2
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 September 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)
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)
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
October 31, 2000 was 17,172,757.
<PAGE>
INDEX
Page No.
Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements
Unaudited Condensed Consolidated Balance Sheets as of September
30, 2000 and December 31, 1999......................................3
Unaudited Condensed Consolidated Statements of Income for the Three
and Nine Months Ended September 30, 2000 and 1999 ....................4
Unaudited Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 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 Operations.................................................9
Item 3. Quantitative and Qualitative Disclosure About Market Risk............20
Part II. Other Information
Item 2. Change in Securities and Use of Proceeds............................21
Item 6. Exhibits and Reports on Form 8-K ...................................21
Signatures ..................................................................21
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
CORSAIR COMMUNICATIONS, INC.
Unaudited Condensed Consolidated Balance Sheets
(In thousands)
September 30 December 31
2000 1999
------------ -------------
Assets
Cash and cash equivalent $ 7,741 $ 13,686
Short-term investments 57,617 39,263
Trade accounts receivables, net 6,996 11,548
Inventories, net 3,109 4,346
Prepaids and other assets 3,099 1,475
Current portion of notes receivable 343 385
------------ -------------
Total current assets 78,905 70,703
Notes receivable, net of current portion 1,083 1,325
Property and equipment, net 3,222 3,458
Other assets 1,151 1,197
------------ -------------
Total assets $ 84,361 $ 76,683
============ =============
Liabilities and Stockholders' Equity
Accounts payable $ 2,984 $ 2,273
Accrued benefits 1,522 1,987
Accrued expenses 9,994 8,338
Current portion of notes payable -- 737
Deferred revenue 7,295 6,063
------------ -------------
Total current liabilities 21,795 19,398
Notes payable, net of current portion -- 670
------------ -------------
Total liabilities 21,795 20,068
------------ -------------
Common Stock 18 18
Notes receivable from stockholders (115) (272)
Additional paid-in capital 107,577 106,445
Accumulated deficit (34,755) (43,740)
Treasury stock, at cost, 1,181,639 and (10,132) (5,741)
1,075,000 shares in 2000 and 1999,
respectively
Deferred compensation (27) (95)
------------ -------------
Total stockholders' equity 62,566 56,615
------------ -------------
Total liabilities and stockholders' equity $ 84,361 $ 76,683
============ =============
See accompanying notes to Condensed Consolidated Financial Statements
<PAGE>
CORSAIR COMMUNICATIONS, INC.
Unaudited Condensed Consolidated Statements of Income
(In thousands, except share data)
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---------------------- ----------------------
Revenues:
Hardware $ 3,986 $ 8,463 $ 13,551 $ 26,000
Software 7,165 5,183 21,441 12,094
Service 4,133 3,441 13,425 10,317
----------- ---------- ----------- ----------
Total revenues 15,284 17,087 48,417 48,411
----------- ---------- ----------- ----------
Cost of revenues:
Hardware 2,980 4,656 9,906 13,341
Software 253 393 840 1,006
Service 1,626 1,375 4,042 4,220
----------- ---------- ----------- ----------
Total cost of revenues 4,859 6,424 14,788 18,567
----------- ---------- ----------- ----------
Gross profit 10,425 10,663 33,629 29,844
----------- ---------- ----------- ----------
Operating costs and expenses:
Research and development 3,140 2,563 9,348 8,572
Sales and marketing 3,121 2,930 9,623 10,339
General and administrative 1,443 1,826 4,509 5,034
Reorganization costs -- -- -- 856
----------- ---------- ----------- ----------
Total operating costs and
expenses 7,704 7,319 23,480 24,801
----------- ---------- ----------- ----------
Operating income 2,721 3,344 10,149 5,043
Loss on sale of assets -- -- -- (2,176)
Interest income net 1,269 505 2,871 1,270
----------- ---------- ----------- ----------
Income before income taxes 3,990 3,849 13,020 4,137
Income taxes 1,236 982 4,035 984
----------- ---------- ----------- ----------
Net income $ 2,754 $ 2,867 $ 8,985 $ 3,153
=========== ========== =========== ==========
Basic and diluted net income per share data:
Basic net income per share $ 0.16 $ 0.16 $ 0.52 $ 0.18
=========== ========== =========== ==========
Shares used in basic per 17,300 17,502 17,266 17,702
share calculation =========== ========== =========== ==========
Diluted net income per share $ 0.15 $ 0.16 $ 0.49 $ 0.17
=========== ========== =========== ==========
Shares used in diluted per 18,368 18,073 18,524 18,677
share calculation =========== ========== =========== ==========
See accompanying notes to Condensed Consolidated Financial Statements
<PAGE>
CORSAIR COMMUNICATIONS, INC.
Unaudited Condensed Consolidated Statements of Cash Flows
(In thousands)
Nine Months Ended
September 30,
--------------------------
2000 1999
------------ -------------
Cash flows from operating activities:
Net income $ 8,985 $ 3,153
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,012 2,959
Amortization of deferred compensation 68 149
Noncash loss on disposition of assets -- 914
Noncash reorganization costs -- 412
Changes in operating assets and liabilities:
Trade accounts receivable 4,552 (2,794)
Inventories 1,237 1,794
Prepaid expenses and other assets (1,881) (186)
Accounts payable and accrued expenses 1,902 2,264
Deferred revenue 1,232 1,401
------------ -------------
Net cash provided by operating activities 18,107 10,066
------------ -------------
Cash flows from investing activities:
Purchase of short-term investments (49,871) (2,153)
Proceeds from sales and maturities of short-term 31,517 13,842
investments
Purchases of property and equipment (1,473) (220)
------------ -------------
Net cash provided by (used in) investing (19,827) 11,469
activities ------------ -------------
Cash flows from financing activities:
Proceeds from stock options and purchase plans 1,132 485
Repurchase of common stock (4,391) (2,788)
Principal payments on debt obligations (1,407) (471)
Proceeds from note receivable from stockholder 157 100
Proceeds from notes receivable 284 117
Principal payments on capital leases -- (556)
------------ -------------
Net cash used in financing activities (4,225) (3,113)
------------ -------------
Net increase (decrease) in cash and cash (5,945) 18,422
equivalents
Cash and cash equivalents, beginning of period 13,686 4,196
------------ -------------
Cash and cash equivalents, end of period $ 7,741 $ 22,618
============ =============
Cash paid:
Interest $ 78 $ 238
============ =============
Income taxes $ 3,918 $ 27
============ =============
Noncash financing and investing activities:
Note recceivable in exchange for net assets sold $ -- $ 1,976
============ =============
Options vesting in reorganization costs $ -- $ 357
============ =============
See accompanying notes to Condensed Consolidated Financial Statements
<PAGE>
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 nine months ended September 30, 2000 and 1999 (in thousands, except per
share data):
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---------------------- ----------------------
Basic net income per share data:
Net Income $ 2,754 $ 2,867 $ 8,985 $ 3,153
=========== ========== =========== ==========
Actual weighted average common
shares outstanding for the
period $ 17,300 $ 17,502 $ 17,266 $ 17,702
=========== ========== =========== ==========
Basic net income per share $ 0.16 $ 0.16 $ 0.52 $ 0.18
=========== ========== =========== ==========
Diluted net income per share data:
Actual weighted average common
shares outstanding for the
period 17,300 17,502 17,266 17,702
Effect of dilutive securities:
Employee stock options 1,068 571 1,258 975
=========== ========== =========== ==========
Shares used in diluted per 18,368 18,073 18,524 18,677
share calculation =========== ========== =========== ==========
Diluted net income per share $ 0.15 $ 0.16 $ 0.49 $ 0.17
=========== ========== =========== ==========
3. Inventories
Inventories are stated at the lower of cost or market and are summarized as
follows (in thousands):
September December
30, 2000 31, 1999
----------- ----------
Raw materials $ 1,091 $ 948
Finished goods 1,040 2,235
Evaluation inventory 978 1,163
----------- ----------
$ 3,109 $ 4,346
=========== ==========
4. Common Stock Repurchase
During the nine months ended September 30, 2000, we repurchased 420,000
shares of our common stock at a cost of $4.4 million. 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 Statement of Financial Accounting
Standards (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 assess-
ing 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
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 2001. 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 are required to adopt SAB 101 in the
fourth quarter of fiscal year 2000. 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. Corsair adopted FASB interpre-
tation No. 44 effective July 1, 2000.
9. Subsequent Event
On October 26, 2000, we signed a definitive agreement under which we will
merge with Lightbridge, Inc., a leading enabler of customer relationship
management solutions for communications service providers. Under the terms of
the agreement, Lightbridge, Inc. will issue 0.5978 shares of its common stock
for each common share of our stock. Total shares expected to be issued by
Lightbridge, Inc. will approximate 10.5 million. The transaction, valued at
approximately $165 million based on Corsair's October 25, 2000 closing stock
price, is expected to be accounted for as a pooling of interests. The
transaction is anticipated to close in the first quarter of 2001, subject to
shareholder approval.
<PAGE>
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 14 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 October 26, 2000, we signed a definitive agreement under which we will
merge with Lightbridge, Inc., a leading enabler of customer relationship
management solutions for communications service providers. Under the terms of
the agreement, Lightbridge, Inc. will issue 0.5978 shares of its common stock
for each common share of our stock. Total shares expected to be issued by
Lightbridge, Inc. will approximate 10.5 million. The transaction, valued at
approximately $165 million based on Corsair's October 25, 2000 closing stock
price, is expected to be accounted for as a pooling of interests. The
transaction is anticipated to close in the first quarter of 2001, subject to
shareholder approval.
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 September 30, 2000, total revenues were
$15.3 million, compared with $17.1 million for the same period in 1999. For
the nine months ended September 30, 2000, total revenues were $48.4 million
compared with $48.4 million for the comparable period in 1999. The decrease
in revenues for the three months ended September 30, 2000 was primarily due
to the decline in PhonePrint hardware revenue as, the growth in the installed
base of PhonePrint units has continued to slow. The decrease in hardware
revenue was partially offset with the increase in software revenues, due to
the continuing growth of our PrePay product. Service revenues increased due
to the increase in PrePay installations and the corresponding consulting and
maintenance work. For the nine months ended September 30, 2000, international
revenues comprised 78% of total revenues, compared with 72% of total revenues
for the same period in 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 68% of total revenues in the three
months ended September 30, 2000 from 62% of revenues in the comparable period
of 1999. For the nine months ended September 30, 2000 gross profit was 69% of
total revenue, up from 62% 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 $6.9 million to
gross profit for the three months ended September 30, 2000 and $20.6 million
for the nine months ended September 30, 2000. Service gross profit of $2.5
million and $9.4 million for the three and nine months ended September 30,
2000, was the result of increased PrePay installations along with
professional services provided to the larger installed based. Hardware gross
profit of $1.0 million in the three months ended September 30, 2000 decreased
from $3.8 million in the three months ended September 30, 1999. For the nine
months ended September 30, 2000, and 1999, hardware gross margin decreased to
$3.6 million from $12.7 million.
Research and Development: For the three months ended September 30, 2000,
research and development expenses were $3.1 million compared with $2.6
million for the same period of 1999, an increase of $577,000 or 23%. For the
nine months ended September 30, 2000, research and development expenses were
$9.3 million compared with $8.6 million for the same period of 1999, an
increase of 9%. 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% and 18% of revenues for
the nine months ended September 30, 2000 and 1999, respectively.
Sales and Marketing: For the three months ended September 30, 2000, sales and
marketing expenses were $3.1 million compared with $2.9 million for the same
period of 1999, an increase of $191,000 or 7%. For the nine months ended
September 30, 2000, sales and marketing expenses were $9.6 million compared
with $10.3 million for the same period of 1999, a decrease of 7%. The
increase in sales and marketing expense for the three months ended September
30, 2000 was due to increased salary costs relating to marketing and customer
support. The decrease in the nine months ended September 30, 2000 was due to
lower headcount and other related expenses in the sales organization,
resulting from a shift from the direct sales channel in the latter half of
1999. Sales and marketing expenses were 20% and 21% of revenues for the nine
months ended September 30, 2000 and 1999, respectively.
General and Administrative: For the three months ended September 30, 2000,
general and administrative expenses were $1.4 million compared with $1.8
million for the same period of 1999, a decrease of $383,000 or 21%. For the
nine months ended September 30, 2000, general and administrative expenses
were $4.5 million compared with $5.0 million for the same period of 1999, a
decrease of 11%. The decrease for the three and nine months ended September
30, 2000 was due to lower professional service costs as well as a non
recurring bad debt expense taken in 1999. General and administrative expenses
were 9% and 10% of revenues for the nine months ended September 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 September 30, 2000 was due to an
increased balance in short-term investments to $57.6 million on September 30,
2000 from $22.7 million on September 30, 1999. In addition, leases payable
and notes payable were paid in full during the period, resulting in lower
interest expense.
Liquidity and Capital Resources
As of September 30, 2000, our cash and short-term investments were $65.4
million compared with $52.9 million at December 31, 1999. The increase is
primarily a result of cash generated by operations of $18.1 million, stock
option and purchase plan activities of $1.1 million and collections of all
notes of $441,000. These cash inflows were partially offset by cash outflows
for investing and financing activities, such as purchase of capital equipment
of $1.5 million, repurchase of common stock of $4.4 million and notes and
lease payments of $1.4 million.
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.
Failure to complete the previously announced proposed merger with Lightbridge,
Inc. could negatively impact our stock price and future business and operations.
The closing of the proposed merger with Lightbridge is subject to the
satisfaction of specified closing conditions, including the vote of our
stockholders in favor of adopting the merger agreement. If the merger with
Lightbridge is not completed for any reason, we may be subject to a number of
material risks, including the following:
the price of our common stock may decline to the extent that the current
market price of our common stock reflects a market assumption that the
merger will be completed; and
various costs of the merger, such as legal and accounting fees and the
expenses and fairness opinion fees of our financial advisor, must be paid
even if the merger is not completed.
Furthermore, if the merger is terminated and our board of directors
determines to seek another merger or business combination, we may not be able
to find a partner willing to pay an equivalent or more attractive price than
the price to be paid to us in the merger.
We Are Dependent on PrePay
We anticipate that PrePay, our prepaid metered billing solution, will account
for a majority of our revenues for the remainder 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 primarily 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 our direct sales force has
begun 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 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
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.
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.
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.
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 67% of our total revenues in the nine months ended September 30,
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 September 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.
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.
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.
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 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.
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 September 30, 2000, the
approximate use of the net offering proceeds were $14.6 million for the
repayment of indebtedness, $9.9 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 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: November 9, 2000 By: /s/ Martin J. Silver
Martin J. Silver
Chief Financial Officer and Secretary
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
