issued for consideration below the assumed IPO
price and stock options granted and warrants issued with exercise prices below
the assumed IPO price during the 12-month period prior to the date of the
initial filing of the registration statement, even when antidilutive, have
been included in the calculation of pro forma net loss per share, using the
treasury stock

F-9
<PAGE>

CORSAIR COMMUNICATIONS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AS OF JUNE 30, 1996 AND 1997 AND FOR
THE SIX MONTHS THEN ENDED IS UNAUDITED)

method based on the assumed IPO price, as if they were outstanding for all
periods presented prior to their issuance or grant.

The Financial Accounting Standards Board recently issued SFAS No. 128,
EARNINGS PER SHARE. SFAS No. 128 requires the presentation of basic earnings
per share (EPS) and, for companies with complex capital structures, diluted
EPS. SFAS No. 128 is effective for annual and interim periods ending after
December 15, 1997. The Company expects that for profitable periods basic EPS
will be higher than earnings per share as presented in the accompanying
financial statements and diluted EPS will not differ materially from earnings
per share as presented in the accompanying financial statements. Computations
for loss periods should not change significantly.

Interim Financial Statements

The accompanying unaudited financial statements as of and for the six months
ended June 30, 1996 and 1997, have been prepared on substantially the same
basis as the audited financial statements and include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial information set forth therein.

3. BALANCE SHEET AND STATEMENT OF OPERATIONS COMPONENTS

Inventories

Inventories consisted of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------- JUNE 30,
1995 1996 1997
------ ------ --------
<S> <C> <C> <C>
Raw materials......................................... $2,056 $2,492 $3,150
Work in process....................................... 62 1,026 988
Finished goods........................................ 94 452 949
------ ------ ------
$2,212 $3,970 $5,087
====== ====== ======
</TABLE>

Property and Equipment

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

<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1995 1996
------ ------
<S> <C> <C>
Computer equipment............................................ $ 789 $1,779
Furniture and fixtures........................................ 439 589
Purchased software............................................ 118 407
Leasehold improvements........................................ 524 524
Machinery & equipment......................................... 424 579
------ ------
2,294 3,878
Less accumulated depreciation and amortization................ 480 1,454
------ ------
$1,814 $2,424
====== ======
</TABLE>

F-10
<PAGE>

CORSAIR COMMUNICATIONS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AS OF JUNE 30, 1996 AND 1997 AND FOR
THE SIX MONTHS THEN ENDED IS UNAUDITED)

The cost of capitalized leased assets included in property and equipment is
approximately $130,000 and $1,109,000 as of December 31, 1995 and 1996,
respectively.

Accrued Expenses

Accrued expenses consisted of the following (In thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1995 1996
-------------
<S> <C> <C>
Accrued retrofit............................................ $ -- $ 912
Accrued warranty costs...................................... -- 140
Accrued benefits............................................ 114 820
Other....................................................... 608 630
----- -------
$ 722 $ 2,502
===== =======
</TABLE>

Significant Customers

The following tables summarize the Company's significant customers as of and
for the years ended December 31, 1995 and 1996:
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL
REVENUES
------------
1995 1996
----- -----
<S> <C> <C>
Customer A.................................................... 56% --
Customer B.................................................... 40% 15%
Customer C.................................................... -- 18%
Customer D.................................................... -- 27%
Customer E.................................................... -- 13%
</TABLE>

<TABLE>
<CAPTION>
PERCENTAGE
OF TRADE
ACCOUNTS
RECEIVABLE
-----------
DECEMBER
31,
-----------
1995 1996
----- -----
<S> <C> <C>
Customer B.................................................... 100% --
Customer D.................................................... -- 54%
</TABLE>

4. PURCHASE OF ASSETS

On December 14, 1994, the Company paid $6,240,000 in cash and issued a
$3,000,000 promissory note (6.66% interest rate) to ESL Incorporated (ESL) (a
subsidiary of TRW Inc.) for the purchase of rights to certain research and
development projects which had no future alternative uses and certain assets.
The promissory note was repaid in full during fiscal 1995. A schedule of the
assets acquired follows (In thousands):

<TABLE>
<S> <C>
Inventory.......................................................... $3,762
Property and equipment............................................. 598
In process research and development................................ 4,894
Other liabilities, net............................................. (14)
------
$9,240
======
</TABLE>

F-11
<PAGE>

CORSAIR COMMUNICATIONS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AS OF JUNE 30, 1996 AND 1997 AND FOR
THE SIX MONTHS THEN ENDED IS UNAUDITED)

Following the asset purchase, ESL continued to provide certain services to
the Company, which were reimbursed in fiscal 1995.

5. 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. Principal and interest payments are due ratably over 42 months
with the final installment due on March 1, 1999. As of December 31, 1996, the
outstanding obligation totaled $717,000. In conjunction with the loan and
security agreement, the Company issued a warrant to purchase 27,073 shares of
Series B convertible preferred stock at an exercise price of $5.91 per share.
The warrant shall be exercisable for a period of 10 years, or 5 years from the
closing of an underwritten public offering. The warrant was assigned a value
of $30,000, with the value being amortized over the term of the loan and
recorded as interest expense.

In July 1996, the Company entered into loan and security agreements with two
lending institutions pursuant to which the Company borrowed $5.0 million at a
14.55% stated interest rate. The creditors were granted a security interest in
certain of the Company's tangible and intangible assets. The notes are due in
January 2000. As of December 31, 1996, the outstanding obligation totaled $5.0
million. The Company issued a warrant in conjunction with this debt financing
to purchase 130,834 shares of Series B convertible preferred stock at an
exercise price of $6.65 per share. The warrant shall be exercisable for a
period of 10 years, or 5 years from the closing of an underwritten public
offering. The warrant was assigned a value of $131,000, with the value being
amortized over the term of the loan and recorded as interest expense.

During 1996, the Company obtained a $3.0 million line of credit
collateralized by eligible accounts receivable. The line bears interest at
prime plus 0.5% (8.75% as of December 31, 1996) and expires in August 1997. As
of December 31, 1996, no borrowings were outstanding under the line of credit.

Debt outstanding as of December 31, 1996 will be due in aggregate annual
principal payments of $1,803,000, $1,879,000, $1,762,000, and $139,000 in each
of the years from 1997 through 2000, respectively.

6. 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>
PERIOD FROM
DECEMBER 5, 1994 YEAR ENDED
(INCEPTION) TO DECEMBER 31,
DECEMBER 31, ----------------
1994 1995 1996
---------------- ------- -------
<S> <C> <C> <C>
Benefit at U.S. federal statutory rate...... $(2,020) $(2,895) $(4,338)
Unutilized net operating losses............. 1,938 2,856 4,244
State income taxes.......................... -- 1 2
Nondeductible expenses...................... 83 39 94
------- ------- -------
Total tax expense......................... $ 1 $ 1 $ 2
======= ======= =======
</TABLE>

F-12
<PAGE>

CORSAIR COMMUNICATIONS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AS OF JUNE 30, 1996 AND 1997 AND FOR
THE SIX MONTHS THEN ENDED IS UNAUDITED)

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

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1996
------- --------
<S> <C> <C>
Deferred tax assets:
Inventory, due to reserves and additional amounts
capitalized for tax.................................. $ 504 $ 553
Other accruals and reserves not currently deductible
for tax purposes..................................... 590 761
Technology asset...................................... 1,978 1,817
Net operating loss carryforward and deferred start-up
costs................................................ 2,997 7,548
Credit carryforwards.................................. 265 543
Other................................................. 38 104
------- --------
Gross deferred tax assets............................... 6,372 11,326
Less valuation allowance.............................. (6,371) (11,326)
------- --------
Total deferred tax assets............................... 1 --
------- --------
Deferred tax liabilities:
Fixed assets.......................................... (1) --
------- --------
Net deferred taxes.................................... $ -- $ --
======= ========
</TABLE>

The net change in the valuation allowance for the years ended December 31,
1995 and 1996, was an increase of approximately $3,904,000 and $4,955,000,
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, 1996, the Company had net federal and California
operating loss carryforwards of approximately $18.1 million and $13.7 million,
respectively, for income tax reporting. The federal net operating loss
carryforwards expire beginning in 2009 through 2011. The California net
operating loss carryforwards expire beginning in 1999 through 2001.

The Company also has research and experimental tax credits aggregating
approximately $265,000 and $198,000 for federal and California purposes,
respectively. The federal credits expire beginning in 2009 through 2011. The
California credits carry over indefinitely until utilized.

There are also California credit carryforwards for qualified manufacturing
and research and development equipment of approximately $80,000; these credits
expire in 2005.

The Tax Reform Act of 1986 and the California Conformity Act of 1987 impose
restrictions on the utilization of net operating loss and tax credit
carryforwards in the event of an "ownership change" as defined by the Internal
Revenue Code. The Company's ability to utilize its net operating loss and tax
credit carryforwards may be subject to restriction pursuant to these
provisions.

F-13
<PAGE>

CORSAIR COMMUNICATIONS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AS OF JUNE 30, 1996 AND 1997 AND FOR
THE SIX MONTHS THEN ENDED IS UNAUDITED)

7. STOCKHOLDERS' EQUITY

Convertible Preferred Stock

The Company has four series of preferred stock that are outstanding: Series
A, B, C, and D. Each share of preferred stock is convertible, at the option of
the holder, into fully paid shares of common stock. The conversion rate is
based on the original purchase price, subject to adjustments for stock
dividends, stock splits and capital reorganizations and dilution.

As of June 30, 1997, preferred stock consisted of the following:

<TABLE>
<CAPTION>
SHARES
DIVIDENDS LIQUIDATION ISSUED AND
SERIES PER ANNUM PREFERENCE OUTSTANDING
------ --------- ----------- -----------
<S> <C> <C> <C>
A $0.150 $ 3.00 5,413,340
B 0.330 6.65 1,328,084
C 0.413 8.25 2,424,864
D 0.563 11.25 266,668
</TABLE>

In the event of liquidation, consolidation, merger, or winding up of the
Company prior to conversion, holders of preferred stock are entitled to
receive, in preference to the holders of the common stock, an amount equal to
their liquidation preference or a pro rata share of the remaining assets,
based on their ownership of the Company.

Series A Convertible Preferred Stock

In December 1994, the Company issued 5,413,340, shares of Series A
convertible preferred stock for gross proceeds of $13,240,000 in cash and a
$3,000,000 note receivable from stockholders, which was collected in 1995.

Series B Convertible Preferred Stock

In October 1995, the Company issued 1,328,084 shares of Series B convertible
preferred stock for gross proceeds of $8,825,000 in cash.

Series C Convertible Preferred Stock

In October 1996, the Company issued 2,424,864 shares of Series C convertible
preferred stock for gross proceeds of $20,006,000 in cash.

Series D Convertible Preferred Stock

In March 1997, the Company issued 266,668 shares of Series D convertible
preferred stock for gross proceeds of $3,000,000 in cash.

Common Stock

As of December 31, 1996, employees held 384,242 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.

F-14
<PAGE>

CORSAIR COMMUNICATIONS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AS OF JUNE 30, 1996 AND 1997 AND FOR
THE SIX MONTHS THEN ENDED IS UNAUDITED)

Stock Option Plans

The Company has a 1996 Stock Option/Stock Issuance Plan and a 1997 Officer
Stock Option Plan (the Plans) under which the Company's Board of Directors may
issue either nonqualified or incentive stock options to employees or
consultants of the Company. The Company reserved 2,333,334 shares of common
stock for issuance under the Plans. The Plans expire 10 years after adoption.
Under provisions of the Plans, 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. The options are fully exercisable upon grant.
Options generally expire 10 years from date of grant. Options generally vest
over 4 years with 25% vesting on the first anniversary of the vesting
commencement date and monthly thereafter. Under the stock issuance provision,
the Board of Directors may issue shares of the Company's common stock directly
at discounts of up to 15% of fair market value.

Accounting for Stock-based Compensation

The Company has elected to continue to use the intrinsic value-based method
to account for all of its stock-based employee compensation plans. Under
Accounting Principles Board (APB) Opinion No. 25, ACCOUNTING FOR STOCK ISSUED
TO EMPLOYEES, 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 in 1996 and
$238,000 in the six months ended June 30, 1997, and has been charged to
operating expenses.

Pursuant to SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, the
Company is required to disclose the pro forma effects on the net losses of the
Company as if the Company had elected to use the fair value approach to
account for all its stock-based employee compensation plans. Had compensation
cost for the Company's plans been determined consistent with the fair value
approach enumerated in SFAS No. 123, the Company's 1995 and 1996 net losses
and 1996 pro forma net loss per share would not have been materially impacted.

The fair value of each option is estimated using the minimum value method on
the date of grant with the following weighted-average assumptions: a risk-free
interest rate of 6%; and an expected life of 2.5 years. No dividend impact was
considered as the Company has never declared, and does not have plans to
declare, any future dividends.

F-15
<PAGE>

CORSAIR COMMUNICATIONS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AS OF JUNE 30, 1996 AND 1997 AND FOR
THE SIX MONTHS THEN ENDED IS UNAUDITED)

The following table summarizes activity under the Plans:

<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 (unaudited).... 507,258 4.27 $3.11
=====
Options exercised (unaudited).. (724,942) 0.56
Options canceled (unaudited)... (18,083) 0.69
--------- -----
Outstanding as of June 30, 1997
(unaudited)................... 738,160 $3.03 95,979
========= ===== =======
</TABLE>

The following table summarizes information about fixed stock options
outstanding as of December 31, 1996:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------- ------------------------
WEIGHTED-AVERAGE
REMAINING WEIGHTED-AVERAGE WEIGHTED-AVERAGE
EXERCISE PRICES OPTIONS CONTRACTUAL LIFE EXERCISE PRICE OPTIONS EXERCISE PRICE
- --------------- ------- ---------------- ---------------- ------- ----------------
<S> <C> <C> <C> <C> <C>
$0.30 473,098 8.48 $0.30 210,700 $0.30
$0.69 471,161 8.67 $0.69 32,999 $0.69
$0.84 29,668 9.87 $0.84 -- --
</TABLE>

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, 1996, 218,385 of such shares of common stock are included in the
384,242 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

F-16
<PAGE>

CORSAIR COMMUNICATIONS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AS OF JUNE 30, 1996 AND 1997 AND FOR
THE SIX MONTHS THEN ENDED IS UNAUDITED)

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.

8. 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, are secured
by the leased equipment and are accounted for as capital leases.

The Company is obligated under certain noncancelable operating leases for
office space and equipment expiring at various dates through 1999. Total
rental expense was $10,064, $508,000 and $461,256 for the period from December
5, 1994 (inception) to December 31, 1994, and for the years ended December 31,
1995 and 1996, respectively.

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>
1997......................................................... $ 367 $1,167
1998......................................................... 367 1,614
1999......................................................... 282 1,658
2000......................................................... 15 1,707
2001......................................................... -- 1,760
Thereafter................................................... -- 743
------ ------
Total minimum lease payments................................. 1,031 $8,649
======
Less amount representing interest............................ 131
------
900
Less current portion of obligations under capital lease...... 286
------
Long-term obligations under capital lease.................... $ 614
======
</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.

F-17
<PAGE>

CORSAIR COMMUNICATIONS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AS OF JUNE 30, 1996 AND 1997 AND FOR
THE SIX MONTHS THEN ENDED IS UNAUDITED)

9. SUBSEQUENT EVENTS

Stock Split

On May 27, 1997, the Company's Board of Directors authorized a two-for-three
reverse stock split on all outstanding shares and options, which has been
approved by the stockholders. Accordingly, all share and per share amounts
have been adjusted to reflect the stock split.

1997 Stock Incentive Plan

On May 20, 1997, the Board of Directors adopted (approved by the
stockholders on May 27, 1997) the 1997 Stock Incentive Plan (the 1997 Plan).
The 1997 Plan succeeds the previous equity incentive programs, and 1,337,633
shares of the Company's common stock have been authorized under the 1997 Plan.
Included in the 1997 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 options expire 10 years from grant date.

1997 Employee Stock Purchase Plan

On May 20, 1997, the Board of Directors adopted (approved by the
stockholders on May 27, 1997) the 1997 Employee Stock Purchase Plan (the
Purchase Plan) and reserved 166,667 shares of common stock for issuance under
the Purchase Plan.

Loan and Security Agreement

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 June 30, 1997). The loan facility is available through July 1998 and
is secured by any underlying equipment purchased. As of June 30, 1997, the
Company did not have any borrowings under the equipment term loan, and any
future borrowings will be repaid over three years.

F-18
<PAGE>

[INSIDE BACK COVER]

Background: Green

Main inner box background: Tan

Upper box background: Blue with one orange fingerprint at right

Text in upper box: Corsair has developed a leading system
solution to cloning fraud-PhonePrint(R)
Text in upper left box
(slightly lower): PhonePrint In Action

Graphics in center of page: Two faces at left next to cellular
telephone handsets. Text below top
face is "Cloner" and text below
lower face is "Customer." Jagged
lines from each handset to cellular
telephone site depicted by an
antennae near a small building next
to text "Cell Site." To right of
cell site, box with text "Step 1"
inside and text "Create Fingerprint"
below. Fingerprints below overlaying
jagged lines. Text inside box to
right "Step 2" with text "Compare"
below. Cylinder below with text
"Fingerprint Database." To right of
fingerprint database, box with text
"Step 3" inside and text "Decide"
below. Red X at end of upper jagged
line next to text "Mismatch: Call
Disconnected." Lower jagged line
continues to hexagon with text
"Wireless Network" inside which has
multiple arrows to right.
Text in center box
(below graphics): PhonePrint Fraud Prevention System

Text in lower left box: PhonePrint Deployed

Text below in bullet format: Protects millions of subscribers in over 40
wireless markets in North America, the
Caribbean, and Asia.
Proven, sustainable results--100 million
"cloned" calls disconnected.

Text in lower right corner: CORSAIR COMMUNICATIONS (with logo)

<PAGE>

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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON
STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.

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TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary..................................................... 3
The Company............................................................ 4
Risk Factors........................................................... 5
Use of Proceeds........................................................ 17
Dividend Policy........................................................ 17
Capitalization......................................................... 18
Dilution............................................................... 19
Selected Financial Data................................................ 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations......................................................... 21
Business............................................................... 27
Management............................................................. 40
Certain Transactions................................................... 51
Principal Stockholders................................................. 54
Description of Capital Stock........................................... 56
Shares Eligible for Future Sale........................................ 59
Underwriting........................................................... 61
Legal Matters.......................................................... 63
Experts................................................................ 63
Additional Information................................................. 63
Index to Financial Statements.......................................... F-1
</TABLE>

UNTIL AUGUST 23, 1997, (25 DAYS FROM THE DATE OF THIS PROSPECTUS) ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
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[LOGO OF CORSAIR COMMUNICATIONS]
2,500,000 SHARES
COMMON STOCK

DEUTSCHE MORGAN GRENFELL
HAMBRECHT & QUIST
WESSELS, ARNOLD & HENDERSON

PROSPECTUS
JULY 29, 1997