<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-22859
CORSAIR COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 77-0390406
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
3408 Hillview Avenue Palo Alto, CA 94304
(Address of principal executive offices) (Zip Code)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE IS (650) 842-3300
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[X] Yes [ ] No;
The number of shares of the Registrant's Common Stock outstanding as of
July 31, 2000 was 17,335,291.
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C> <C>
Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements
Unaudited Condensed Consolidated Balance Sheets as of June 30, 2000 and
December 31, 1999 ................................................................... 3
Unaudited Condensed Consolidated Statements of Income for the Three Months and Six Months
Ended June 30, 2000 and 1999 ........................................................ 4
Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 2000 and 1999 ........................................................ 5
Notes to Condensed Consolidated Financial Statements ....................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation ....... 9
Item 3. Quantitative and Qualitative Disclosure About Market Risk .................................. 20
Part II. Other Information
Item 2. Change in Securities and Use of Proceeds ................................................... 20
Item 5. Other Events ............................................................................... 20
Item 6. Exhibits and Reports on Form 8-K ........................................................... 21
Signatures ......................................................................................... 21
</TABLE>
2
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PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
CORSAIR COMMUNICATIONS, INC.
Unaudited Condensed Consolidated Balance Sheets
(In thousands, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
--------- ------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 5,939 $ 13,686
Short-term investments 63,017 39,263
Trade accounts receivables, net 7,024 11,548
Inventories, net 2,681 4,346
Prepaids and other assets 2,669 1,475
Current portion-notes receivable 404 385
--------- ---------
Total current assets 81,734 70,703
Notes receivable, net of current portion 1,118 1,325
Property and equipment, net 3,591 3,458
Other assets 1,175 1,197
--------- ---------
Total assets $ 87,618 $ 76,683
========= =========
Liabilities and Stockholders' Equity
Accounts payable $ 3,229 $ 2,273
Accrued benefits 1,522 1,987
Accrued expenses 10,466 8,338
Current portion of notes payable 792 737
Deferred revenue 8,479 6,063
--------- ---------
Total current liabilities 24,488 19,398
Notes payable, net of current portion 260 670
--------- ---------
Total liabilities 24,748 20,068
--------- ---------
Common Stock 18 18
Notes receivable from stockholders (115) (272)
Additional paid-in capital 107,144 106,445
Accumulated deficit (37,509) (43,740)
Treasury stock, at cost, 936,070 and 1,075,000 shares in (6,622) (5,741)
2000 and 1999, respectively
Deferred compensation (46) (95)
--------- ---------
Total stockholders' equity 62,870 56,615
--------- ---------
Total liabilities and stockholders' equity $ 87,618 $ 76,683
========= =========
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements
3
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CORSAIR COMMUNICATIONS, INC.
Unaudited Condensed Consolidated Statements of Income
(In thousands, except share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Hardware $ 4,853 $ 9,018 $ 9,565 $ 17,537
Software 7,084 3,988 14,276 6,911
Service 5,088 3,040 9,292 6,876
-------- -------- -------- --------
Total revenues 17,025 16,046 33,133 31,324
Cost of revenues:
Hardware 3,044 4,700 6,926 8,685
Software 258 382 587 613
Service 1,389 1,307 2,416 2,845
-------- -------- -------- --------
Total cost of revenues 4,691 6,389 9,929 12,143
-------- -------- -------- --------
Gross profit 12,334 9,657 23,204 19,181
-------- -------- -------- --------
Operating costs and expenses:
Research and development 3,353 2,527 6,208 6,009
Sales and marketing 3,192 3,467 6,502 7,409
General and administrative 1,603 1,607 3,066 3,208
Reorganization costs -- -- -- 856
-------- -------- -------- --------
Total operating costs and expenses 8,148 7,601 15,776 17,482
-------- -------- -------- --------
Operating income 4,186 2,056 7,428 1,699
Loss on sale of assets -- -- -- (2,176)
Interest income net 801 365 1,602 764
-------- -------- -------- --------
Income before income taxes 4,987 2,421 9,030 287
Income taxes 1,546 -- 2,799 --
-------- -------- -------- --------
Net income $ 3,441 $ 2,421 $ 6,231 $ 287
======== ======== ======== ========
Basic and diluted net income per share data:
Basic net income per share $ 0.20 $ 0.14 $ 0.36 $ 0.02
======== ======== ======== ========
Shares used in basic per share calculation 17,318 17,832 17,248 17,933
======== ======== ======== ========
Diluted net income per share $ 0.18 $ 0.13 $ 0.34 $ 0.02
======== ======== ======== ========
Shares used in diluted per share calculation 18,666 18,236 18,590 18,400
======== ======== ======== ========
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements
4
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CORSAIR COMMUNICATIONS, INC.
Unaudited Condensed Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-----------------------
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 6,231 $ 287
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 1,360 2,015
Amortization of deferred compensation 49 106
Noncash loss on disposition of assets -- 914
Noncash reorganization costs -- 412
Changes in operating assets and liabilities:
Trade accounts receivable 4,524 (2,260)
Inventories 1,665 2,668
Prepaid expenses and other assets (1,372) (83)
Accounts payable and accrued expenses 2,683 129
Deferred revenue 2,416 1,603
-------- --------
Net cash provided by operating activities 17,556 5,791
-------- --------
Cash flows from investing activities:
Purchase of short-term investments (45,955) (2,000)
Proceeds from sales and maturities of short-term investments 22,201 8,150
Sales of property and equipment (1,293) (64)
-------- --------
Net cash provided by (used in) investing activities (25,047) 6,086
-------- --------
Cash flows from financing activities:
Proceeds from stock options and purchase plans 699 285
Repurchase of common stock (881) (2,306)
Principal payments on debt obligations (355) (308)
Proceeds from note receivable from stockholder 157 100
Proceeds from notes receivable 188 29
Principal payments on capital leases (64) (408)
-------- --------
Net cash used in financing activities (256) (2,608)
-------- --------
Net increase (decrease) in cash and cash equivalents (7,747) 9,269
Cash and cash equivalents, beginning of period 13,686 4,196
-------- --------
Cash and cash equivalents, end of period $ 5,939 $ 13,465
======== ========
Cash paid:
Interest $ 50 $ 170
======== ========
Income taxes $ 1,468 $ --
======== ========
Noncash financing and investing activities:
Note receivable in exchange for net assets sold $ -- $ 2,150
======== ========
Options vesting in reorganization costs $ -- $ 357
======== ========
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements
5
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CORSAIR COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
We have prepared the accompanying unaudited consolidated financial
information in accordance with generally accepted accounting principles
for interim financial statements and pursuant to the rules of the
Securities and Exchange Commission for Form 10-Q and Article 10 of
Regulation S-X. Accordingly, certain information and footnotes required
by generally accepted accounting principles for complete financial
statements have been omitted. In our opinion, all adjustments considered
necessary for a fair presentation have been included, and all such
adjustments are of a normal and recurring nature. Operating results for
the periods presented are not necessarily indicative of the results that
may be expected for any future periods. These condensed consolidated
financial statements should be read in conjunction with our Annual Report
on Form 10-K for the year ended December 31, 1999.
The condensed consolidated financial statements include Corsair
Communications, Inc., and its subsidiary. Significant intercompany
transactions and accounts have been eliminated.
2. Net Income Per Share
Basic net income per share is based on the weighted average number of
shares of common stock outstanding during the period. Diluted net income
per share is based on the weighted average number of shares of common
stock outstanding during the period and dilutive common equivalent shares
from options and warrants outstanding during the period. Dilutive common
equivalent shares consist of stock options computed using the treasury
stock method.
The following tables set forth the computations of shares and net income
used in the calculation of basic and diluted net income per share for the
three and six months ended June 30, 2000 and 1999 (in thousands, except
per share data):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Basic net income per share data:
Net Income $ 3,441 $ 2,421 $ 6,231 $ 287
======= ======= ======= =======
Actual weighted average common shares
outstanding for the period 17,318 17,832 17,248 17,933
======= ======= ======= =======
Basic net income per share $ 0.20 $ 0.14 $ 0.36 $ 0.02
======= ======= ======= =======
Diluted net income per share data:
Actual weighted average common shares
outstanding for the period 17,318 17,832 17,248 17,933
Effect of dilutive securities:
Employee stock options 1,348 404 1,342 467
------- ------- ------- -------
Shares used in diluted per share calculation 18,666 18,236 18,590 18,400
======= ======= ======= =======
Diluted net income per share $ 0.18 $ 0.13 $ 0.34 $ 0.02
======= ======= ======= =======
</TABLE>
6
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3. Inventories
Inventories are stated at the lower of cost or market and are summarized
as follows (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------- ------------
<S> <C> <C>
Raw materials $ 991 $ 948
Finished goods 880 2,235
Evaluation inventory 810 1,163
------ ------
$2,681 $4,346
====== ======
</TABLE>
4. Common Stock Repurchase
During the six months ended June 30, 2000, we repurchased 120,000 shares
of our common stock at a cost of $881,000. During the year ended December
31, 1999, we repurchased 1,075,000 shares of our common stock at a cost
of $5.7 million.
5. Reorganization Costs
On February 3, 1999, Corsair signed a letter of intent to develop a
strategic relationship for the development, sales and marketing of a
wireless location product. As a result of entering into the strategic
relationship, we discontinued a development project, which resulted in a
charge of $856,000, consisting of $649,000 in accrued termination
benefits for 13 employees and equipment write-downs of $207,000. All of
the accrued termination costs were paid in 1999.
6. Loss on Sale of Assets
Also on February 3, 1999, we sold substantially all of the assets
relating to our Communication Resource Manager billing system and certain
related products to Wireless Billing Systems ("WBS"), a California
corporation, pursuant to the terms of an Asset Purchase Agreement.
In conjunction with the sale, Corsair received from WBS a secured
promissory note receivable of $2.2 million, which was $2.2 million less
than the net book value of the net assets transferred to WBS, consisting
of cash, accounts receivable, property and equipment, and deferred
revenue. The note bears interest at the rate of 10% per annum, payable in
equal monthly installments based upon a sixty month amortization schedule
with a final payment of the remaining unpaid principal with all accrued
interest due and payable in May, 2001. We recorded a loss on the sale of
the net assets of approximately $2.2 million, for the difference between
the consideration received and the net book value of the net assets
transferred.
7. Segment Information
Corsair has adopted the provision of SFAS No. 131, "Disclosure About
Segments of an Enterprise and Related Information". SFAS No. 131
establishes standards for the reporting by public business enterprises of
information about operating segments, products and services, geographic
areas, and major customers. The method for determining what information
to report is based on the way that management organizes the operating
segments within Corsair for making operating decisions and assessing
financial performance.
Corsair's chief operating decision maker is considered to be the our
Chief Executive Officer ("CEO"). The CEO reviews financial information
presented on a consolidated basis accompanied by disaggregated
information about revenues by geographic region for purposes of making
operating decisions and assessing financial performance. The consolidated
financial information reviewed by the CEO is identical to the information
presented in the accompanying consolidated statement of operations.
Therefore, Corsair operates in, and measures its results in a single
operating segment, system solutions of the global wireless industry,
rather than distinctive product segments.
8. Recently Issued Accounting Pronouncements
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In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, as amended by SFAS No. 137, "Accounting for Derivative Instruments
and Hedging Activities". We are required to adopt SFAS No. 133 in the
first quarter of fiscal year 2002. We do not anticipate the SFAS No. 133
will have a material impact on our financial statements.
In December 1999, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in
Financial Statements", as amended by SAB 101A and SAB 101B, which
provides guidance on the recognition, presentation, and disclosure of
revenue in financial statements filed with the SEC. SAB 101 outlines the
basic criteria that must be met to recognize revenue and provides
guidance for disclosures related to revenue recognition policies. We do
not expect the adoption of SAB 101 to have a material effect on our
financial position or results of operations.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions involving
Stock Compensation". FASB Interpretation No. 44 clarifies the application
of APB opinion No. 25 for certain issues. The FASB Interpretation No. 44
was effective beginning July 1, 2000. We are in the process of assessing
any impact that the adoption of FASB Interpretation No. 44 will have on
our financial statements in future quarters.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This discussion may contain forward-looking statements that involve risks
and uncertainties. Corsair's actual results may differ materially from
the results discussed in such forward-looking statements. Factors that
might cause such a difference include, but are not limited to, those
discussed in "Risks and Uncertainties" below. We undertake no obligation
to release publicly the results of any revisions to these forward-looking
statements to reflect events or circumstances arising after the date
hereof.
The following should be read in conjunction with our unaudited condensed
consolidated financial statements and notes thereto.
OVERVIEW
Corsair Communications, Inc. is a leading provider of system solutions
for the global wireless industry. Our PrePay(TM) billing system provides
wireless telecommunications carriers with a software solution designed to
integrate with the upcoming Wireless Intelligent Network standards. We
believe that PrePay currently serves over 11 million subscribers. Our
PhonePrint(R) system has proven highly effective in reducing cloning
fraud. We believe PhonePrint has prevented hundreds of millions of
fraudulent call attempts and saved our customers millions of dollars in
fraud losses. We believe that our products can provide a number of
benefits to wireless telecommunications carriers, including reduced
costs, improved cash flow, increased market penetration and improved
customer service.
On February 3, 1999, we sold substantially all of the assets relating to
our Communication Resource Manager ("CRM") billing system and certain
related products to Wireless Billing Systems, a California corporation,
pursuant to the terms of an Asset Purchase Agreement. We recorded a loss
on the sale of assets of approximately $2.2 million, consisting of a cash
payment of $1 million to WBS and $1.2 million in transaction costs and
other charges related to the sale.
Also on February 3, 1999, we signed a letter of intent to develop a
strategic relationship for the development, sales and marketing of a
wireless location product. As a result of entering into the strategic
relationship, the Company discontinued a development project, which
resulted in a charge of $856,000, consisting of $649,000 in accrued
termination benefits for 13 employees and equipment write-downs of
$207,000.
RESULTS OF OPERATIONS
Revenues: For the three months ended June 30, 2000, total revenues were
$17.0 million, compared with $16.0 million for the same period in 1999.
For the six months ended June 30, 2000, total revenues were $33.1 million
compared with $31.3 million for the comparable period in 1999. The
increase in revenues for the three and six months ended June 30, 2000 was
primarily due to the increase in software revenues, due to the continuing
growth of our PrePay product. The increase in software revenues was
partially offset by the limited PhonePrint hardware revenue recognized
during the period due to the saturation of the domestic markets. The
growth in the installed base of PhonePrint units has continued to slow in
the three and six months ended June 30, 2000. Service revenues increased
due to the increase in PrePay installations and the corresponding
consulting and maintenance work required with the new license sales. For
the six months ended June 30, 2000, international revenues comprised 78%
of total revenues, compared with 69% of total revenues for the six months
ended June 30, 1999. We expect international revenues to increase both in
absolute dollars as well as in a percentage of revenues, as PrePay
continues its growth in sales in the international markets.
Gross Profit: Gross profit increased to 72% of total revenues in the
three months ended June 30, 2000 from 60% of revenues in the comparable
period of 1999. For the six months ended June 30, 2000 gross profit was
70% of total revenue, up from 61% for the same period of 1999. The
increase in gross profit was due primarily to improved software revenue
margins resulting from increased PrePay license sales. Software margins
contributed $6.8 million to gross profit for the three months ended June
30, 2000 and $13.7 million for the six months ended June 30, 2000.
Service gross profit of $3.7 million and $6.9 million for the three and
six months ended June 30,
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2000, was the result of increased PrePay installations along with
professional services provided to the larger installed based. Hardware
gross profit of $1.8 million in the three months ended June 30, 2000
decreased from $4.3 million in the three months ended June 30, 1999. For
the six months ended June 30, 2000, and 1999, hardware gross margin
decreased to $2.6 million from $8.9 million. This decrease was due to the
saturation of the domestic markets and the decrease in growth of the
installed base of PhonePrint units.
Research and Development: For the three months ended June 30, 2000,
research and development expenses were $3.4 million compared with $2.5
million for the same period of 1999, an increase of $826,000 or 33%. For
the first six months of 2000, research and development expenses were $6.2
million compared with $6.0 million for the same period of 1999, an
increase of 3%. The increase in research and development expenses was due
primarily to the development of new products such as PrePay Open and
PhoneFuel. Research and development expenses were 19% of revenues for
both the six months ended June 30, 2000 and 1999.
Sales and Marketing: For the three months ended June 30, 2000, sales and
marketing expenses were $3.2 million compared with $3.5 million for the
same period of 1999, a decrease of $275,000 or 8%. For the first six
months of 2000, sales and marketing expenses were $6.5 million compared
with $7.4 million for the same period of 1999, a decrease of 12%. The
decrease in sales and marketing expense for the three and six months
ended June 30, 2000 was due to lower headcount resulting from both the
CRM sale in the first quarter of 1999 as well as a shift from the direct
sales channel in the latter half of 1999. Sales and marketing expenses
were 20% and 24% of revenues for the six months ended June 30, 2000 and
1999, respectively.
General and Administrative: For the three months ended June 30, 2000,
general and administrative expenses of $1.6 million remained consistent
with the same period of 1999. For the first six months of 2000, general
and administrative expenses were $3.1 million compared with $3.2 million
for the same period of 1999, a decrease of 4%. The decrease from last
year over the six month period, taking into account that the second
quarter remained flat year over year, is due to the consolidation of
operations in the first quarter of 1999 resulting from the CRM sale.
General and administrative expenses were 9% and 10% of revenues for the
six months ended June 30, 2000 and 1999, respectively.
Reorganization Costs: As discussed in Note 5 of the Notes to the
Condensed Consolidated Financial Statements, we discontinued a
development project in the quarter ended March 31, 1999, which resulted
in a charge of $856,000 in certain one-time charges, consisting of
$649,000 in termination benefits for 13 employees and equipment
write-downs of $207,000.
Loss on Sale of Assets: As discussed in Note 6 of the Notes to the
Condensed Consolidated Financial Statements, we sold substantially all of
the assets relating to its Communication Resource Manager billing system
and certain related products to Wireless Billing Systems during the first
quarter of 1999. The sale of assets resulted in a loss of $2.2 million
consisting of a payment of $1 million to Wireless Billing Systems and
$1.2 million in transaction costs and other charges related to the sale.
Interest Income, Net: Net interest income consists of interest income
from our cash and short-term investments, net of interest expense on our
equipment and other loans, and other non-operating income. The increase
in net interest income for the three and six months ended June 30, 2000
was due to an increased balance in short-term investments to $63.0
million on June 30, 2000 from $28.2 million on June 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000, our cash and short-term investments were $69.0
million compared with $52.9 million at December 31, 1999. The increase is
primarily a result of cash generated by operations of $17.6 million,
stock option and purchase plan activities of $699,000 and notes
receivable collections of $345,000. These cash inflows were partially
offset by cash outflows for investing and financing activities, such as
purchase of capital equipment of $1.3 million, repurchase of common stock
of $881,000 and notes and lease payments of $419,000.
10
<PAGE> 11
We believe that existing sources of liquidity and internally generated
cash, if any, will be sufficient to meet our projected cash needs for at
least the next 12 months. We intend to continue product development
efforts in the future and expect to fund those activities out of working
capital. There can be no assurance, however, that we will not require
additional financing prior to such date to fund our operations or
possible acquisitions. In addition, we may require additional financing
after such date to fund our operations. There can be no assurance that
any additional financing will be available to us on acceptable terms, or
at all, if and when required by us.
RISKS AND UNCERTAINTIES
We operate in a rapidly changing environment that involves a number of
risks, many of which are beyond our control. The following discussion
highlights some of these risks. Our actual results could differ
materially from those discussed herein. Factors that could cause or
contribute to such differences include, but are not limited to, those
discussed in this section and elsewhere in this Quarterly Report, and the
risks discussed in our other SEC filings.
We Are Dependent on PrePay
We anticipate that PrePay, our prepaid metered billing solution, will
account for a majority of our revenues in the second half of 2000. As a
result, our future operating results will depend on the demand for and
market acceptance of PrePay. To date, only a small number of wireless
carriers have deployed PrePay, and the rate of adoption of the PrePay
system will need to increase significantly in order to achieve our
revenue targets.
PrePay Has Been Commercially Deployed Primarily on Networks Using Ericsson
Switching Equipment.
To date our PrePay solution has only been commercially deployed primarily
on networks which use Ericsson switching equipment with the exception of
our single PrePay Open installation at BCP in Brazil. Until recently,
only carriers that deployed Ericsson's infrastructure equipment were
potential customers for PrePay. In order to expand our potential customer
base by making PrePay compatible with other infrastructure equipment, we
introduced our PrePay Open product in February 2000. To date, this
product has only been used commercially by one carrier, and PrePay Open
may never gain market acceptance.
We Rely on Ericsson as Our Only Marketing Partner for PrePay.
Our PrePay product has been sold commercially only by Ericsson. Ericsson,
from time to time, may evaluate and seek to distribute or acquire
alternative vendor's prepaid product offerings. Any change in the terms
of Ericsson's partnership or Ericsson's desire to discontinue our
relationship would drastically affect sales of PrePay. Although we plan
to have our own sales agents begin to sell PrePay Open, our sales force
may not be effective and PrePay Open may never gain market acceptance.
We Have Been Dependent on PhonePrint.
Until recently, our revenues have primarily been attributable to
PhonePrint, a cloning fraud prevention system, and we anticipate that
service and software license fees for PhonePrint systems that have been
deployed will account for a declining but still significant position of
our revenues in 2000. As a result, our future operating results will
depend on the continued use of the PhonePrint system by the deployed
based of PhonePrint users.
Most Potential Customers of PhonePrint Have Already Adopted a Cloning Fraud
Solution.
A relatively small number of carriers that operate analog networks
constitute the potential customers for PhonePrint. Substantially all of
the carriers that operate analog networks have, to varying degrees,
already
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implemented cloning fraud solutions. We believe there will be little, if
any, demand for PhonePrint systems in the future. As a result of the lack
of demand for PhonePrint systems, the growth of our business will be
principally dependant on the growth of our PrePay solutions.
PhonePrint Only Works on the Decreasing Percentage of Networks Which are Analog.
All of our customers for PhonePrint to date have been carriers that
operate analog networks. Wireless services operating in digital mode,
including PCS and ESMR in the U.S. and GSM communications 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. We are 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, we do not believe that operators of digital
networks will purchase third party radio frequency fingerprinting
solutions for cloning fraud such as PhonePrint. In the second quarter of
2000, we finished development of the TDMA PhonePrint product. However, we
have concluded that existing authentication techniques already available
have been and will most likely continue to be effective deterrents to
cloning fraud on digital networks. Accordingly, we will not market the
TDMA PhonePrint product. In addition, authentication processes for analog
networks are also currently available and are being employed by a
significant number of carriers. We are also very dependent on the
continued widespread use of analog networks. Industry experts project
that the number of analog phones and analog networks will ultimately
decline.
We Cannot Assure Our Future Profitability.
Our existing revenue levels may not be sustained, and past and existing
revenue levels should not be considered indicative of future results or
growth. In addition, we may not be able to continue to operate profitably
on a quarterly or annual basis. Operating results for future periods are
subject to numerous uncertainties specified elsewhere in this Quarterly
Report. Our future operating results will depend upon, among other
factors: the demand for PrePay, the continued use of PhonePrint systems
that already have been deployed, our ability to introduce successful new
products and product enhancements, the level of product and price
competition, our ability to expand our international sales, our success
in expanding distribution channels, our success in attracting and
retaining motivated and qualified personnel, and our ability to avoid
patent and intellectual property litigation.
Our Quarterly Operating Results Were Subject to Significant Fluctuations and Our
Stock Price May Decline if We Fail to Meet Quarterly Expectations of Investors
and Analysts.
We have experienced significant fluctuations in revenues and operating
results from quarter to quarter due to a combination of factors and
expect significant fluctuations to continue in future periods. Factors
that are likely to cause our revenues and operating results to vary
significantly from quarter to quarter include, among others: the level
and timing of revenues associated with PrePay and PhonePrint; the timing
of the introduction or acceptance of new products and services and
product enhancements offered by us and our competitors; technological
changes or developments in the wireless telecommunications industry;
dependence on a limited number of products; the size, product mix and
timing of significant orders; the timing of system revenue; competition
and pricing in the markets in which we compete; 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 us 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 our costs,
including personnel and facilities costs, any unanticipated shortfall in
revenues in any quarter would have a material adverse impact on our
operating results in that quarter and would likely result in substantial
adverse fluctuations in the price of the our common stock. Accordingly,
we expect that from time to time our 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
our common stock
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PrePay Has Lengthy Sales Cycles and Potential Delays in the Cycle Make Our
Revenues Susceptible to Fluctuations.
A carrier's decision to deploy PrePay 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
expenditures, and we are not able to accurately forecast future sales of
PrePay. In addition, purchases of PrePay can involve testing,
integration, implementation and support requirements. For these and other
reasons, the sales cycle associated with the purchase of PrePay typically
ranges from three to 18 months and is subject to a number of risks over
which we have little control, including the carrier's budgetary and
spending constraints and internal decision-making processes. In addition,
a carrier's purchase decision may be delayed as a result of announcements
by us or competitors of new products or product enhancements or by
regulatory developments. We expect that there will be a lengthy sales
cycle with respect to new products, if any, that we may offer in the
future. If revenues forecasted from a specific customer for a particular
quarter are not realized in that quarter, our sales for that quarter
could be significantly reduced.
We Are Dependent on Our Distributors.
PrePay is currently marketed primarily through our distribution agreement
with Ericsson, and to a limited extent, through our direct sales efforts
and we believe that with respect to PrePay, Ericsson, from time to time,
may evaluate and seek to distribute or acquire alternative vendor's
prepaid product offerings. PhonePrint is currently marketed primarily
through our direct sales efforts. We have entered into distribution
agreements with respect to PhonePrint with, among others, Motorola,
Ericsson and Aurora. We seek to pursue distribution agreements and other
forms of sales and marketing arrangements with other companies and we
believe that our dependence on distributors and these other sales and
marketing relationships will increase in the future, with respect to
PrePay and new products, if any, that we may offer. There are no minimum
purchase obligations applicable to any existing distributor or other
sales and marketing partners and we do not expect to have any guarantees
of continuing orders. Our existing and future distributors and other
sales and marketing partners may become our competitors with respect to
PrePay or any future product either by developing a competitive product
themselves or by distributing a competitive offering. Failure by our
existing and future distributors or other sales and marketing partners to
generate significant revenues could have a material adverse effect on our
business, operating results and financial condition.
New Competitors and Alliances Among Existing Competitors Could Impair Our
Ability to Retain and Expand our Market Share.
Because competitors can easily penetrate the software market, we
anticipate additional competition from other established and new
companies as the markets for billing and fraud solutions develop. In
addition, current potential competitors have established or may establish
cooperative relationships among themselves or with third parties. Large
software companies may acquire or establish alliances with our smaller
competitors. We expect that the software industry will continue to
consolidate. It is possible that new competitors or alliances among
competitors may emerge and rapidly acquire significant market share.
The Success of Our International Operations is Dependant Upon Many Factors Which
Could Adversely Affect Our Ability to Sell Our Products Internationally and
Could Affect Our Profitability.
We believe that both our PrePay and PhonePrint products are likely to
generate a majority of our future revenues from international markets. We
intend to devote significant marketing and sales efforts over the next
several years to increase our sales of PrePay to international customers.
This expansion of sales efforts outside of the U.S. will require
significant management attention and financial resources. We may not be
successful in achieving significant growth of sales of PrePay in
international markets.
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Additional risks inherent in our 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. We anticipate that product service and
support will be more complicated and expensive with respect to products
sold in international markets. We may need to adapt our 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, we may be
limited in our ability to enforce our rights under such agreements and to
collect damages, if awarded.
Our International Operations May be Conducted in Currencies Other Than the U.S.
Dollar and Fluctuations in the Value of Foreign Currencies Could Result in
Currency Exchange Losses.
Our future international sales may be denominated in foreign or U.S.
currencies. We do 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 our international
sales that are U.S. dollar-denominated, such a decrease could make our
systems less price-competitive.
Our Past Acquisitions of Other Businesses and Potential Future Acquisitions or
Strategic Investments Present Risks that Could Adversely Affect Our Business.
We have, in the past, evaluated and expect in the future to pursue
acquisitions or strategic investments in businesses, products or
technologies that complement our business. Future acquisitions or
investments 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 our business, operating results and
financial condition. Future acquisitions or investments 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 we have little or no direct prior experience,
potential write-down of investment asset, and the potential loss of key
employees of an acquired business. In addition, we may not be successful
in completing any acquisition or investments. We currently have no
agreements or understandings with regard to any acquisition.
The Industry In Which We Operate Is Highly Competitive and New Product
Introductions or the Enhancement of Existing Products by Our Competitors Could
Adversely Affect Our Ability to Sell Our Products.
The market for PrePay is new and increasingly competitive. PrePay
competes with a number of alternative prepaid billing products, including
post-call systems, handset-based systems and adjunct switch systems. We
are aware of numerous companies, including GTE Telecommunications
Services, Inc., Boston Communications Group, Inc., Brite Voice Systems,
Inc., Comverse Technology, Inc., Glenayre Technologies, Inc., Intellinet
(National Telemanagement Corporation), Telemac Cellular Corporation,
Systems/Link Corporation, Prairie Systems, Inc., ORGA Kartensysteme GmbH,
SEMA Group (Priority Call Management), Logica plc, Alcatel USA, Lucent
Technologies, Inc., Compaq (Tandem Division) and Northern Telecom Limited
that currently offer or are expected to offer prepaid wireless billing
products. Any other company or competitor could introduce a new product
at a lower price or with greater functionality than PrePay. Furthermore,
the demand for PrePay would be materially adversely affected if wireless
carriers implement wireless intelligent network standards and a prepaid
offering other than PrePay as their sole prepaid solution in major
markets. A new technology could render our PrePay system obsolete or
significantly reduce the market share afforded to prepaid wireless
billing systems like PrePay.
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The market for PhonePrint is competitive. We believe that the primary
competitive factors in the cloning fraud prevention market in which we
currently compete include product effectiveness and quality, price,
service and support capability and compatibility with cloning fraud
prevention systems used by the carrier in other geographic markets and by
the carrier's roaming partners. There has been a tendency for carriers
that purchase cloning fraud prevention systems to purchase products from
the company that supplies cloning fraud prevention systems to other
carriers with whom the purchasing carrier has a roaming arrangement. As a
result, it is 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 radio frequency-based cloning fraud prevention systems to a
carrier, we expect that it is unlikely that we would be able to sell
PhonePrint to that carrier.
Our principal competitor for radio frequency-based cloning fraud
prevention systems has been Cellular Technical Services Company, Inc.
This competitor has an agreement pursuant to which it has installed its
radio frequency-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. We are aware of numerous companies, including GTE
Telecommunications Services, Inc., Authentix Network, Inc., Systems/Link
and Lightbridge, Inc., that currently are or are expected to offer
products in the cloning fraud prevention area. The expansion of digital
networks and the reluctance of carriers to make further investments in
their existing analog infrastructure has eliminated the demand for new
PhonePrint systems. Our installed base of PhonePrint systems could be
reduced and any recurring revenues associated with PhonePrint could be
eliminated 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. Any currently available alternative
technology or a new technology may render our products obsolete or
significantly reduce the market share afforded to radio frequency-based
cloning fraud prevention systems like PhonePrint.
The market for other products and services provided to wireless
telecommunications carriers is highly competitive and subject to rapid
technological change, regulatory developments and emerging industry
standards. In addition, many wireless telecommunications carriers and
vendors of switches and other telecommunications equipment may be capable
of developing and offering products and services competitive with new
products, if any, that we 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 us, and could it more difficult for us to offer a
cost-effective alternative to a wireless telecommunications carrier's own
capabilities.
We believe that our ability to compete in the future depends in part on a
number of competitive factors outside our control, including the ability
to hire and retain employees, the development by others of products and
services that are competitive with our products and services, the price
at which others offer comparable products and services and the extent of
our competitors' responsiveness to customer needs. Many of our
competitors and potential competitors have significantly greater
financial, marketing, technical and other competitive resources than we
have. As a result, our 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, we will need
to continue to invest substantial resources in engineering, research and
development and sales and marketing. We may not have sufficient resources
to make such investments and we may not be able to make the technological
advances necessary to remain competitive.
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Certain of Our Customers Have Accounted for a Substantial Portion of Our Sales
and a Loss of One or More of These Customers Would Hurt Our Profitability.
To date, a significant portion of our revenues in any particular period
has been attributable to a limited number of customers, comprised
entirely of wireless telecommunications carriers. Ericsson Radio Systems
AB accounted for greater than 68% of our total revenues in the first six
months of 2000. Ericsson accounted for greater than 43% of our total
revenues in 1999. In 1998, BellSouth Cellular Corporation and GTE
Mobilnet Service Corporation each accounted for greater than 10% of our
total revenues, and collectively accounted for over 23% of our total
revenues or the year.
A relatively small number of carriers that use Ericsson infrastructure
equipment are potential customers for our established PrePay product, and
our PrePay Open product has not yet achieved market acceptance. Likewise,
a relatively small number of carriers that operate analog networks are
potential customers for PhonePrint. We believe that the number of
potential customers for future products, if any, will be relatively
small. Any failure by us to capture a significant share of those
customers could have a material adverse effect on our business, operating
results and financial condition. We expect a relatively small number of
customers will continue to represent a significant percentage of our
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 agreements with our
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, our current customers may not
generate significant revenues in future periods.
If We Fail to Protect Our Intellectual Property Rights, Competitors May Be Able
to Use Our Technology or Trademarks and This Could Weaken Our Competitive
Position, Reduce Our Revenue and Increase Our Costs.
We rely on a combination of patent, trade secret, copyright and trademark
protection and nondisclosure agreements to protect our proprietary
rights. As of June 30, 2000, we had six issued U.S. patent, four pending
U.S. patent applications, one issued foreign patent and two pending
foreign patent applications. Our success will depend in large part on our
ability 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 us, are generally uncertain and
involve complex legal and factual questions. Our patent applications may
not result in issued patents and, if patents do issue, the claims allowed
may not be sufficiently broad to protect our technology. In addition, any
issued patents owned by or licensed to us may be challenged, invalidated
or circumvented, and the rights granted thereunder may not provide
competitive advantages to us.
Patents issued and patent applications filed relating to products used in
the wireless telecommunications industry are numerous and it may be the
case that current and potential competitors and other third parties have
filed, or in the future will 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
us. We may not be aware of all patents or patent applications that may
materially affect our 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. Third parties may assert infringement claims against us in the
future and any such assertions may result in costly litigation or require
us to obtain a license to intellectual property rights of such parties.
Such licenses may not be available on terms acceptable to us, if at all.
Furthermore, parties making such claims may be able to obtain injunctive
or other equitable relief that could effectively block our ability to
make, use, sell or otherwise practice our intellectual property (whether
or not patented or described in pending patent applications), or to
further develop or commercialize our products in the U.S. and abroad and
could result in the award of substantial damages.
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We also rely on unpatented trade secrets to protect our proprietary
technology, and others may independently develop or otherwise acquire the
same or substantially equivalent technologies or otherwise gain access to
our proprietary technology or disclose such technology and we may never
be able to protect our rights to such unpatented proprietary technology.
Third parties may obtain patent rights to such unpatented trade secrets,
which patent rights could be used to assert infringement claims against
us. We also rely on confidentiality agreements with our employees,
vendors, consultants and customers to protect our proprietary technology.
These agreements may be breached, and we may not have adequate remedies
for any breach and our trade secrets may become known or developed by
competitors.
We May Experience Delays In Developing Our Products That Could Adversely Affect
Our Ability to Introduce New Products, Maintain Our Competitive Position and
Grow Our Business.
Our future success depends on the timely introduction and acceptance of
new products and product enhancements. However, our new products or
product enhancements that we attempt to develop may not be developed
successfully or on schedule, or if developed, they may not achieve market
acceptance. In addition, there can be no assurance that we will
successfully execute our strategy of acquiring businesses, products and
technologies from third parties. 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 the
past, we have experienced delays in the introduction of certain product
enhancements, and it is possible that new products or product
enhancements will not be introduced on schedule or at all.
Errors in Our Products Could Result in Significant Costs to Us and Could Impair
Our Ability to Sell Our Products.
Any new products or product enhancements may contain defects when first
introduced or when new versions are released. Our testing may not uncover
all defects and thus defects may 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 our business,
operating results and financial condition.
We Are Dependant On Certain Suppliers and Vendors and Changes in the Terms Of
Our Relationship Could Impair Our Ability to Produce Our Products for a
Reasonable Price or At All.
We rely, to a substantial extent, on outside vendors to manufacture the
hardware and third party software used in PrePay and 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. Our
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, we have experienced delays in receiving materials from vendors,
sometimes resulting in delays in the assembly of products by us. Such
delays, or other significant vendor or supply quality issues, may occur
in the future, which could result in a material adverse effect on our
business, operating results or financial condition. The manufacture of
certain of these components and subassemblies is specialized and requires
long lead times, and delays and shortages caused by vendors may reoccur.
In addition, from time to time, we must also rely upon third parties to
develop and introduce components and products to enable us, in turn, to
develop new products and product enhancements on a timely and
cost-effective basis. In particular, we must rely on the development
efforts of third party wireless infrastructure providers in order to
allow our PrePay product to integrate with both existing and future
generations of the infrastructure equipment. We may not be able to obtain
access, in a timely manner, to third-party products and development
services necessary to enable us to develop and introduce new and enhanced
products. We may not be able to obtain third-party products and
development services on commercially reasonable terms nor may we be able
to replace third-party products in the event such products become
unavailable, obsolete or incompatible with future versions of our
products.
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Our Senior Management and Other Key Personnel Are Critical to Our Business and
If They Choose to Leave Corsair, It Could Harm Our Business.
Our success is dependent, in part, on our ability to attract and retain
highly qualified personnel. Our future business and operating results
depend upon the continued contributions of our senior management and
other employees, many of whom would be difficult to replace and certain
of whom perform important functions for us 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 our senior management team or current employees,
particularly to competitors, could materially adversely affect our
business, operating results or financial condition. We may not be
successful in hiring or retaining requisite personnel. None of our
employees have entered into employment agreements with us, and we do not
have any key-person life insurance covering the lives of any members of
our senior management team.
We Need to Recruit and Retain Additional Qualified Personnel to Successfully
Grow Our Business.
We plan to rapidly and significantly expanded our operations. Such growth
will place significant demands on our management, information systems,
operations and resources. The strain will be in hiring, integrating and
effectively managing sufficient numbers of qualified personnel to support
the expansion of our business. Our ability to manage any future growth,
should it occur, will continue to depend upon the successful expansion of
our 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. We may not be able to attract, manage and retain additional
personnel to support any growth, if any, and we may experience
significant problems with respect to infrastructure expansion or the
attempted implementation of systems, procedures and controls.
We Operate in a Highly-Regulated Industry and Unanticipated Changes to U.S. or
Foreign Regulations Could Harm Our Business.
While most of our operations are not directly regulated, our 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 our products or impede our ability to offer competitive
products and services to the wireless telecommunications industry or
otherwise have a material adverse effect on our 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 us, decrease demand for our products, increase our cost of
doing business or otherwise have a material adverse effect on our
business, operating results and financial condition. 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, our
business would suffer.
If the Market for Billing Solutions Does Not Continue to Develop as We
Anticipate Our Ability to Grow Our Business and Sell Our Products Will Be
Adversely Affected.
Our future financial performance will depend primarily on the number of
carriers seeking to implement prepaid billing services. Although the
wireless telecommunications industry has experienced significant growth
in recent years, such growth may not continue at similar rates and if the
industry does grow, there may not be continued demand for prepaid metered
billing or other products.
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Despite the Precautions We Have Taken, Our Computer Systems Are Subject to Risk
of Damage from a Variety of Sources.
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 our business, operating results and
financial condition. We currently do not have liability insurance to
protect against these risks and such insurance may not be available to us
on commercially reasonable terms, or at all. In addition, if any carrier
using PhonePrint encounters material performance problems, our reputation
would suffer.
When Needed, We May Not Be Able to Raise Funds on Beneficial Terms or At All.
Our future capital requirements will depend upon many factors, including
the commercial success of PrePay, the timing and success of new product
introductions, if any, the progress of our research and development
efforts, our results of operations, the status of competitive products
and the potential acquisition of businesses, technologies or assets. We
believe that our combination of existing sources of liquidity and
internally generated cash will be sufficient to meet our projected cash
needs for at least the next 12 months. However, it is possible that we
will require additional financing prior to such date to fund our
operations. In addition, we may require additional financing after such
date to fund our operations. Additional financing may not be available to
us on acceptable terms, or at all, when required by us. If additional
funds are raised by issuing equity securities, further dilution to the
existing stockholders will result. If adequate funds are not available,
we may be required to delay, scale back or eliminate one or more of our
development or manufacturing programs or obtain funds through
arrangements with third parties that may require us to relinquish rights
to certain of our technologies or potential products or other assets that
we would not otherwise relinquish.
Our Stock Will Likely Be Subject to Substantial Price and Volume Fluctuations
Which May Prevent Stockholders from Reselling Their Shares at or Above the Price
at Which They Purchased Their Shares.
The market price of our 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 PrePay and
PhonePrint, new products or new contracts by us or our competitors,
actual or anticipated variations in our 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, we expect that, from time to time, our 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.. 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 us, could result
in substantial costs and a diversion of our management's attention and
resources.
Provisions in our Charter Documents and in Delaware Law May Discourage Potential
Acquisition Bids for Corsair and May Prevent Changes in Our Management Which Our
Stockholders Favor.
Our Restated Certificate of Incorporation authorizes our 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
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may make it more difficult for a third party to acquire, or may
discourage a third party from acquiring, a majority of our voting stock.
Our Restated Bylaws divide our Board into three classes of directors. 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 us, even if such events could be beneficial to the interest of
the stockholders. Such provisions could limit the price that certain
investors might be willing to pay in the future for the common stock.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We invest our excess cash and short-term investment in corporate debt
securities with high quality credit ratings and maturities of less than
one year. These investments are not held for trading or other speculative
purposes. Changes in interest rates affect the investment income earned
on investments and, therefore, impact our cash flows and results in
operations. At June 30, 2000, we had outstanding a note payable for $1.1
million which matures in 2001. The note has a fixed interest rate of
14.4%. Accordingly, while changes in interest rates may affect the fair
market value of the notes, they do not impact our cash flows or results
of operations. We are not exposed to risks for changes in foreign
currency exchange rates, commodity prices, or any other market rates.
PART II - OTHER INFORMATION
ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS
From the effective date of Corsair's initial registration statement on
Form S-1 on July 29, 1997 (Registration No. 333-28519) to June 30, 2000,
the approximate use of the net offering proceeds were $13.2 million for
the repayment of indebtedness, $8.4 million for capital expenditures, and
$4.3 million for acquisition costs paid through June 30, 1998. The
remaining balance from the net proceeds of $39.1 million have been
invested in short-term investments, pending future use. All payments were
direct or indirect payments to third-parties.
ITEM 5. OTHER EVENTS
On August 11, 2000, Mr. Peter Currie tendered his resignation as a
director. Mr. Currie resigned for personal reasons and not as a result of
a disagreement on any matter relating to our operations, policies, or
practices.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits
27.1 Financial Data Schedule
b. Reports on Form 8-K.
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Corsair Communications, Inc.
Date: August 14, 2000 By: /s/ Martin J. Silver
------------------------------------------
Martin J. Silver
Chief Financial Officer and Secretary
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
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