STM WIRELESS INC, 10-K, 2000-03-30

STM WIRELESS INC
10-K, 2000-03-30
RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K

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

For the fiscal year ended December 31, 1999

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER: 0-19923

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STM WIRELESS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 95-3758983
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION IDENTIFICATION NO.)

ONE MAUCHLY, IRVINE, CALIFORNIA 92618
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

(949) 753-7864
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

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

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $0.001 PAR VALUE

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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 report), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

As of March 22, 2000, the aggregate market value of the registrant's common
stock, held by non-affiliates of the registrant was approximately $60,356,251
based on the closing sales price of $10.375 per share of the common stock as of
such date, as reported by the NASDAQ Stock Market. As of March 22, 2000,
7,144,225 shares of the registrant's common stock were outstanding.

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Page 1 of 63 Pages
Exhibit Index Appears on Page 61
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PART I

ITEM 1--BUSINESS

THE COMPANY

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

The Company was incorporated in California in January 1982 as Services Via
Satellite and in December 1982 changed its name to Satellite Technology
Management, Inc. In January 1995, the Company registered in California to do
business as STM Wireless, Inc. In December 1995, the Company reorganized as a
Delaware corporation via a merger into a wholly-owned subsidiary with the name
STM Wireless, Inc.

DESCRIPTION OF THE BUSINESS

The Company develops, manufactures and markets wireless based satellite
communications infrastructure products to customers for the creation of public
and private networks. The Company's products provide customers with the ability
to transmit many forms of information including IP based data, voice, fax and
video. The Company historically has sold its products primarily in the
international arena. The solutions currently provided by the Company are
principally satellite communications networks which can be deployed and
reconfigured faster and at a lower cost than terrestrial alternatives. The main
products that STM sells are small, two-way earth stations referred to as VSATs
(very small aperture terminals), associated infrastructure equipment and
software.

The applications for the Company's product lines falls into three separate
classes:

o The first class of applications helps solve the problem of
insufficient bandwidth to enable the Internet to fulfill its potential
for a multitude of new services. By using satellite, Internet Service
Providers (ISPs) can bypass the traditional landline infrastructure,
which is often unable to economically meet quality of service
expectations because of network congestion. STM's SpaceWeb Broadband
provides the equipment for service providers to offer high bandwidth
to their customers by satellite, both for downloading and for the
return channel from the customer to the ISP. In addition to bypassing
landline bandwidth restrictions, satellite provides an ideal
technology for broadcast applications on the Internet. It offers a
large reach by its very nature (one satellite can cover one-third of
the earth). Furthermore, STM's solutions feature "IP tuning," which
modifies the routing technology of the Internet for broadcast
applications. Traditional routing technology over landline
infrastructure is not as efficient in broadcast applications. It
consequently ties up bandwidth in routing inefficiency, which keeps it
from other uses and users. STM's technology is also attractive as a
means to enable an ISP to more effectively deploy its access and
bandwidth to its customers.

o The second class of applications enables cost-effective data and voice
communications for corporations and large, geographically dispersed
organizations. Powerful drivers for the growth of the Internet are
electronic information sharing and business transactions. As this
trend continues, it is likely to drive the demand for corporate
communication tools such as video conferencing, telemedicine, and
distance learning. STM's corporate solutions provide the networks that
enable these tools.

o The third class of applications targets rural telephony services in
developing countries. The demand for rural telephony products and
services is considerable. However, the great majority of potential
subscribers cannot afford the current service rates of their national
providers. In other cases, the potential subscribers who can afford
the service are separated by large distances and difficult terrain,
which prohibit the cost-effective use of traditional landline and
microwave infrastructure. STM's solutions are tailored to enable
cost-effective service to a significant proportion of these potential
subscribers. One of

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STM's newest products, SpaceLoop, provides connectivity between a
remote location and the national phone network through satellite.
It then distributes the access to the subscribers by Wireless
Local Loop technology.

The Company's product line is based on proprietary hardware and software
used in the remote terminals, hubs/gateways and network management systems. The
Company's satellite communications product line includes products that are
capable of concurrently transmitting and receiving data as well as several
channels of digitized voice, using the Company's software to perform call
routing and to allocate satellite capacity on call initiation. These product
features allow more efficient use of satellite transponders and are attractive
to international customers for whom combined voice and data communications costs
are a prime concern.

The Company has established alliances with customers, distributors and
sales representatives in over 30 countries and has supplied networks to
customers or end users in many geographic areas, including Argentina, Brazil,
Canada, Chile, China, Ecuador, Guatemala, Holland, India, Italy, Jordan, Kenya,
Malaysia, Mexico, Nigeria, Pakistan, Peru, Philippines, Spain, Sudan, Thailand,
the United States and Venezuela.

INDUSTRY BACKGROUND

VSAT products provide customers with the ability to transmit several forms
of information including voice, fax, data and video by attaching standard
communications equipment such as telephones, fax machines or computers to the
VSAT which in turn relays information to and from satellites. The primary
advantage of VSAT networks is the substantial cost savings compared to
land-based telephone networks where the network users are geographically
widespread. Due to the nature of satellites, transmission costs are not affected
by the distance information travels, while in terrestrial networks, transmission
costs are directly related to the distance between the network users. VSAT
equipment can be rapidly installed, upgraded or moved. Thus, networks can be
expanded or changed with relatively little expense and disruption to users.
Bandwidth allocated to each user can be changed dynamically, and the network can
be reconfigured and additional features and changes downloaded to the user.
Furthermore, the network user or service provider has the ability to monitor
operations of the network, collect performance statistics and perform
diagnostics.

Since the mid-1980s, the VSAT network market has grown with the North
American enterprise network market share dominating. In recent years, changes in
both the political and regulatory environments have contributed to the
international expansion of the VSAT network market. While the North American
market is primarily for data transmission applications, in most international
markets, applications for basic telephony services including voice, facsimile
and low speed data transmission are important. Recently, as a result of the
worldwide Internet explosion and the growing demand for high bandwidth
applications, VSATs have also emerged as a compelling solution for the provision
of high bandwidth Internet services.

BROADBAND SATELLITE MARKET

In 1999, the Company introduced a family of products to address the growing
demand for high bandwidth applications and Internet access via satellite. As the
popularity of the Internet grows, so does the demand for rich, high bandwidth
content over the Internet. The broadband satellite solutions help solve the
problem of insufficient bandwidth to enable the Internet to fulfill its
potential for a multitude of new services. By using satellite, Internet Service
Providers (ISPs) can bypass the traditional landline infrastructure, which is
often unable to economically meet quality of service expectations because of
network congestion. In addition, in some areas, broadband satellite solutions
allow ISPs and other service providers to build up their networks and customer
base at a faster and cheaper pace than they could through traditional
terrestrial means.

The Company's product line can serve a wide variety of different
applications in this market, such as fast Internet access, telemedicine,
distance learning, video conferencing, video and audio streaming (TV, news,
software, games), virtual private networks, global extension of corporate
networks, global ISP services, IP multicast, Push/Data broadcast and e-commerce.
The key features of the Company's current product lines include:

o Two-way high speed communication over satellite

o Availability in Ku- and C-band

o Immediate global reach without terrestrial restrictions

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o Full DVB-S/MPEG-2 compliance

o Bandwidth on Demand and Quality of Service controlled

o High speed reception of up to 48 Mbps

o 9.6 kbps to 384 kbps return path per VSAT

o Fast and easy ability to deploy

o Costs are insensitive to distance

o Provides trunking and last mile access in one network

o Satellite link enhancement through TCP/IP acceleration

ENTERPRISE NETWORKS

Enterprise networks are private communications systems which provide a
solution for organizations with frequent communications needs between remote
locations allowing them to collect, process, respond to and disseminate
information in a timely, reliable and cost-efficient manner. VSATs have
historically been used in developed countries for transaction oriented
applications, including point-of-purchase transactions, credit card
verification, automatic teller machine transactions, and inventory management.

In recent years, the price of VSATs has decreased, their functionality and
reliability have improved and the number of communication protocols that can be
supported has increased. The Company believes that these improvements allow VSAT
networks to compete effectively as full service communications systems in
international markets where the lack of reliable terrestrial networks
necessitates the use of alternative telecommunication infrastructure. In
addition to transaction oriented applications, international VSAT enterprise
networks are used for communications applications such as e-mail, intranets,
Internet access and basic voice service. The Company believes there will be a
significant growth in VSAT enterprise networks as a result of increased
electronic information sharing and business transactions on the Internet.

RURAL TELEPHONY MARKET

As the world's economies continue to globalize, the need for countries to
provide their population with access to telecommunications service has become
significantly more important as a means of increasing competitiveness. In
response, many developing countries throughout the world have begun to make
significant capital expenditures on the deployment of new networks and the
expansion of their existing telephone infrastructure to increase telephony
penetration. While traditional terrestrial telecommunications networks are being
deployed and expanded in the urban areas of these developing countries to
increase telephony penetration, it is more difficult to provide networks to the
rural areas of these countries due to the dispersion of the population and
difficult terrain that often characterizes these locations. As a result, in a
large number of remote and rural areas in developing countries, there continues
to be limited or no telephone service.

There are a number of alternatives to satellite technology that are being
used to meet increased demand for telecommunication services. Wireline and
cellular telephony networks can be used to effectively meet telecommunications
needs in rural areas with relatively higher population densities. However, the
Company believes that VSAT networks have a number of advantages over alternative
solutions for many rural and urban telephony applications in developing
countries where low population density and rough terrain are considerations. Due
to the nature of satellites, transmission costs are not affected by the distance
signals must travel. Therefore, generally, the greater the distance between the
sites to be served, the greater the benefit of a VSAT network. VSAT equipment
can be rapidly installed and connected to a network and can easily be upgraded,
expanded or relocated with relatively little expense and disruption. VSAT
networks are relatively simple to reconfigure, are relatively immune to
difficulties in topography and can be located almost anywhere.

To complement its product offerings, the Company has developed a wireless
local loop (WLL) product, SpaceLoop, and is considering entering into strategic
relationships with other providers of WLL products, thereby ensuring that the
Company has an economical product offering in more densely populated regions.

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BUSINESS STRATEGY

STM seeks to leverage its technical strength in networking and telephony
technologies as well as its strong position and marketing expertise in
international markets to become the leading supplier of satellite-based
communications solutions. To achieve this objective, the Company is pursuing the
following initiatives:

STRENGTHEN POSITION IN BROADBAND SATELLITE MARKET: The Company began
marketing and selling its broadband satellite products in 1999 as a result of an
alliance it created with Harmonic Data Systems. The Company is focused on
increasing its broadband product sales on an absolute basis as well as a
percentage of its total sales. In addition, the Company intends to enter into
more strategic relationships and alliances in order to strengthen its broadband
product portfolio and distribution channels for broadband products.

EXPAND MARKET SHARE IN ENTERPRISE NETWORKS: The Company believes there will
be a significant growth in VSAT enterprise networks as a result of increased
electronic information sharing and business transactions on the Internet. The
Company's enterprise network strategy is to capitalize on its international
expertise to sell more products in the international market.

SOLIDIFY POSITION IN RURAL TELEPHONY MARKET: Management believes that STM
offers a comprehensive rural telephony solution through a suite of products
specifically designed to service these needs. Management believes that the use
of VSATs for rural telephony has yet to fully mature and a substantial global
market opportunity exists for this technology to serve rural telephony needs.

LEVERAGE EXISTING MARKETING AND DISTRIBUTION CHANNELS: STM's sales and
distribution networks comprise 30 countries in five continents and the Company's
products are currently utilized by more than 70 customers with equipment
installed in approximately 90 countries. The Company seeks to increase the
breadth of products that can be sold through its distribution network by both
internal research and development ("R&D") and strategic alliances with other
manufacturers, as well as complementary acquisitions. STM has incurred
significant R&D expenditures in recent years relative to its revenues, as
management believes that the Company's significant dedication of resources to
R&D is necessary to compete in a rapidly changing market. STM's R&D efforts are
primarily focused on reducing the overall cost of its products to its customers,
as well as increasing their features and performance, thereby expanding the
addressable market size.

PRODUCTS

The principal products sold by the Company are two-way small earth stations
referred to as VSATs (very small aperture terminals), associated infrastructure
equipment and software, transceivers, modems and other networking equipment, as
well as voice over IP gateway and software solutions. The Company's satellite
products communicate via geostationary satellites in order to provide customers
the ability to exchange several forms of information including voice, fax, data
and video within their networks. Geostationary satellites are placed in orbit
approximately 23,000 miles above the earth so that their orbit matches the speed
of the earth's rotation resulting in the satellite maintaining a fixed position
relevant to the earth's surface. VSAT networks can offer advantages over
traditional networks of terrestrial telephone lines including control over the
network itself, improved response times with cost reduction opportunities and
increased flexibility and reliability. For voice communications, VSAT networks
are particularly suited to providing communications between geographically
dispersed locations in that they are easier to install and provide wider
accessibility and availability than terrestrial and microwave transmission
alternatives.

The Company's VSAT products fall into two categories. Both of these product
categories may be used by customers to build networks capable of communicating
voice, fax, data and video, but, because they use different architectures, the
use of each product is determined by the particular needs of the customer's
network. The principal difference between the two product categories lie in the
methodology used for communicating between any two remote VSATs on a network.
There is a "mesh" product that employs circuit switched transmission. In mesh
networks, any one VSAT communicates directly with any other VSAT on the network
via a single transmission to and from the satellite. Then, there is what is
often termed a "star" product that employs packetized transmission.

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EXISTING PRODUCTS

SATELLITE PRODUCTS:

SPACEWEB ONLINE: Introduced in 1999, SpaceWeb Online was created for
demanding data and Internet access applications in the home-and-branch-office
setting. SpaceWeb Online maintains a constant, highly reliable connection.
Because it uses satellite for both transmission and reception, it is fully
independent of landline infrastructure. It features up to 48 Mbps of Time
Division Multiplex (TDM) bandwidth for downloading in a Digital Video Broadcast
(DVB) format, with up to 192 kbps of bandwidth for the Time Division Multiple
Access (TDMA) return channel.

SPACEWEB ISP: Introduced in 1999, SpaceWeb ISP provides powerful features
to meet ISP and enterprise network requirements. In addition to 48Mbps of DVB
bandwidth for downloading, each return channel is a "Single Channel per Carrier"
(SCPC) satellite line between 9.6 and 384 kbps that is assigned on-demand with
the Company's DAMA technology. This enables the network to provide
high-bandwidth users with return channels that can vary with their needs,
providing great overall bandwidth flexibility and control. Furthermore, SpaceWeb
ISP seamlessly integrates Internet access and data with full-mesh connections
for voice, fax, and video conferencing into one network architecture.

SPACEWEB DIAL-UP: Introduced in 1999, SpaceWeb Dial-up enables the small
office to share both LAN and voice services on an "as-needed" basis in one
wireless package. It uses the Company's SES technology to provide high-quality,
economical DAMA voice links with fax and data services up to 14.4 kbps. Remote
Internet and data files can be easily accessed with its 48Mbps of DVB bandwidth
for downloading.

SPACEWEB PC: Introduced in 1999, SpaceWeb PC delivers full Internet access
and telephony features to the most remote single-user terminals in the network.
A single-user version of the SpaceWeb Dial-Up, the SpaceWeb PC connects directly
to a standard PC through a universal serial bus interface.

SES: In 1998, the Company completed development of SES, which is a low cost
telephony product derived from and compatible with DAMA 10000. As an extension
of DAMA 10000, SES is targeted at the provision of telephony services to
unserved or underserved regions of the world. SES is designed to provide
reliable, affordable, on-demand telecommunications service in remote and rural
areas. SES is a small, lightweight and low cost terminal ideally suited for
areas where telecommunications service is unavailable, unreliable or simply too
expensive. Since it is satellite-based, a SES terminal is capable of being
installed quickly, virtually anywhere, to allow immediate access to the SES
network and the PSTN. SES provides telecommunications service with high quality
voice and industry standard interfaces.

SPACEWEB: In 1998, the Company completed development of SpaceWeb, which is
an evolutionary development of the X.STAR family and is fully compatible with
X.STAR. SpaceWeb provides a low cost, star-connected solution for data, fax and
voice applications and is aimed at international Internet access. SpaceWeb is a
low cost terminal that communicates with a low cost central hub whose modular
architecture will be designed to provide attractive start up costs, without
restricting network growth potential. For reliable end to end communications,
SpaceWeb utilizes the Company's X.STAR communications protocol and supports all
of the same communications protocols as X.STAR.

HUBS/GATEWAYS: The Company manufactures the digital and modem portion of
the hubs/gateways which are comprised of a series of special purpose processing
units utilized in multiplexing, network configuration and routing of information
to the appropriate network destinations. This is controlled by the Company's
proprietary networking and system software. Typically, the digital portion of
the hub/gateway has a number of voice and data ports that directly attach to the
user's equipment. Transmission between the hub/gateway and the remote VSAT is
via a satellite transponder. The hub/gateway also includes radio frequency
components and an antenna, which are purchased from suppliers and integrated
into the system by the Company. The hub/gateway interacts with a network
management system, which operates on a local or remote work station using
proprietary software supplied by the Company.

NETWORK MANAGEMENT SYSTEMS: The Company provides a network management
system which shows network status in real time, and permits the operator to
monitor and control network operations, including the diagnosis of problems. The
interface with the operator is by a graphic display of the network status on a
color monitor. The network management system can also be used for redefining
network parameters, for adding and deleting remote network locations, for
changing protocols and for collecting and reporting operational information

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and providing management reports. In addition, the system can be expanded
if the hub/gateway is shared among several customers, to permit each customer to
have such capabilities. The network management system can be installed remotely
from the hub/gateway location if required.

SYSTEMS INTEGRATION PRODUCTS: The Company also integrates equipment from
other manufacturers into systems or earth stations manufactured by the Company.
These products include antennas, radio frequency equipment, satellite modems,
voice and data multiplexers, local area network routers and video communications
equipment. The Company expects to continue to sell such systems on an individual
project basis as part of its direct sales effort.

DAMA 10000: The Company's DAMA 10000 product primarily supports public and
private networks that need to have full connectivity among all sites. The DAMA
10000 is a fully integrated product that offers the flexibility to create and
manage both large and small networks. With an expandable system architecture and
highly configurable terminal equipment, the DAMA 10000 is a cost efficient
solution for small to very large networks. The system supports full mesh,
point-to-point or point-to-multi-point communications circuits and any user can
connect to any other user on the network. DAMA 10000 uses a proprietary control
channel to set up and tear down calls between VSATs as these are requested by
users on the network. This results in satellite capacity only being consumed
when calls are requested, thereby optimizing satellite transponder costs for the
customer. In addition, DAMA 10000 provides support for the major international
telephony signaling systems including R2 and DTMF as well as various payphone
metering schemes, allowing it to be interconnected with the Public Switched
Telephony System ("PSTN") in many countries around the world. These features of
the product have resulted in it being ideally suited for rural telephony
applications where individual VSATs provide multiple telephone lines to
subscribers in remote locations. These VSATs are, in turn, all interconnected
via satellite with the PSTN in the country of deployment providing the remote
subscribers with worldwide calling capability.

X.STAR: The Company's X.STAR product primarily supports private networks
with a need to connect remote user locations with a central site. A typical
application of an X.STAR network would be the processing of point of sale
transactions between retail outlets and a central database. However, the X.STAR
product supports all types of data including voice, fax and broadcast video and
more recently has been used by customers to interconnect LANs across their
enterprises. The network is controlled by a central hub that acts as a gateway
to the host facilities and as a switching and routing center for transmitting
information between VSATs. A powerful network management system ("NMS") is also
a part of the hub and multiple remote NMS stations may be deployed on the
network.

In an X.STAR network, VSATs all receive a common broadcast signal from the
hub, filtering the data received to accept only the information addressed to
devices connected to the VSAT. In order to transmit information back to the hub
or to another VSAT via the hub, VSATs on the network share a common transmit
channel back to the hub. Access to this transmit channel is controlled by the
Company's unique dynamic capacity allocations algorithm which allocates a
transmission time and duration to each VSAT dynamically based on its traffic
requirements.

X.STAR uses a packet-based transmission and switching protocol that makes
it suitable for the transmission of packetized data which is increasingly being
used in today's communications networks including the Internet. This protocol
establishes and maintains error-free channels from initiation points to
destination points on a network. In addition, the X.STAR product supports most
major communications protocols including SDLC, X.25, X.3, HDLC and TCP/IP,
resulting in seamless transport of information using these protocols across an
X.STAR network.

SPACELOOP: The Company recently completed development of its SpaceLoop
product, which provides a wireless local loop ("WLL") solution for rural
telephony. In rural areas where there are a fairly large number (approximately
between 50 and 500) of potential subscribers within a five-kilometer radius,
both business and residential, it is not economical to deploy DAMA 10000 or SES
terminals for each subscriber due to their relatively high cost per line
deployed. Where the average usage per month per subscriber is likely to be 400
minutes or less, STM would deploy a WLL solution with a lower capital cost per
line installed, that allows such customers to become subscribers at a much lower
price point. STM's SpaceLoop technology would be used to provide WLL
connectivity within a community.

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SERVICES

PROJECT MANAGEMENT: The Company offers engineering, project management, and
contract services in support of products sold.

CUSTOM DEVELOPMENT: From time to time, the Company receives orders from its
customers and distributors for product features, new products or software
protocols and functions that enhance the Company's product lines. While such
custom development orders do not contribute significantly to the Company's
revenues, they demonstrate the Company's ability to be responsive to market
requirements.

TECHNICAL SUPPORT SERVICES: The Company provides technical support services
to its installed base of customers either directly or through third-parties.
Services include technical support, installations, maintenance, training and
spares provisioning.

SALES AND MARKETING

The Company sells its satellite communication products directly and through
international distributors and alliances which are supported by the Company's
sales and marketing personnel. The Company has focused its sales efforts on the
following:

o Expanding global coverage through increasing the number of highly
trained, direct sales personnel with regional responsibilities.

o Identifying sales opportunities that exist with newly licensed service
providers in international markets, particularly those focused on
providing rural telephony services.

o Identifying capable, local distributors and replacing, if necessary,
its current distributors and alliances.

o Supplying highly integrated, low cost solutions to customers through
the Company's product offerings.

Export sales, as a percentage of revenues, were approximately 93%, 90% and
95% in 1999, 1998 and 1997, respectively.

BACKLOG

The Company's backlog represents future revenues that may be earned from
sales orders or sales contracts for products or services. As of December 31,
1999, the Company's backlog was approximately $7,800,000. At December 31, 1998,
the Company's backlog was approximately $7,500,000. Both the 1999 and 1998
backlog exclude any backlog associated with SkyOnline, Inc., formerly known as
Direc-To-Phone International, Inc. ("DTPI"), which was deconsolidated in June
1999. (See note 4 to the consolidated financial statements.) The Company
manufactures its products on the basis of customer orders and its forecast of
near-term demand from its customers. The Company conducts nearly all of its
business with foreign customers in United States currency and accordingly, is
generally not subject to foreign currency fluctuations. Customary terms of
business for product sales are a substantial deposit on order with the remainder
guaranteed by an irrevocable letter of credit or, when appropriate, open
account.

MANUFACTURING

The Company's products are assembled by the Company using subsystems and
circuit boards supplied by subcontractors. The Company's products use a number
of application specific integrated circuit (ASIC) chips, monolithic microwave
integrated circuits (MMIC) and customized components or subassemblies produced
by a limited number of suppliers. In the event that such suppliers are unable to
fulfill the Company's requirements, the Company may experience an interruption
in production until an alternative source of supply is developed. The Company
maintains an inventory of certain long lead time components and subassemblies to
limit the potential for such an interruption. The Company believes that there
are a number of companies capable of providing replacements for the types of
unique chips, customized components and subassemblies used in its products.

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RESEARCH AND DEVELOPMENT

The Company's research and development efforts are devoted to the design
and implementation of satellite and wireless radio communications network
hardware and software. The Company's future growth depends on adaptation of its
existing satellite communications products to new applications, and the
introduction of new communications products that will gain market acceptance and
benefit from the Company's established international distribution channels.
Accordingly, the Company is actively applying its communications expertise to
design and develop new hardware and software products and enhance existing
products.

STM's R&D efforts are primarily focused on reducing the overall cost of
ownership of its products to its customers, thereby expanding the addressable
market size. In addition, the Company may opportunistically acquire products,
technologies or companies consistent with its commercial objectives to serve the
evolving needs of the Company's customer base.

In 1999, 1998, and 1997, the Company incurred expenses of $5,354,000,
$8,102,000 and $6,387,000, respectively, on research and development activities.
During this period, the Company continued the development of the DAMA 10000
VSAT, completed development of the SES and SpaceWeb products (including
broadband products) and continued development of the SpaceLoop product.

COMPETITION

The Company has a number of competitors in the satellite communications
field, most of which have substantially greater financial, marketing, and
technological resources than the Company. The Company's competitors include
large companies such as Hughes Network Systems and Gilat Satellite Networks.
There can be no assurance that the Company will not experience increased
competition in the future from these or other competitors which may adversely
affect the Company's ability to continue to successfully market its products or
services. The Company believes that it has been able to compete with these
companies by offering flexible and cost effective products and utilizing the
resources of local distributors, forming strategic alliances with major
corporations, and by emphasizing product features and functions such as
concurrent support of multiple protocols, voice capability, built-in diagnostic
ports and downloadable software and configurations, which allow the products to
serve the diverse needs of international customers. These product features and
functions are based upon the Company's proprietary hardware and software. See
"Patents and Intellectual Property."

However, most of the Company's competitors offer products which have one or
more of the features and functions similar to those offered by the Company. The
Company believes that the quality, performance and capabilities of its products,
its ability to customize certain network functions and the efficient utilization
of satellite capacity, coupled with the products generally offered by the
Company's major vendors, have contributed to the Company's ability to compete.
The Company's major competitors have the resources available to develop products
with features and functions, competitive with, or superior to, those offered by
the Company. There can be no assurance that such competitors will not develop
such features or functions, or that the Company will be able to maintain a lower
cost advantage for these products.

PATENTS AND INTELLECTUAL PROPERTY

The Company relies on a combination of trade secrets, copyrights,
trademarks, service marks and contractual rights to protect its technology and
software. The Company attempts to protect its trade secrets and other
proprietary information through agreements with its customers, suppliers,
employees and consultants. While the Company has filed certain patent
applications, the Company believes that the improvement of existing products,
reliance upon trade secrets, copyrights and unpatented proprietary know-how and
the development of new products are generally as important as patent protection
in establishing and maintaining a competitive advantage because, among other
reasons, patents often provide only narrow protection which may not provide a
competitive advantage in areas of rapid technological change. The use of trade
secrets and copyrights will not necessarily protect the Company from the use by
other persons of its technology or software, or technology or software that is
similar to that which is embodied in the Company's trade secrets or copyrights.
There can be no assurance that others will not be able to duplicate the
Company's technology and software in whole or in part. In addition, the laws of
certain countries in which the Company's products are or may be developed,
manufactured or sold may not protect the Company's products and intellectual
property rights to the same extent as the laws of the United States. The
inability of the Company to protect its intellectual property and proprietary
technology could have a material adverse effect on its

9
<PAGE>

business, operating results and financial condition. With respect to the
Company's venture into new fields, the Company believes that patent protection
may be necessary. Accordingly, the Company has applied for some patents and
intends to pursue patent protection for additional products developed by the
Company. In addition, as the number of patents, copyrights and other
intellectual property rights in the Company's industry increases, and as the
coverage of these rights and the functionality of the products of new markets
further overlap, the Company believes that its products may increasingly become
the subject of infringement claims. The Company may in the future be notified
that it is infringing upon certain intellectual property rights of others.
Although the Company has not received any such notification to date, and there
are no pending or threatened intellectual property lawsuits against the Company,
there can be no assurance that such litigation or infringement claims will not
occur in the future. Any such litigation or claims could result in substantial
costs and diversion of resources and could have a material adverse effect on the
Company's business, operating results and financial condition.

GOVERNMENT REGULATIONS

The Communications Act of 1934, as amended, gives the Federal
Communications Commission ("FCC") jurisdiction over the communications products
and services provided by the Company in the United States. Part 25 of the FCC's
rules and regulations governs the operation and use of satellite transponders
and requires authorization for construction and operation of each transmitting
earth station, including VSATs installed on customers' premises.

The Company's international sales are also subject to Department of
Commerce regulations for export of its products, which usually meet general
license requirements depending on country of destination.

EMPLOYEES

As of December 31, 1999, the Company employed 101 people on a full-time
basis, including 59 employees in engineering/research and development, 13
employees in manufacturing, 11 employees in marketing and sales and 18 employees
in administration and accounting.

The Company believes that its relations with all employees are
satisfactory. The employees and the Company are not parties to any collective
bargaining agreements.

RISK FACTORS

FORWARD LOOKING STATEMENTS. THIS DOCUMENT CONTAINS CERTAIN FORWARD LOOKING
STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS
AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,
THAT INVOLVE RISKS AND UNCERTAINTIES. IN ADDITION, THE COMPANY MAY FROM TIME TO
TIME MAKE FORWARD LOOKING STATEMENTS, ORALLY OR IN WRITING. THE WORDS
"ESTIMATE", "PROJECT", "POTENTIAL", "INTENDED", "EXPECT", "BELIEVE" AND SIMILAR
EXPRESSIONS OR WORDS ARE INTENDED TO IDENTIFY FORWARD LOOKING STATEMENTS. ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED OR SUGGESTED IN ANY FORWARD
LOOKING STATEMENTS AS A RESULT OF A WIDE VARIETY OF FACTORS AND CONDITIONS,
AMONG OTHERS, LIQUIDITY AND FINANCING RISKS, LONG TERM CYCLES INVOLVED IN
COMPLETING MAJOR CONTRACTS, PARTICULARLY IN FOREIGN MARKETS, INCREASING
COMPETITIVE PRESSURES, GENERAL ECONOMIC CONDITIONS, TECHNOLOGICAL ADVANCES, THE
TIMING OF NEW PRODUCT INTRODUCTIONS, POLITICAL AND ECONOMIC RISKS INVOLVED IN
FOREIGN MARKETS AND FOREIGN CURRENCIES, THE TIMING OF OPERATING AND OTHER
EXPENDITURES AND OTHER RISKS IDENTIFIED BELOW.

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

FUTURE CAPITAL REQUIREMENTS

The Company used net cash in operations of approximately $822,000 in the
year ended December 31, 1999. There can be no assurance that the Company will
generate positive cash flow from operations in fiscal 2000 or thereafter. The
Company's ability to fund its capital requirements out of available cash,
traditional sources of

10
<PAGE>

financing and cash generated from operations will depend on numerous
factors, including but not limited to the commercial success of the Company's
products and services and the Company's ability to collect payments for certain
sales commitments. As of March 29, 2000 the Company had approximately $7,500,000
in unrestricted cash, including approximately $3,750,000 received by the Company
in connection with the recent financing of the Company's services affiliate,
SkyOnline, Inc., which reduced the Company's ownership in SkyOnline, Inc. from
approximately 44% to approximately 15%. In addition, on March 27, 2000, the
Company obtained a $3,300,000 line of credit from The CIT Group. Should the
Company's business increase significantly, the Company may be required to seek
additional funds through debt or equity financings, product licensing or
distribution transactions or some other source of financing in order to provide
sufficient working capital for the Company. The Company believes that such
alternative sources of financing are available. The issuance of additional
equity securities by the Company could result in substantial dilution to
stockholders. If the Company is required to raise additional working capital,
there can be no assurance that the Company will be able to raise such additional
working capital on acceptable terms, if at all.

HISTORY OF LOSSES AND FLUCTUATIONS IN QUARTERLY OPERATING RESULTS

Results of operations may fluctuate significantly and will depend upon
numerous factors, including the competitive environment in which the Company
operates, the delays that arise when operating in an international environment,
the long lead time and extended sales effort required to secure larger value
orders that the Company focuses on obtaining, the continued need to invest in
the development of new products and in the enhancement of existing products, the
risk of inventory obsolescence and the exposure to disputes by international
customers.

The Company has incurred operating losses in 1999, 1998 and 1997. There can
be no assurance that there will not be operating losses in future periods.

The Company's quarterly operating results fluctuate primarily due to the
timing of product sales. Sales of the Company's products are generally
consummated through large orders which require a long lead-time and an extended
sales effort. The Company's sales in any quarter are dependent on orders booked
and shipped in that quarter. As a result, the precise timing of the recognition
of revenue from an order can have a significant impact on the Company's total
revenues and operating results for a particular period. The Company's operating
results for a particular period could be adversely affected if an order is
cancelled or rescheduled by customers or cannot be shipped in time to recognize
revenue during that period due to, for example, unanticipated manufacturing,
testing, shipping or product acceptance delays. In addition, the Company's
expense levels are based, in large part, on the Company's expectations as to
future revenues and are, therefore, relatively fixed in the short term. If
revenue levels fall below expectations, net income will be disproportionately
and adversely affected. The impact of these and other factors on the Company's
revenues and operating results in any future period cannot be forecast with any
degree of certainty. Accordingly, the Company believes that period-to-period
comparisons of its results of operations are not necessarily meaningful and
should not be relied upon as an indication of future performance. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

DEPENDENCE ON BROADBAND MARKET

In 1999, the Company introduced a family of products to address the growing
demand for high bandwidth applications and Internet access via satellite. This
market is highly competitive and there can be no assurance that the Company will
be able to capture a significant portion of the market. The Company's ability to
penetrate this market will depend on its ability to develop strategic alliances,
reduce product costs, develop further refinements to its products and
successfully develop additional distribution channels for its products.

DEPENDENCE ON VSAT MARKET

A significant part of the Company's product revenues are derived from sales
of VSAT communications networks. A significant slowdown in the market for VSAT
communications networks and services or the replacement of the existing VSAT
technology by an alternative technology could have a material adverse effect on
the Company's business, operating results and financial condition.

11
<PAGE>

COMPETITION

The market for the Company's products is intensely competitive. Many of the
companies that have developed competing technologies and that market competing
products, including Hughes Network Systems and Gilat Satellite Networks, have
significantly greater financial, technical and marketing resources than the
Company. There can be no assurance that the Company's competitors will not
succeed in developing technologies and products that are more effective or less
costly than any which have been or are being developed by the Company or that
would render the Company's technologies or products obsolete or not competitive
or that their greater financial resources will not enable them to penetrate new
markets for VSAT products more quickly than the Company. The Company also
competes against various companies that offer communications network systems
based on other technologies (e.g., terrestrial lines and frame relay or radio
and microwave transmission) that in certain circumstances can be competitive in
price and performance with the Company's products. There can be no assurance
that these or other technologies will not capture a significant part of the
markets in which the Company's VSAT products compete.

RAPID TECHNOLOGICAL CHANGE

The technology underlying the Company's products and services is subject to
rapid change. The Company's success will depend in part upon its continuing
ability to respond quickly and successfully to technological advances by
developing and introducing new products. Most of the Company's competitors have
substantially greater financial and technical resources than the Company. If one
or more of the Company's competitors were to introduce competing products with
superior technological features, such introduction could have a material adverse
effect on the success of the Company's products.

DEPENDENCE ON EMERGING MARKETS

The Company has generated approximately 44%, 50% and 14% of its revenue in
Latin and South America in 1999, 1998 and 1997, respectively, 25%, 21% and 6% of
its revenues in Africa and the Middle East in 1999, 1998 and 1997, respectively,
and 19%, 17% and 68% of its revenue in Asia in 1999, 1998 and 1997,
respectively. The deterioration of the Asian economies in 1998 has impacted and
is continuing to impact the level of revenues that the Company is generating in
Asia. While in any individual year, the Company's revenues generally represent
new projects to new or existing customers in new or existing geographic regions,
there can be no assurance that the present condition of the Asian economies will
not continue to negatively impact the level of revenues generated by the Company
in the Asian markets in future years. In addition, any deterioration in the
Latin American economies could impact the level of revenues that the Company
generates in Latin America.

DEPENDENCE ON KEY PERSONNEL

The Company's future performance is significantly dependent on the
continued active participation of Emil Youssefzadeh, the Company's founder and
Chief Executive Officer. Should Mr. Youssefzadeh leave or otherwise become
unavailable to the Company, the Company's business, operating results and
financial condition may be materially adversely affected. The Company has
obtained a "key man" life insurance policy in the amount of $5,000,000 on the
life of Mr. Youssefzadeh. In addition to Mr. Youssefzadeh, the Company's future
success depends upon its ability to attract and retain additional highly
qualified management and technical personnel. The Company faces intense
competition for qualified personnel, and there can be no assurance that the
Company will be able to attract and retain such personnel.

DEPENDENCE ON KEY SUPPLIERS AND MANUFACTURERS

Certain components used by the Company in its existing products are
purchased from single source suppliers and manufacturers. While the Company
maintains an inventory of components and believes that alternative suppliers and
manufacturers for all such components are currently available at reasonable
terms, an interruption in the delivery of these components may have a material
adverse effect on the Company. There can be no assurance as to when or whether
the Company would be able to locate any such alternative suppliers. Furthermore,
there can be no assurance that the Company will not encounter future component
shortages or other disruptions in the supply of materials. Delays associated
with raw materials or component shortages could have a material adverse effect
on the Company's business, operating results and financial condition.

12
<PAGE>

RURAL TELEPHONY MARKET

The Company's strategy includes focusing on selling rural telephony
networking infrastructure and terminals for use in developing countries. There
can be no assurance that a substantial market for rural telephony equipment in
developing countries will ever develop, or if such a market does develop, that
fixed-site VSAT-based equipment will capture a significant portion of that
market. The Company's ability to penetrate this market will be dependent on its
ability to develop equipment and software which can be utilized by regional and
local service providers to market and sell the use of such systems. Furthermore,
there can be no assurance that the regional and local service providers will be
able to successfully market such services to rural subscribers.

SALES TO FOREIGN CUSTOMERS

The Company historically has generated substantially all of its revenue in
overseas markets. While the Company is making efforts to penetrate the domestic
market with its products, the Company's success is dependent upon its ability to
continue to successfully market voice and data VSAT communication networks in
the international market. The Company's export sales, as a percentage of total
revenues, were approximately 93%, 90% and 95% in 1999, 1998 and 1997,
respectively. As a result, the Company is subject to various risks, including
currency fluctuations, greater difficulty of administering business globally,
compliance with multiple and potentially conflicting regulatory requirements,
such as export and import requirements, tariffs and other barriers, differences
in intellectual property protections, difficulties in staffing and managing
foreign operations, longer accounts receivable cycles and delays in resolving
customer disputes, repatriation of earnings, export control restrictions,
overlapping or differing tax structures, political and economic instability and
general trade restrictions. If any of these risks materializes, it could have a
material adverse effect on the Company's business, operating results and
financial condition. In addition, the satellite network service industries in
the Company's target markets are highly regulated, which may limit the number
and identity of potential service providers to which the Company can sell its
products. Given the high degree of regulation in the Company's target market,
and given the fact that such markets, which are primarily developing countries,
involve greater political and economic instability, there can be no assurance
that the Company's products will achieve general market acceptance in the
Company's target markets. The Company's foreign sales are generally invoiced in
U.S. dollars. However, as the Company expands its international sales into new
markets, the Company may be paid in foreign currencies with greater frequency,
and exposure to losses in foreign currency transactions may increase. See
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION for a description of the Company's foreign currency exposure in
Brazil. In addition, if the relative value of the U.S. dollar in comparison to
the Company's foreign customers' currency should increase, the resulting
effective price increase of the Company's products to such foreign customers
could result in decreased sales which could have a material adverse effect on
the Company's business, operating results and financial condition.

DEPENDENCE ON PROPRIETARY RIGHTS; RISK OF INFRINGEMENT CLAIMS

13
<PAGE>

coverage of these rights and the functionality of the products of new
markets further overlap, the Company believes that its products may increasingly
become the subject of infringement claims. The Company may in the future be
notified that it is infringing upon certain intellectual property rights of
others. Although the Company has not received any such notification to date, and
there are no pending or threatened intellectual property lawsuits against the
Company, there can be no assurance that such litigation or infringement claims
will not occur in the future. Any such litigation or claims could result in
substantial costs and diversion of resources and could have a material adverse
effect on the Company's business, operating results and financial condition.

DEPENDENCE ON A LIMITED NUMBER OF CUSTOMERS AND CREDIT RISK

A significant portion of the Company's revenues are derived from a limited
number of customers. The Company's success depends, in part, on its ability to
establish and maintain relationships with such customers. Revenues attributable
to the Company's top two customers in 1999 constituted approximately 41% of the
Company's revenues. As a result, a decrease in revenues generated from either of
these customers could have a material adverse effect on the Company's business,
results of operation and financial condition. The Company generates a
substantial amount of its revenues from individually significant orders,
primarily on an international basis. These sales are on a letter of credit or a
similar guaranteed basis or on an open account basis. Generally, credit on an
open account basis is only extended to customers with substantial financial
resources or to public utilities that are government owned in the country to
which the product is shipped. There can be no assurance, however, that these
customers will not encounter liquidity problems that could result in exceptional
delays in the payment of or the inability to pay, accounts receivable balances.
In the event of such an occurrence, the Company's financial condition and
results of operations could be adversely affected. (See note 14 to the
consolidated financial statements which discusses sales to Principal Customers.)

POSSIBLE VOLATILITY OF STOCK PRICES

The market prices for securities of technology companies, including the
Company, have been volatile. Quarter to quarter variations in operating results,
changes in earnings estimates by analysts, announcements of technological
innovations or new products by the Company or its competitors, announcements of
major contract awards and other events or factors may have a significant impact
on the market price of the Company's Common Stock. In addition, the securities
of many technology companies have experienced extreme price and volume
fluctuations, which have often been unrelated to the companies' operating
performance. These conditions may adversely affect the market price of the
Company's Common Stock. In addition, the Company trades on the NASDAQ National
Market under the symbol "STMI". Failure to meet listing requirements may result
in the Company being moved from the National Market to the SmallCap Market or
being de-listed. As a result, investors could find it more difficult to dispose
of, or to obtain accurate quotations as to the value of the Company's Common
Stock and the trading price per share could be reduced.

ANTI-TAKEOVER PROVISIONS

The Company's Certificate of Incorporation provides for 5,000,000
authorized but unissued shares of Preferred Stock, the rights, preferences,
qualifications, limitations and restrictions of which may be fixed by the Board
of Directors without any further vote or action by the stockholders. The
Company's charter documents prescribe procedures for the nomination and election
of directors and limit the ability of stockholders to take actions by written
consent which could make it more difficult for stockholders to elect directors
or take other actions. Further, the Company's Bylaws include a "fair price
provision" which requires the affirmative vote of two-thirds of the outstanding
shares of capital stock entitled to vote generally in the election of directors
to approve certain business combinations. In addition, the Company's stock
option plan provides for the acceleration of vesting of options granted under
such plan in the event of certain transactions which result in a change of
control of the Company. Further, Section 203 of the General Corporation Law of
Delaware prohibits the Company from engaging in certain business combinations
with interested stockholders. These provisions may have the effect of delaying
or preventing a change in control of the Company without action by the
stockholders and therefore could adversely affect the price of the Company's
Common Stock.

CONTROL BY DIRECTORS, EXECUTIVE OFFICERS AND AFFILIATED ENTITIES

As of March 22, 2000, the Company's officers, directors and their
affiliates owned approximately 21.8% of the outstanding Common Stock. If such
stockholders were to act in concert, they might be able to control

14
<PAGE>

substantially all matters requiring approval by the stockholders of the
Company, including the election of directors. Such concentration of ownership
could discourage or prevent a change in control of the Company. See "Principal
Stockholders."

POTENTIAL PRODUCT LIABILITY CLAIMS

Although to date the Company has not experienced any product liability
claims, the sale and support of products by the Company involves the risk of
such claims. The Company maintains product liability insurance in amounts it
believes are customary for similar businesses in the industry; however, a
successful product liability claim brought against the Company, in excess of the
amount for which the Company is insured, or for which coverage is not provided
under the Company's insurance policies, could have a material adverse effect
upon the Company's business, financial condition and results of operations.

YEAR 2000

The Company has experienced no material disruption in the operation of its
business as a result of the transition from 1999 to 2000. The Company estimates
that it spent less than $1 million in out of pocket expenses through December
31, 1999 to address the year 2000 issue. The Company continues to monitor the
year 2000 issue. It is possible that year 2000 problems (or leap year issues)
may become evident as the year progresses. Such issues could have a material
adverse impact on the Company's results of operations, financial condition and
cash flows if the Company is unable to conduct its business in the ordinary
course. In addition, it is possible that our suppliers' and service providers'
failure to adequately address the year 2000 problem could have an adverse effect
on their operations, which, in turn, could have an adverse impact on us.

ITEM 2--PROPERTIES

The Company's principal offices are located in a 62,000 square foot
facility in Irvine, California, which houses all functions including
manufacturing, engineering, accounting, administration, marketing, sales, and
service. The Company purchased this facility on July 28, 1994 and refinanced the
facility in September 1999. As a result of the refinancing, the Company issued a
promissory mortgage note (the "Mortgage Note") in the amount of $7.0 million.
The Mortgage Note is secured by the Company's land and building and related
fixtures and accrues interest at 7% per annum. The Mortgage Note requires
monthly principal and interest payments of approximately $46,571 and is being
amortized over a thirty-year period and matures on November 2014, at which time
all remaining principal and accrued interest is due. The Company currently
subleases approximately 19,100 square feet of its Irvine facility to
another Company under a four year lease.

ITEM 3--LEGAL PROCEEDINGS

From time to time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. As of December
31, 1999, the Company was not engaged in any material legal proceedings which
the Company expects, individually or in the aggregate, will have a material
adverse effect on the Company's results of operations or its financial
condition.

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

None.

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PART II

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

The Company's common stock is traded on the NASDAQ Stock Market under the
symbol STMI. The high and low transaction prices for the common stock, as
reported by the National Association of Securities Dealers, Inc. for each of the
quarterly periods for the years ended December 31, 1999 and 1998 are set forth
in the following table:
<TABLE>
<CAPTION>

PRICE RANGE PER SHARE OF COMMON 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1999

High................................... $ 6.063 $ 4.750 $ 4.000 $ 8.375
Low.................................... 2.281 2.563 2.250 3.125
Year Ended December 31, 1998
High................................... $ 13.250 $ 14.750 $ 10.250 $ 7.688
Low.................................... 6.750 8.750 3.563 4.000
</TABLE>

As of August 1, 1999, there were 84 stockholders of record, and
approximately 1,688 beneficial owners.

The Company does not currently pay cash dividends on its common stock and
intends to retain earnings, if any, for use in the operation and expansion of
its business.

ITEM 6--SELECTED FINANCIAL DATA

The following selected financial data should be read in conjunction with
the consolidated financial statements and notes thereto included elsewhere
herein.

Effective March 31, 1996, the Company sold all the outstanding common
stock of RF Microsystems ("RF"), a wholly-owned subsidiary for $2,926,000. This
sale qualified as a disposal of a segment of a business and accordingly prior
period financial statements have been restated to reflect the discontinuance of
this segment of the business.

In December 1997, the Company issued 480,000 shares of common stock in
exchange for all the outstanding common stock of Telecom International, Inc.
("TI"), a company that specialized in network systems integration. The
transaction was accounted for as a pooling of interests and accordingly, the
Company's financial statements have been restated to include the results of TI
for all applicable periods. TI commenced operations on June 12, 1995.

In June 1998, the Company completed the sale of its majority-owned
subsidiary, TMSI, to Inter-Tel, Incorporated ("Inter-Tel") pursuant to which
Inter-Tel agreed to purchase certain assets and assume certain liabilities of
TMSI for approximately $25 million in cash. A gain of $9,950,000 (net of costs
and reserves then considered necessary) was realized and is included in the
consolidated statement of operations data for the year ended December 31, 1998.
In June 1999, upon the release of substantially all the final funds from escrow,
the Company re-evaluated certain accruals that were established at the time of
the sale and concluded that certain of these accruals were no longer required,
resulting in an additional gain of $2,964,000, which has been classified as a
gain on the sale of assets for the year ended December 31, 1999. (See note 3 to
the consolidated financial statements.)

In 1997, the Company was awarded, through its then 100% owned subsidiary,
DTPI, two long-term service contracts to provide rural telephony services in
Mexico and Venezuela. DTPI was established in 1996 for the purpose of offering
fixed satellite telephony and advanced data services in emerging markets. In
September 1998, DTPI renegotiated its long-term service contract with its
Mexican partner whereby DTPI was paid approximately $9,500,000 (before expenses)
for the sale and installation of remote terminal equipment utilized in the
provision of telephony services. DTPI retained ownership of certain gateway
infrastructure equipment. Both the remote and gateway equipment were classified
as assets for long-term service contracts as part of total assets at
December 31, 1997. As a result of the revision of the agreement, the sales of
remote equipment were classified as revenue in the Company's consolidated
statement of operations data for 1998 and the gateway equipment was classified
as part of

16
<PAGE>

total assets in the consolidated balance sheet data at December 31, 1998. There
were no revenues associated with this Mexican customer in 1999.

Arising from the award of the long-term service contract in Venezuela in
1998, DTPI formed Altair, S.A. with the national telephone company in Venezuela
to provide telephony services in Venezuela. Through DTPI, the Company owned 49%
of this joint venture and accounted for its investment on an equity basis. The
equity investment of $4,151,000 in Altair is included in the consolidated
balance sheet data at December 31, 1998. Revenues of approximately $740,000 and
$3,600,000, representing sales to Altair, were included in total revenues in
1999 and 1998, respectively, and the equity share of the net loss of Altair for
1999 of $59,000 and the net income of Altair for 1998 of $66,000 was included as
part of the net loss in the consolidated statement of operations data. The
revenues and share of the net loss recognized in 1999 for Altair represent the
revenues and net loss through June 17, 1999. (See notes 4 and 17 to consolidated
financial statements.)

In March 1998, the Company completed a $10 million equity offering of
common stock of STM for $4,000,000 and mandatory redeemable preferred stock of
DTPI for $6,000,000; representing 25% of the voting stock of DTPI. The net
proceeds from the issuance of the mandatory redeemable preferred stock in DTPI
plus accrued dividends of $6,355,000 were classified as redeemable minority
interest in the consolidated balance sheet data at December 31, 1998. The
accrued dividends of $450,000 and $275,000 (through June 17, 1999), are
classified as minority interest expense in the Company's consolidated statement
of operations data for the years ended December 31, 1998 and 1999, respectively.

On June 17, 1999, the Company and DTPI completed a financing whereby the
Company sold shares in DTPI representing approximately 31% of the voting stock
of DTPI for approximately $7,100,000 to REMEC, Inc. ("REMEC") and Pequot Private
Equity Fund ("Pequot"). The proceeds comprised cash of $2,219,000, net of
transaction costs of $281,000, a reduction in accounts payable of approximately
$2,300,000 and an offset against future purchases of inventory for approximately
$2,300,000.

As a result of the June 17, 1999 financing, the Company reduced its
ownership in the voting stock of DTPI from 75% to approximately 44% and
relinquished operating control of DTPI. Due to losses incurred by DTPI from
inception through June 17, 1999, STM's equity investment in DTPI including a
$7,500,000 note receivable from DTPI was reduced to zero. STM has no funding
obligations to DTPI nor has it guaranteed any obligations of DTPI. Therefore, in
accordance with the Accounting Principles Board Opinion No. 18, "The Equity
Method of Accounting for investments in Common Stock", ("APB 18"), STM
discontinued accruing losses of DTPI. The consolidated results of operations for
1999 include the results of DTPI through June 17, 1999, and the consolidated
balance sheet at December 31, 1999, excludes the assets and liabilities of DTPI.

In connection with the sale of the shares in DTPI, the Company granted a
concession of $1,600,000 against future purchases of product by DTPI from STM
and agreed to a price adjustment of approximately $1,500,000 with REMEC whereby
the purchase price of all future purchases of committed product from REMEC were
increased. Such liabilities are included in working capital and long-term
liabilities in the consolidated balance sheet data at December 31, 1999. In
addition, DTPI repaid STM $2,500,000 of a $10,000,000 note receivable due to
STM. At December 31, 1999, the remaining balance of the note receivable was
repayable out of the proceeds of future DTPI financings. The remaining balance
was written down to zero due to STM absorbing the losses of DTPI from inception.
However, subsequent to December 31, 1999, DTPI completed a financing resulting
in a payment of $3,750,000 to STM. (See note 20 to consolidated financial
statements.)

Arising primarily from the devaluation of the Brazilian Real, the Company
incurred foreign currency devaluation costs of $1,906,000 (primarily in the
first quarter of 1999) that comprised losses on cash balances, on certain
account receivable balances (where the Company negotiated a settlement of its
long-term receivable due to the currency devaluation) and on other accounts
receivable balances (where the customer has only partially compensated the
Company for the reduction in the value of the Brazilian Real).

17
<PAGE>

The consolidated statement of operations data and loss per share of
common stock with respect to the years ended December 31, 1999, 1998 and 1997,
and the consolidated balance sheet data at December 31, 1999 and 1998 are
derived from audited financial statements included elsewhere herein. The
consolidated statement of operations data and income (loss) per share of common
stock for the years ended December 31, 1996 and 1995 and the consolidated
balance sheet data at December 31, 1997, 1996 and 1995 are derived from audited
financial statements restated in connection with the disposal of RF discussed
above.
<TABLE>
<CAPTION>

YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Total revenues........................................... $ 22,226 $ 42,022 $ 52,148 $ 38,294 $ 31,881
Gross profit............................................. 5,662 7,064 13,749 9,328 10,990
Operating (loss) income.................................. (8,852) (14,764) (2,227) (7,255) 998
Gain on sale of assets................................... 2,964 9,950 -- -- --
Foreign currency devaluation costs....................... (1,906) -- -- -- --
(Loss) income before discontinued operations............. (8,311) (9,406) (2,051) (5,156) 1,067
Net (loss) income........................................ $ (8,311) $ (9,406) $ (2,051) $ (5,068) $ 1,400
(Loss) income per share of common stock:
(Loss) income before discontinued operations:
Basic........................................... $ (1.18) $ (1.36) $ (0.32) $ (0.81) $ 0.18
Diluted......................................... $ (1.18) $ (1.36) $ (0.32) $ (0.81) $ 0.17
Net (loss) income:
Basic........................................... $ (1.18) $ (1.36) $ (0.32) $ (0.80) $ 0.23
Diluted......................................... $ (1.18) $ (1.36) $ (0.32) $ (0.80) $ 0.22
Weighted average common shares for calculating basic
income (loss) per share............................... 7,042 6,936 6,384 6,318 6,009
Weighted average common shares for calculating diluted
income (loss) per share............................... 7,042 6,936 6,384 6,318 6,335

CONSOLIDATED BALANCE SHEET DATA:
Working capital.......................................... $ 12,996 $ 16,013 $ 12,374 $ 21,773 $ 24,529
Equity investment in affiliates.......................... 157 4,151 -- -- --
Total assets............................................. 34,478 63,201 54,417 51,840 46,839
Redeemable minority interest............................. -- 6,355 -- -- --
Long-term debt........................................... 7,049 4,306 4,577 4,828 4,488
Other long-term liabilities.............................. 762 -- -- -- --
Stockholders' equity..................................... $ 13,447 $ 21,758 $ 27,062 $ 28,292 $ 33,028
</TABLE>

18
<PAGE>

QUARTERLY INFORMATION (UNAUDITED):

The following table sets forth certain unaudited quarterly financial
information for the Company's last eight fiscal quarters. This information
includes all normal recurring adjustments that the Company considers necessary
for a fair presentation. The operating results for any quarter are not
necessarily indicative of results for any future period. See Risk Factors:
History of Losses and Fluctuations in Quarterly Operating Results in Part 1 of
this document.
<TABLE>
<CAPTION>

YEAR ENDED DECEMBER 31, 1999
---------------------------------------------------------------------
1ST 2ND 3RD 4TH TOTAL
QUARTER QUARTER QUARTER QUARTER* YEAR
------------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<S> <C> <C> <C> <C> <C>
Total revenues............................................. $ 3,091 $ 5,982 $ 6,536 $ 6,617 $ 22,226
Gross profit............................................... (1,329) 1,835 2,587 2,569 5,662
Operating loss............................................. (6,472) (2,154) (125) (101) (8,852)
Gain on sale of assets..................................... -- 2,964 -- -- 2,964
Foreign currency devaluation costs......................... (1,554) (308) (122) 78 (1,906)
Net (loss) income.......................................... $ (8,463) $ 368 $ (246) $ 30 $ (8,311)
Income (loss) per share of common stock:
Basic................................................. $ (1.20) $ 0.05 $ (0.03) $ 0.00 $ (1.18)
Diluted............................................... $ (1.20) $ 0.05 $ (0.03) $ 0.00 $ (1.18)

YEAR ENDED DECEMBER 31, 1998
---------------------------------------------------------------------

Total revenues............................................. 6,949 9,107 14,323 11,643 42,022
Gross profit............................................... 959 2,141 4,815 (851) 7,064
Operating (loss) income.................................... (3,967) (4,906) 335 (6,226) (14,764)
Gain on sale of assets..................................... -- 9,950 -- -- 9,950
Net (loss) income.......................................... (4,074) 4,434 39 (9,805) (9,406)
Income (loss) per share of common stock:
Basic................................................. $ (0.62) 0.63 0.01 (1.39) (1.36)
Diluted............................................... $ (0.62) 0.60 0.01 (1.39) (1.36)
</TABLE>

* The results for the fourth quarter of 1998 included charges of
approximately $7,100,000 which comprised approximately $2,500,000 for
inventory obsolescence associated with an earlier version of the Company's
products, certain items that were considered excess to requirements and
reserves established for certain inventory on long-term loan to customers,
approximately $3,200,000 for taxes comprising the write-off of deferred tax
assets due to uncertainty concerning the realizability of such assets due
to continued losses by the Company and a reserve established for certain
tax exposures in Brazil, reserves established for accounts receivable
balances of approximately $900,000 associated with the Company's Mexican
partner and other overdue balances and an impairment reserve of $500,000
associated with the carrying value of certain long-term revenue generating
assets due to the Mexican partner experiencing financial difficulties.

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

BACKGROUND

STM is a developer, manufacturer, supplier and service provider of
wireless-based satellite communications infrastructure and user terminal
products utilized in public and private telecommunications networks for
broadband and telephony applications. These networks support IP based data, fax,
voice and video communication and are used to either bypass or extend
terrestrial networks. The Company's product line is based on proprietary
hardware and software and primarily consists of two-way earth stations referred
to as VSATs (very small aperture terminals), associated infrastructure equipment
and software, transceivers, modems and other networking equipment. Historically,
the Company has focused its sales efforts on the international marketplace,
particularly developing countries. For the year ended December 31, 1999,
approximately 93% of the Company's revenue was generated in

19
<PAGE>

the international market through foreign distributors and sales representatives.
The Company's customers include government agencies, telephone companies,
multi-location corporations and others.

In December 1997, the Company issued 480,000 shares of common stock in
exchange for all the outstanding common stock of Telecom International, Inc.
("TI"), a company that specializes in network systems integration. The
transaction was accounted for as a pooling of interests and accordingly, the
Company's consolidated financial statements have been restated to include the
results of TI for all applicable periods.

In June 1998, the Company completed the sale of its then majority-owned
subsidiary, TMSI, to Inter-Tel, Incorporated ("Inter-Tel") pursuant to which
Inter-Tel agreed to purchase certain assets and assume certain liabilities of
TMSI for approximately $25 million in cash. A gain of $9,950,000 (net of costs
and reserves then considered necessary) was realized and is included in the
consolidated statement of operations for the year ended December 31, 1998. In
June 1999, upon the release of substantially all the funds from escrow, the
Company re-evaluated certain accruals that were established at the time of the
sale and concluded that certain of these accruals were no longer required
resulting in an additional gain of $2,964,000, which has been classified as a
gain on the sale of assets for the year ended December 31, 1999. (See notes 3
and 12 to the consolidated financial statements.)

In 1997, the Company was awarded, through its then 100% owned
subsidiary, DTPI, two long-term service contracts to provide rural telephony
services in Mexico and Venezuela. DTPI was established in 1996 for the purpose
of offering fixed satellite telephony and advanced data services in emerging
markets. In September 1998, DTPI renegotiated its long-term service contract
with its Mexican partner whereby DTPI was paid approximately $9,500,000 (before
expenses) for the sale and installation of remote terminal equipment utilized in
the provision of telephony services. DTPI retained ownership of certain gateway
infrastructure equipment. As a result of the revision of the agreement, the
sales of remote equipment were classified as revenue in the Company's
consolidated statement of operations for 1998 and the gateway equipment was
classified as Property, Plant and Equipment in the consolidated balance sheet at
December 31, 1998. There were no revenues associated with this Mexican customer
in 1999.

Arising from the award of the long-term service contract in Venezuela in
1998, DTPI formed Altair with the national telephone company in Venezuela to
provide telephony services in Venezuela. Through DTPI, the Company owned 49% of
this joint venture and accounted for its investment on an equity basis. The
equity investment of $4,151,000 in Altair was included in the consolidated
balance sheet at December 31, 1998. Revenues of approximately $740,000 and
$3,600,000 were included in total revenues in 1999 and 1998, respectively, and
the equity share of the net loss of Altair for 1999 of $59,000 and the net
income for 1998 of $66,000 was included in the consolidated statements of
operations for 1999 and 1998, respectively. The revenues and share of net loss
recognized in 1999 for Altair represent the results of Altair through June 17,
1999. (See notes 4 and 17 to consolidated financial statements.)

In March 1998, the Company completed a $10 million equity offering of
common stock of STM for $4,000,000 and mandatory redeemable preferred stock of
DTPI for $6,000,000; representing 25% of the voting stock of DTPI. The proceeds
from the issuance of the mandatory redeemable preferred stock in DTPI plus
accrued dividends of $6,355,000 were classified as redeemable minority interest
in the consolidated balance sheet at December 31, 1998. The dividends of
$450,000 and $275,000 (through June 17, 1999), are classified as minority
interest in the Company's consolidated statement of operations for the years
ended December 31, 1998 and 1999, respectively.

As a result of the June 17, 1999 financing, the Company reduced its
ownership in the voting stock of DTPI from 75% to approximately 44%. In
addition, in June 1999, DTPI appointed a new Chairman and Chief Executive
Officer. These factors resulted in the Company relinquishing operating control
of DTPI and the Company changed it's accounting for DTPI from a full
consolidation method to the equity method. However, due to losses incurred by
DTPI from inception through June 17, 1999, STM's equity investment in DTPI,
including a $7,500,000 note receivable from DTPI, was reduced to zero. STM has
no funding obligations to DTPI nor has it guaranteed any obligations of DTPI.
Therefore, in accordance with the APB18, STM discontinued accruing losses of
DTPI. The

20
<PAGE>

results of operations for 1999 include the results of DTPI through June 17,
1999, and the consolidated balance sheet at December 31, 1999, excludes the
assets and liabilities of DTPI.

RESULTS OF OPERATIONS

The following table sets forth for the periods presented the percentages
of revenues represented by certain items in the Company's consolidated
statements of operations for the last three fiscal years. The percentages
include the results of DTPI from inception through June 17, 1999.
<TABLE>
<CAPTION>

YEAR ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
--------- --------- --------
<S> <C> <C> <C>
Revenues.............................................................................. 100.0% 100.0% 100.0%
Cost of revenues...................................................................... 74.5 83.2 73.6
--------- --------- --------
Gross profit..................................................................... 25.5 16.8 26.4
Selling, general and administrative expenses.......................................... 36.5 30.3 18.4
Research and development costs........................................................ 24.1 19.3 12.2
Restructuring costs................................................................... 4.7 -- --
Move and relocation charges........................................................... -- 2.3 --
--------- --------- --------
Total operating costs............................................................ 65.3 51.9 30.6
--------- --------- --------
Operating loss................................................................... (39.8) (35.1) (4.2)
Gain on sale of assets................................................................ 13.3 23.6 --
Other income (expense)................................................................ 0.4 (0.1) 0.1
Foreign currency devaluation costs.................................................... (8.6) -- --
Net interest (expense) income......................................................... (1.2) (1.3) (0.6)
--------- --------- --------
Loss before income taxes and minority interest........................................ (35.9) (12.9) (4.7)
Income tax (expense) benefit.......................................................... -- (8.8) 0.5
--------- --------- --------
Loss before minority interest......................................................... (35.9) (21.7) (4.2)
Equity in net income (loss) of affiliate.............................................. (0.3) 0.1 --
Minority interest..................................................................... (1.2) (0.8) 0.3
--------- --------- --------
Net loss.............................................................................. (37.4)% (22.4)% (3.9)%
========= ========= ========
</TABLE>

YEAR ENDED DECEMBER 31, 1999, COMPARED TO YEAR ENDED DECEMBER 31, 1998

Total revenues (including DTPI through June 17, 1999) were $22,226,000
for 1999, compared to $42,022,000 for 1998, representing a decrease of 47% over
the prior year period. Product revenues were $19,962,000 for 1999, compared to
$39,355,000 for 1998 representing a decrease of 49% over the prior year period.
Service revenues were $2,264,000 for 1999, compared to $2,667,000 for 1998,
representing a decrease of 15% over the prior year.

Excluding DTPI (in which the Company sold its controlling interest
effective June 17, 1999) from both 1999 and 1998, total revenues, product
revenues and service revenues would have been $21,392,000, $19,222,000 and
$2,170,000, respectively, for 1999 compared with $28,419,000, $27,708,000 and
$711,000, respectively, for 1998, representing decreases of 25% and 31% in total
revenues and product revenues, respectively, and an increase in service revenues
of 205%. The increase in service revenues reflects the higher service content of
certain 1999 projects and increased revenue earned by the company's Asian
service center in 1999 (its first full year of operation). The level of service
revenue can vary depending on the projects in any given period.

The overall lower level of revenues, excluding DTPI, in 1999 compared to
1998 relates to a lower level of revenues earned in Asia, the Middle East and in
the United States in 1999, partially offset by an increase in revenues in Latin
America. The Company's revenues in total and by region can vary significantly
depending upon the timing of projects and the value of individual projects. In
addition, the economic uncertainty in emerging markets continues to impair the
sales cycle for the Company's products. Revenue opportunities were also
adversely impacted by the significant devaluation and continued instability in
the Brazilian currency in 1999. As part of its restructuring of the

21
<PAGE>

operations of the Company, management has reorganized its sales activities
through personnel changes and there is more direct involvement by the Chief
Executive Officer of the Company in the sales activities. Sales efforts are
focused on specific customers and specific known and identified projects.
Management recognizes that its historical focus on the emerging markets has been
successful in terms of the broad geographical spread of its customer base but
has been unsuccessful in terms of producing consistent revenue growth and
stability. For the future, the Company intends to focus more attention on United
States domestic sales through developing products more suitable to that market
and by developing strategic relationships with larger industry players with
complementary product offerings. However, there can be no assurance that such
efforts will generate any revenue or any specific level of revenues.

The gross profit percentage earned for 1999 was 25% compared to 17% in
1998. Excluding DTPI (in which the Company sold its controlling interest on June
17, 1999), the gross profit percentages would have been 35% for 1999, compared
to 28% for 1998. The gross profit, excluding DTPI for 1998 was positively
impacted by the realization of intercompany profits previously deferred on the
sale of equipment by DTPI to its Mexican partner and was negatively impacted by
inventory reserves of $2,640,000. Adjusted for these matters, the gross profit,
excluding DTPI, would have been approximately 21% for 1998. The improved gross
profit percentages for STM excluding DTPI, in 1999, reflects primarily improved
margins earned on the Company's new lower cost products and lower system
integration sales in 1999 (which typically have a lower gross profit
percentage). The average gross profit percentage (excluding DTPI) earned in
quarters two to four of 1999 was 39%.

Selling, general and administrative (SG&A) expenses for 1999 decreased
to $8,118,000 (37% of revenue) from $12,746,000 (30% of revenue) for 1998.
Excluding DTPI (in which the Company sold its controlling interest on June 17,
1999), in 1999 SG&A would have decreased to $6,608,000 (31% of revenue) compared
to $10,186,000 (36% of revenue) for 1998. Excluding DTPI, the reduction in SG&A
in 1999 compared to 1998 reflects reduced costs primarily in the second through
the fourth quarters of 1999 arising from the cost reduction programs implemented
by the Company in the first and second quarters of 1999.

Research and development (R&D) costs for 1999 decreased to $5,354,000
(24% of revenues) from $8,102,000 (19% of revenues) in 1998. There were no R&D
expenses associated with DTPI. The decrease in R&D costs in 1999 compared to
1998 primarily relate to (i) cost reductions (including some headcount
reductions) due to completion of the development of the Company's new low cost
VSAT products, (ii) a charge of approximately $1,400,000 in 1998 for a
contractually committed R&D project with no discernable future benefit, and
(iii) the absence in 1999 of any R&D costs associated with TMSI (the assets of
which were sold in June 1998).

The restructuring costs of $1,042,000 recognized in 1999 related to cost
reduction programs implemented in the first 6 months of 1999 and comprised
severance costs associated with approximately 70 terminated employees, the
write-off of certain assets in the Company's Brazilian subsidiary and the cost
of exiting a lease commitment, which was determined to be in excess of current
requirements. (See note 19 to the consolidated financial statements.)

The move and relocation charges of $980,000 in 1998 primarily comprised
severance, relocation and move costs incurred in connection with the
consolidation of the Company's Network Systems Division in Georgia.

The gain on sale of assets of $9,950,000 in 1998 represented a gain (net
of costs incurred and reserves then considered necessary) on the sale of
substantially all the assets of TMSI. In June 1999, upon the release of
substantially all the final funds from escrow, the Company re-evaluated certain
accruals that were established at the time of the sale, resulting in the
recognition of $2,964,000 as an additional gain on the sale of assets of TMSI in
1999.

The foreign currency devaluation costs of $1,906,000 in 1999 arose
primarily from the devaluation of the Brazilian Real and comprised losses on
cash balances, on certain account receivable balances (where the Company
negotiated a settlement of its long-term receivable due to the currency
devaluation) and on other accounts receivable balances (where the customer only
partially compensated the Company for the reduction in the value of the
Brazilian Real).

Interest income increased by $242,000 to $1,221,000 in 1999 from
$979,000 in 1998. Excluding DTPI (in which the Company sold its controlling
interest on June 17, 1999), interest income would have been $980,000 in 1999
compared with $664,000 for 1998. The increase in interest income, excluding
DTPI, for 1999 primarily relates

22
<PAGE>

to interest income recognized on a note receivable due from DTPI subsequent to
the deconsolidation of DTPI. (See notes 4 and 17 to the consolidated financial
statements.)

Interest expense increased to $1,491,000 in 1999 from $1,476,000 in
1998. There was no external interest expense associated with DTPI. For 1999, the
average level of borrowings decreased compared with 1998. However, in 1999 the
Company paid a higher effective rate of interest on its line of credit
borrowings due to the Company and its bank negotiating a pay down of its
borrowings. (See note 8 to the consolidated financial statements.)

The absence of a tax provision in 1999 is due to continued losses by the
Company. No deferred tax benefit has been recognized due to uncertainty as to
relizability of such benefit due to the continuing losses. The tax liabilities
recognized represent estimated liabilities for foreign exposures. The tax
provision of $3,698,000 in 1998 reflected the write-off of the Company's
deferred tax assets at December 31, 1998, due to uncertainty concerning the
ability to realize such assets as a result of the Company's continued losses and
a $1,000,000 provision established for overseas tax liabilities.

The equity in net income (loss) of unconsolidated affiliate for 1998 and
1999 represented the Company's share of the loss for 1999 and income for 1998 of
DTPI's Venezuelan affiliate which was accounted for on an equity basis.
Coinciding with the Company relinquishing control of DTPI there was no equity
pick-up required after June 17, 1999.

The minority interest charge in 1999 related to accrued dividends
(representing accretion to the liquidation preference) through June 17, 1999, on
the mandatory redeemable shares issued in March 1998 by DTPI. In 1998, the
minority interest charge represented the accrued dividends on the mandatory
redeemable shares of DTPI for the period April 1, 1998, through December 31,
1998, and a minority interest credit associated with TMSI through the date of
sale of the assets of TMSI in June 1998.

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

Revenues decreased to $42,022,000 in 1998 from $52,148,000 in 1997. The
decrease of $10,126,000 was primarily in product revenues. In 1997, the Company
benefited from a $30 million product sale to a customer in Southeast Asia that
was fully recognized as revenue in 1997. During 1998, due to the Asian crisis,
revenues from Asia decreased from $35,630,000 in 1997 to $7,309,000 in 1998. The
Company refocused its sales efforts to Latin and South America, Africa and the
Middle East in an effort to recover momentum in the business. In addition, in
1998, the Company renegotiated its long-term service contract with DTPI's
Mexican partner resulting in approximately $9,500,000 of revenue and generated
revenues of approximately $3,600,000 from DTPI's Venezuelan Altair joint
venture. The Company believes that the diversion of management attention to the
setting up of the DTPI service business as well as the Asian financial crisis,
in general, were the primary reasons for the decline in product revenues in 1998
compared to 1997. The effect of the Asian crisis carried forward in 1999. The
increase in service revenue in 1998 compared to 1997 related to service revenues
generated by the Company's DTPI long-term service business, which commenced
operations in late 1997. Approximately $1,400,000 of such service revenues were
from DTPI's Mexican partner (see note 5 to the consolidated financial
statements), which experienced financial difficulties in late 1998, resulting in
no on-going revenue from this customer.

Gross profit decreased to 17% of revenues in 1998 compared to 26% in
1997. The decrease to 17% in 1998 related to inventory reserves of approximately
$2,640,000 established in 1998 and direct costs associated with the DTPI
business of approximately $2,200,000 that did not exist in 1997 due to DTPI only
commencing operations in December 1997. The inventory reserves were for (i)
inventory obsolescence associated with an earlier version of the Company's
products, (ii) certain items that are considered excess to requirements and,
(iii) reserves considered necessary for product on long-term loan to certain
customers. The product gross profit percentage is comparable year on year when
adjusted for the inventory reserves. The service gross profit decreased from 43%
in 1997 to a negative 11% and reflected the direct infrastructure costs of
establishing DTPI as well as a $500,000 impairment reserve established against
certain gateway equipment associated with the DTPI's Mexican partner where there
was an impairment of the carrying value of revenue generating assets, due to the
Mexican partner experiencing financial difficulties.

Selling, general and administrative expenses in 1998 were $12,746,000
compared to $9,589,000 in 1997. As a percentage of revenues, these expenses
increased to 30% in 1998 from 18% in 1997. The dollar increase of $3,157,000 in
1998 compared to 1997 reflects increased costs of approximately $2,600,000
relating to DTPI that did not exist in the prior year and other general
increases in costs including bad debt reserves, rent on the Company's

23
<PAGE>

new Atlanta facility with associated administrative overhead and an increased
number of sales personnel. The increase in percentage terms reflects the
relatively fixed nature of such costs irrespective of the level of revenues.

Research and development costs were $8,102,000 in 1998 as compared to
$6,387,000 in 1997. As a percentage of revenues, these costs increased to 19% in
1998 as compared to 12% in 1997. The dollar increase was due to expenditures for
personnel and outside services in support of the Company's continuing new
product development efforts for the SES and SpaceWeb products and an expense of
approximately $1,400,000 for a contractually committed research and development
project with no discernible future benefit that was recognized in 1998.

The gain on sale of assets of $9,950,000 in 1998 represented a gain (net
of costs and reserves then considered necessary at the time) on the sale of the
Company's majority-owned subsidiary, TMSI. The reserves established primarily
related to exposures to litigation, intellectual property indemnifications,
customer concessions, license fees and management bonuses. (See note 3 to the
consolidated financial statements.)

Interest income increased by $295,000 to $979,000 in 1998, compared to
1997. The increase in interest income was due primarily to higher cash deposits
being maintained by the Company as a result of the issuance of shares for cash
by both STM and DTPI, the sale of the assets of TMSI, the receipt of cash from
the DTPI's long-term service agreement in Mexico and higher level of bank
borrowings in 1998 compared to 1997.

Interest expense increased by $494,000 to $1,476,000 in 1998 compared to
1997. The increase was primarily due to an increase in short-term borrowings
from banks compared to 1997 when the Company partially financed its working
capital requirements by discounting letters of credit from customers at a lower
cost.

The tax provision of $3,698,000 in 1998, compared to a tax benefit of
$306,000 in 1997, reflected the write-off of the Company's deferred tax assets
at December 31, 1998, due to uncertainty concerning the ability to realize such
assets as a result of the Company experiencing continued losses and a tax
provision of $1,000,000 established for tax exposures in Brazil.

The minority interest charge relates to accrued dividends on the
mandatory redeemable shares issued in March 1998, by DTPI (see note 10 to the
consolidated financial statements), offset by a credit associated with TMSI's
minority interest in the first quarter of 1998 (prior to the sale of TMSI in the
second quarter of 1998).

LIQUIDITY AND CAPITAL RESOURCES

In 1999, the Company completed a financing package through the sale of
shares in DTPI for cash of $2,500,000, credits of approximately $4,600,000 and
the partial repayment of $2,500,000 of a note receivable due from DTPI, which in
total made funds of approximately $9,600,000 available. In addition, in October
1999, the Company refinanced its corporate headquarters through a deed of trust
for $7,000,000 thereby paying off existing debt on the headquarters of
approximately $4,000,000 and generating additional cash of approximately
$3,000,000. With these cash resources, in December 1999 the Company fully paid
down borrowings under a short term line of credit.

Subsequent to December 31, 1999, DTPI (the Company's 44% affiliate which
was deconsolidated effective June 17, 1999, as a result of the Company reducing
its ownership in the voting stock of DTPI) reached agreement with third party
investors to invest new capital of $45,000,000 in DTPI. Under the terms of this
agreement, DTPI paid STM cash of $3,750,000 and STM's ownership in DTPI was
reduced to approximately 15%. (See note 20 to the consolidated financial
statements.)

The Company recently obtained a new line of credit for approximately
$3,300,000 which should make additional cash of approximately $2,800,000
available to the Company.

In 1999, the Company had negative cash flows from operations of $822,000
compared to $19,430,000 in 1998. Certain non-cash items plus a reduction of
$8,004,000 in accounts receivable reduced the usage of cash by the net loss for
1999 from $8,311,000 to the cash used in operations of $822,000. The net cash
usage from operations in 1998 was primarily a result of net losses for the year,
increases in accounts receivable and inventories and decreases in accounts
payable.

24
<PAGE>

In 1999, the Company generated $810,000 from investing activities
compared to $13,828,000 in 1998. In 1998, the Company generated $17,299,000 from
the sale of TMSI and $1,821,000 from the sale of short-term investments and used
$3,168,000 to invest in Altair, $1,500,000 for purchases of property, plant and
equipment and $624,000 to increase restricted assets. In 1999, the Company
generated cash of $4,719,000 from the June 1999 financing and $1,106,000 from
the sale of short-term investments and used cash of $3,149,000 which was
forfeited upon deconsolidation of DTPI, $1,102,000 to invest in Altair, $466,000
to increase restricted cash and $298,000 for purchases of property, plant and
equipment.

In 1999, net cash used in financing activities was $5,716,000 compared
to cash generated of $12,523,000 in 1998. In 1998, the Company generated
$9,988,000 from the sale of shares, $2,750,000 from an increase in short-term
borrowings offset by a net usage of $215,000 associated with long-term debt. In
1999, the Company generated $2,939,000 net from refinancing its corporate
headquarters and used $8,650,000 by repaying short-term borrowings.

Overall, the Company's cash, cash equivalents and short-term investments
(excluding restricted balances) totaled $4,441,000 at December 31, 1999 compared
to $12,122,000 at December 31, 1998.

Management expects to have sufficient cash generated from operations,
through availability under lines of credit, cash received from DTPI and through
other sources to meet the anticipated cash requirements for the next twelve
months.

In September, 1994 the Company's Board of Directors authorized a stock
repurchase program whereby the Company may repurchase, in the open market, up to
10% of its shares outstanding, at times and prices to be determined by the
Board. The repurchased shares would be used for potential future acquisitions
and for exercises under the Company's stock option plans. The Company has not
repurchased any shares to date nor does it have any present commitments or
intention to repurchase shares at this time.

YEAR 2000

The Company has experienced no material disruption in the operation of
its business as a result of the transition from 1999 to 2000. The Company
estimates that it spent less than $1 million in out-of-pocket expenses through
December 31, 1999, to address the year 2000 issue. The Company continues to
monitor the year 2000 issue. It is possible that year 2000 problems (or leap
year issues) may become evident as the year progresses. Such issues could have a
material adverse impact on the Company's results of operations, financial
condition and cash flows if the Company is unable to conduct it business in the
ordinary course.

NEW ACCOUNTING STANDARDS

In June 1998, the Financial Accounting Standards Board issued statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133, as amended by SFAS
137, is effective for all fiscal quarters or fiscal years beginning after June
15, 2000. SFAS 133 establishes accounting and reporting standards for derivative
instruments including derivative instruments embedded in other contracts and for
hedging activities. Adoption of SFAS 133 is not expected to have a material
impact on the Company's consolidated financial position, results of operations
or liquidity.

ITEM 7A--QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

To avoid the risk of fluctuating exchange rates associated with
international sales, the Company conducts most international sales in United
States currency. However, prior to the devaluation of the Brazilian currency in
January 1999 the Company had generated a significant portion of its Brazilian
revenue in the local currency of Brazil. While the contracts relating to such
arrangements generally contained provisions that called for payments to be
adjusted to take into account fluctuations in foreign currency exchange rates,
the Company's customers in Brazil expressed an unwillingness to adjust contract
amounts to fully reflect some of the exchange rate fluctuations. Brazilian
counsel advised the Company that there is uncertainty as to the enforceability
of provisions which tie payments to foreign currency rates (see note 6 to the
consolidated financial statements). The Company, therefore, whenever possible,
negotiates sales from Brazilian customers in U.S. dollars to avoid any
uncertainty as to the value of receivables. The Company does not use derivatives
to manage any foreign currency exposures.

25
<PAGE>

The Company's exposure to market risk is mainly comprised of interest
rate risk and credit risk related to its short-term investments. The Company
addresses these risks by monitoring credit quality standards and maturity dates
of investments. The Company's exposure to market risk is not expected to be
material. The Company does not use derivative financial instruments in its
investment portfolio.

ITEM 8--FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULE AND SUPPLEMENTARY
DATA

INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE:

Consolidated Financial Statements:
<TABLE>
<CAPTION>

<S> <C>
Report of Independent Auditors....................................................................................... 27
Consolidated Balance Sheets as of December 31, 1999 and 1998......................................................... 28
Consolidated Statements of Operations for the years ended December 31, 1999, 1998 and 1997........................... 29
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1999, 1998 and 1997................. 30
Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997........................... 31
Notes to Consolidated Financial Statements........................................................................... 33

Financial Statement Schedule:
(For the three years ended December 31, 1999)

Schedule II--Valuation and Qualifying Accounts and Reserves........................................................... 50
</TABLE>

All other financial statement schedules are omitted because they are not
applicable or the required information is shown in the consolidated financial
statements or notes thereto.

26
<PAGE>

REPORT OF INDEPENDENT AUDITORS

The Board of Directors
STM Wireless, Inc.:

We have audited the accompanying consolidated financial statements of STM
Wireless, Inc. and subsidiaries as listed in the accompanying index. In
connection with our audits of the consolidated financial statements, we have
also audited the financial statement schedule as listed in the accompanying
index. These consolidated financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of STM
Wireless, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.

KPMG LLP

Orange County, California
March 2, 2000

27
<PAGE>

STM WIRELESS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>

1999 1998
------------ --------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents......................................................................$ 4,441 $ 11,016
Short-term investments......................................................................... -- 1,106
Restricted cash and short-term investments..................................................... 2,615 2,224
Accounts receivable, less allowances of $590 in 1999 and $2,022 in 1998........................ 7,841 17,016
Inventories.................................................................................... 11,069 13,108
Current portion of long-term receivables....................................................... -- 702
Prepaid expenses and other current assets...................................................... 250 1,623
------------ --------------
Total current assets......................................................................... 26,216 46,795
Property, plant and equipment, net................................................................ 7,964 11,056
Long-term receivables............................................................................. -- 788
Equity investment in affiliates................................................................... 157 4,151
Other assets...................................................................................... 141 411
------------ --------------
Total assets.................................................................................$ 34,478 $ 63,201
============ ==============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings..........................................................................$ 2,000 $ 10,650
Current portion of long-term debt.............................................................. 542 384
Accounts payable............................................................................... 5,967 9,582
Accrued liabilities............................................................................ 4,214 7,256
Customer deposits and deferred revenue......................................................... 7 1,910
Income taxes payable........................................................................... 490 1,000
------------ --------------
Total current liabilities.................................................................... 13,220 30,782
Long-term debt.................................................................................... 7,049 4,306
Redeemable minority interest...................................................................... -- 6,355
Other long-term liabilities....................................................................... 762 --
Commitments and contingencies (note 12)........................................................... -- --
Stockholders' equity:
Preferred stock, $0.001 par value; 5,000,000 shares authorized, none issued or
outstanding.................................................................................. -- --
Common stock, $0.001 par value; 20,000,000 shares authorized; 7,042,204
shares issued and outstanding at December 31, 1999 and 1998, respectively.................... 7 7
Additional paid in capital..................................................................... 38,140 38,140
Accumulated deficit............................................................................ (24,700) (16,389)
------------ --------------
Total stockholders' equity................................................................... 13,447 21,758
------------ --------------
Total Liabilities and Stockholders' Equity...................................................$ 34,478 $ 63,201
============ ==============
</TABLE>

See accompanying notes to consolidated financial statements.

28
<PAGE>

STM WIRELESS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>

1999 1998 1997
-------- --------- --------
<S> <C> <C> <C>
Revenues:
Products................................................................ $19,962 $ 39,355 $49,824
Services................................................................ 2,264 2,667 2,324
-------- --------- --------
Total revenues................................................... 22,226 42,022 52,148
Cost of revenues:
Products................................................................ 14,386 32,010 37,084
Services................................................................ 2,178 2,948 1,315
-------- --------- --------
Total cost of revenues........................................... 16,564 34,958 38,399
-------- --------- --------
Gross profit..................................................... 5,662 7,064 13,749
Selling, general and administrative expenses.................................... 8,118 12,746 9,589
Research and development costs.................................................. 5,354 8,102 6,387
Move and relocation charges..................................................... -- 980 --
Restructuring costs............................................................. 1,042 -- --
-------- --------- --------
Total operating costs............................................ 14,514 21,828 15,976
-------- --------- --------
Operating loss................................................... (8,852) (14,764) (2,227)
Interest income................................................................. 1,221 979 684
Interest expense................................................................ (1,491) (1,476) (982)
Foreign currency devaluation costs.............................................. (1,906) -- --
Gain on sale of assets.......................................................... 2,964 9,950 --
Other income (expense), net..................................................... 87 (53) 42
-------- --------- --------
Loss before income taxes, equity income and minority interest.... (7,977) (5,364) (2,483)
Income tax benefit (expense).................................................... -- (3,698) 306
-------- --------- --------
Loss before equity income and minority interest.................. (7,977) (9,062) (2,177)
Equity in net income (loss) of unconsolidated affiliates........................ (59) 66 --
Minority interest benefit (expense)............................................. (275) (410) 126
-------- --------- --------
Net loss......................................................... $(8,311) $ (9,406) $(2,051)
======== ========= ========
Loss per share of common stock:
Basic:.................................................................. $ (1.18) $ (1.36) $ (0.32)
Diluted:................................................................ $ (1.18) $ (1.36) $ (0.32)

Common shares used in computing per share amounts:
Basic................................................................... 7,042 6,936 6,384
Diluted................................................................. 7,042 6,936 6,384
</TABLE>

See accompanying notes to consolidated financial statements.

29
<PAGE>

STM WIRELESS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>

NUMBER OF COMMON ADDITIONAL TOTAL
SHARES STOCK PAID-IN ACCUMULATED STOCKHOLDERS'
COMMON STOCK AT PAR VALUE CAPITAL DEFICIT EQUITY
---------------- --------------- ------------ ----------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996.................. 6,294,250 $6 $33,218 $ (4,932) $28,292
Issuance of common stock...................... 34,900 -- 162 -- 162
Exercise of stock options..................... 119,014 -- 659 -- 659
Net loss...................................... -- -- -- (2,051) (2,051)
---------------- --------------- ------------ ----------------- ---------------
Balance at December 31, 1997.................. 6,448,164 $6 $34,039 $ (6,983) $27,062
Issuance of common stock, net of costs
(note 11)............................... 571,429 1 3,955 -- 3,956
Exercise of stock options..................... 22,611 -- 146 -- 146
Net loss...................................... -- -- (9,406) (9,406)
---------------- --------------- ------------ ----------------- ---------------
Balance at December 31, 1998.................. 7,042,204 $7 $38,140 $(16,389) $21,758
Net loss...................................... -- -- -- (8,311) (8,311)
---------------- --------------- ------------ ----------------- ---------------
Balance at December 31, 1999.................. 7,042,204 $7 $38,140 $(24,700) $13,447
================ =============== ============ ================= ===============
</TABLE>

See accompanying notes to consolidated financial statements.

30
<PAGE>

STM WIRELESS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>

1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................................................ $ (8,311) $ (9,406) $ (2,051)
Adjustments to reconcile net loss to net cash provided by (used in) operations:
Minority interest................................................................... 275 410 (126)
Equity in losses (earnings) of affiliates........................................... 59 (66) --
Gain on sale of TMSI................................................................ (2,964) (9,950) --
Provision (recovery) for allowances on accounts receivable.......................... (136) 1,488 91
Provision (recovery) for inventory obsolescence..................................... (189) 2,640 (456)
Provision for impairment of long-lived assets....................................... -- 500 --
Non-cash restructuring charges...................................................... 246 -- --
Foreign currency devaluation costs.................................................. 1,906 -- --
Depreciation and amortization....................................................... 2,769 2,025 1,548
Changes in assets and liabilities, excluding effects of sale of subsidiaries:
(Increase) decrease in accounts receivable..................................... 8,004 (6,656) 1,540
Increase in inventories........................................................ (43) (1,218) (1,539)
(Increase) decrease in prepaid and other current assets........................ 1,257 (1,167) (206)
(Increase) decrease in deferred income taxes................................... -- 3,132 (306)
(Increase) decrease in long-term receivables................................... 906 564 473
(Increase) decrease in other assets............................................ 234 -- (140)
Increase (decrease) in accounts payable........................................ (1,161) (3,811) 3,009
Increase (decrease) in customer deposits....................................... (1,433) 1,625 (628)
Increase (decrease) in accrued liabilities..................................... (1,731) (115) 240
Increase (decrease) in income taxes payable.................................... (510) 575 (32)
----------- ----------- -----------
Net cash provided by (used in) operating activities....................... (822) (19,430) 1,417
----------- ----------- -----------
Cash flows from investing activities:
Net change in short-term investments................................................ $ 1,106 $ 1,821 $ (18)
Increase in restricted assets....................................................... (466) (624) --
Purchases of property, plant, & equipment........................................... (298) (1,500) (9,922)
Cash forfeited upon sale of DTPI.................................................... (3,149) -- --
Equity investment in Altair......................................................... (1,102) (3,168) --
Proceeds from sale of TMSI.......................................................... -- 17,299 --
Proceeds from repayment of note receivable.......................................... 2,500 -- --
Proceeds from sale of DTPI stock, net............................................... 2,219 -- --
----------- ----------- -----------
Net cash provided by (used in) investing activities............................ 810 13,828 (9,940)
----------- ----------- -----------

(CONTINUED)
</TABLE>

See accompanying notes to consolidated financial statements.

31
<PAGE>

STM WIRELESS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Cash flows from financing activities:
(Repayment) Increase in short-term borrowings, net......................... (8,650) 2,750 1,500
Proceeds from issuance of common stock, net................................ -- 4,102 821
Proceeds from issuance of redeemable preferred stock in subsidiary, net.... -- 5,886 --
Proceeds from issuance of long-term leases................................. 90 56 120
Proceeds from refinancing of corporate headquarters........................ 7,000 -- --
Repayments of long-term debt............................................... (4,156) (271) (276)
-------- -------- --------
Net cash provided (used in) by financing activities................... (5,716) 12,523 2,165
-------- -------- --------

Effect of foreign exchange rate on cash and cash equivalents.................... (847) -- --
Net increase (decrease) in cash and cash equivalents............................ (6,575) 6,921 (6,358)
Cash and cash equivalents at beginning of year.................................. 11,016 4,095 10,453
-------- -------- --------
Cash and cash equivalents at end of year........................................ $ 4,441 $11,016 $ 4,095
======== ======== ========

Supplemental disclosure of cash flow information:
Interest paid.............................................................. $ 1,466 $ 1,476 $ 982
======== ======== ========
Income taxes paid.......................................................... $ 208 $ -- $ 230
======== ======== ========
</TABLE>

In 1998, the Company contributed approximately $917,000 in inventory to
Altair, the Company's joint venture with CANTV.

See accompanying notes to consolidated financial statements.

32
<PAGE>

STM WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

(1) DESCRIPTION OF THE COMPANY

STM Wireless, Inc. (the "Company" or "STM") is a developer, manufacturer
and provider of wireless-based satellite communications infrastructure and user
terminal products utilized in public and private telecommunications networks for
broadband and telephony applications. These networks support IP based data, fax,
voice and video communication and are used to either bypass or extend
terrestrial networks. The Company's product line is based on proprietary
hardware and software and primarily consists of two-way earth stations referred
to as VSATs (very small aperture terminals), associated infrastructure equipment
and software, transceivers, modems and other networking equipment. The Company
historically has focused its sales efforts on the international marketplace,
particularly developing countries. The Company's former subsidiary, SkyOnline,
Inc., formerly known as Direc-To-Phone International, Inc. ("DTPI"), provides
telecommunications services in international markets.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the financial results of
the Company and its wholly-owned subsidiaries, including Telecom Multimedia
Systems, Inc., ("TMSI") for all periods through March 1998, and DTPI for all
periods from inception through June 1999. All significant intercompany balances
and transactions have been eliminated in consolidation.

USE OF ESTIMATES

The financial statements have been prepared in conformity with generally
accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities as of the dates of the balance sheets and revenues and expenses
for the periods presented. Actual results could differ significantly from those
estimates.

REVENUE RECOGNITION

Sales of the Company's communications products and related installed
software are generally recognized upon shipment. Sales of the Company's products
to distributors are normally not subject to right of return. Service revenues
are recognized when services have been performed.

Revenues from certain long-term product and service contracts are
recognized under the percentage-of-completion method, whereby contract costs are
expensed as incurred and revenues are recorded based on the ratio of costs
incurred to total estimated costs at completion. If the estimate of total
contract costs results in a loss, a provision is made currently for the total
anticipated loss.

The Company generally warrants its products to be free from defects for
a period of one year from shipment. Estimated warranty liabilities are evaluated
for adequacy on an on-going basis.

CASH AND CASH EQUIVALENTS

Cash equivalents are highly liquid investments which are readily
convertible into known amounts of cash and have original maturities of three
months or less, consisting primarily of cash, certificates of deposit and other
money market instruments.

SHORT-TERM INVESTMENTS

The Company's short-term investments consist primarily of certificates
of deposit with original maturities between 90 and 360 days. As of December 31,
1998, the fair market value of these securities approximates cost. There were no
short-term investments at December 31, 1999.

33
<PAGE>

STM WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

RESTRICTED ASSETS

Cash and short-term investments whose use is restricted are classified
separately as restricted cash and short-term investments.

INVENTORIES

Inventories are stated at the lower of cost (first-in, first-out method)
or market and consist of the following:

DECEMBER 31,
-----------------------------
1999 1998
------------- --------------
(DOLLARS IN THOUSANDS)
Raw materials........................... $ 6,091 $ 7,423
Work in process......................... 590 823
Finished goods.......................... 4,388 4,862
------------- --------------
$ 11,069 $ 13,108
============= ==============

In December 1998, the Company increased its inventory reserves by
approximately $2,640,000 to recognize the increased risk of obsolescence
associated with previous generations of the Company's products, certain other
items that were considered excess to requirements and certain inventory on
long-term loan to customers. In 1999, the Company reduced its inventory reserves
by approximately $189,000 through the sale of inventory, previously reserved.

EQUITY METHOD OF ACCOUNTING

Investments in twenty to fifty percent-owned affiliates are accounted
for under the equity method of accounting, whereby the investment in and
advances to the affiliate are carried at cost, plus the Company's equity in
undistributed earnings or losses since acquisition. The Company defers its share
of the profits or losses on sales to affiliates and when appropriate these
amounts are amortized to income. In accordance with Accounting Principles Board
Opinion No. 18, "The Equity Method of Accounting for Investments in Common
Stock", ("APB18"), when an equity investment is reduced to zero and there are no
funding obligations or guarantees of the obligations of the affiliate, the
Company does not accrue any future losses of the affiliate and discontinues the
equity method until such time that the affiliate is profitable. Reserves are
provided where management determines that the investment or equity in earnings
has been permanently impaired. As of December 31, 1999, and 1998, no such
reserves were considered necessary.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is recorded at cost and depreciated on a
straight-line basis over the estimated useful lives of the assets. Buildings are
depreciated over 30 years. Satellite equipment, other equipment and furniture
and fixtures are depreciated over 3-5 years. Assets used for long-term service
contracts associated with DTPI's business were depreciated commencing when the
asset was placed in service, over the shorter of their estimated useful lives or
the lives of the contracts to which they related. Leasehold improvements are
amortized over the shorter of their estimated useful lives or the term of the
lease.

LONG-TERM RECEIVABLES

Long-term receivables are recorded at cost. Management, considering
current information and events regarding the borrowers' ability to repay their
obligations, considers a note to be impaired when it is probable that the
Company will be unable to collect all amounts due according to the contractual
terms of the note agreement. When a loan is considered to be impaired, the
amount of the impairment is measured based on the present value of expected
future cash flows discounted at the note's effective interest rate. Cash
receipts on impaired notes receivable

34
<PAGE>

STM WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

are applied to reduce the principal amount of such notes until the principal has
been recovered and are recognized as interest income, thereafter. As of December
31, 1998, the Company did not consider an allowance for impaired notes
receivable to be necessary. Arising from the currency devaluation in Brazil in
1999, the Company negotiated a settlement of certain long-term receivables from
a customer in Brazil. The loss arising of $584,000 has been classified as a part
of the foreign currency devaluation costs in the accompanying consolidated
statement of operations in 1999.

FAIR VALUE OF FINANCIAL INSTRUMENTS

As of December 31, 1999, and 1998, the carrying value of cash and cash
equivalents, accounts receivable, accounts payable, accrued liabilities and
income taxes payable approximate fair value due to the short-term nature of such
instruments. The carrying value of short-term investments approximates fair
value based on quoted market prices for those or similar investments. The fair
value of all debt and long-term receivables approximate fair value as the
related interest rates approximate rates currently available to/from the
Company.

RESEARCH AND DEVELOPMENT

All research and development costs are charged to expense as incurred
and primarily consist of salaries and applicable overhead expenses of employees
directly involved in the design of the satellite network hardware and software
and certain third party outside service costs.

INCOME TAXES

Income taxes are accounted for under the asset and liability method.
This method generally provides that deferred tax assets and liabilities be
recognized for temporary differences between the financial reporting basis and
the tax basis of the Company's assets and liabilities and expected benefits of
utilizing net operating loss ("NOL") carryforwards. The Company records a
valuation allowance for certain temporary differences for which it is not more
likely than not that it will realize future tax benefits. The impact on deferred
taxes of changes in tax rates and laws, if any, are applied to the years during
which temporary differences are expected to be settled and reflected in the
financial statements in the period of enactment.

STOCK OPTIONS PLANS

The Company measures stock-based compensation for employees using the
intrinsic-value method which assumes that options granted with exercise prices
at the fair market value of the underlying stock at the date of grant have no
intrinsic value. In accordance with Statement of Financial Accounting Standards
(SFAS) No. 123, "Accounting for Stock-Based Compensation," pro forma net loss
and net loss per share are presented in note 11 as if the fair value method had
been applied.

IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF

Long-lived assets are reviewed for impairment in value based upon
undiscounted future operating cash flows, and appropriate losses are recognized
whenever circumstances indicate that the carrying amount of an asset may not be
recoverable.

FOREIGN CURRENCY TRANSLATION

The Company has determined that the U.S. dollar is the functional
currency for its subsidiaries outside the U.S. under SFAS No. 52, "Foreign
Currency Translation" ("SFAS 52"). Based on this determination, the Company's
foreign operations are measured by reflecting the financial results of such
operations as if they had taken place within a U.S. dollar-based economic
environment. Inventory, fixed assets and other non-monetary assets and
liabilities are remeasured from foreign currencies to U.S. dollars at historical
exchange rates whereas cash, accounts receivable and other monetary assets and
liabilities are remeasured at current exchange rates. Gains and losses resulting
from those remeasurements are included in income for the current period. In
1999, the Company incurred foreign currency devaluation costs of $1,906,000
primarily associated with the devaluation of the Brazilian

35
<PAGE>

STM WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

currency. Such costs are included in the consolidated statement of operations
for the year ended December 31, 1999. Foreign currency losses in 1998 and 1997
were not material.

NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133, as amended by SFAS
137, is effective for all periods for fiscal years beginning after June 15,
2000. SFAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities. SFAS 133 requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. Application of SFAS 133 is
not expected to have a material impact on the Company's consolidated financial
position, results of operations or liquidity.

RECLASSIFICATIONS

Certain reclassifications have been made to the 1998 and 1997
consolidated financial statements to conform to the 1999 presentation.

(3) ACQUISITIONS AND DISPOSALS

TELECOM INTERNATIONAL, INC.

On December 12, 1997, the Company issued 480,000 shares of its common
stock in exchange for all of the outstanding common stock of Telecom
International, Inc. ("TI"). TI was a system integrator and installer of large
satellite terminals used in rural telephony and enterprise networks. The merger
was accounted for as a pooling of interests and accordingly, all financial
statements have been restated as if the merger took place at the beginning of
1997.

TELECOM MULTIMEDIA SYSTEMS, INC.

In August 1995, the Company purchased 72.5% of the outstanding common
stock and newly issued preferred stock of Telecom Multimedia Systems, Inc.
("TMSI") for $1,000,000 cash and 10,000 shares of the Company's common stock
valued at $18.75 per share. The acquisition of TMSI was accounted for under the
purchase method of accounting. Accordingly, the purchase price was allocated to
the net assets acquired based upon their estimated fair market values.

In 1998, the Company sold certain assets and transferred certain
liabilities of TMSI for approximately $25 million in cash. Gains of
approximately $2,964,000 and $9,950,000 (net of transaction costs, certain
normal course reserves considered necessary and reserves required for certain
contingent liabilities) were recognized in the accompanying consolidated
statements of operations in 1999 and 1998, respectively. Included in the
consolidated balance sheets at December 31, 1999 and 1998, is approximately
$88,000 and $1,000,000, respectively, of cash in escrow classified as accounts
receivable and approximately $880,000 and $4,300,000, respectively, classified
as accrued liabilities, related to the disposition of TMSI.

In connection with the sale of the assets of TMSI, the Company is
required to indemnify and hold harmless the Buyer for certain losses,
liabilities, claims, damages, expense or diminution of value arising directly or
indirectly from or in connection with a breach of any representation, covenant,
claim for expenses, liabilities which are not assumed, taxes or specific
customer claims. The indemnification provisions apply for periods ranging from 2
years to 6 years depending upon the nature of the exposure. The maximum exposure
to the Company under the indemnification provisions is $9,000,000. In addition,
there are potential liabilities to customers that are specific to TMSI.

The Company established accruals of approximately $3,700,000 at the time
of the sale in June 1999 (comprised of a customer claim, intellectual property
exposures and management bonuses) and these balances were included as a
component of accrued liabilities at December 31, 1998.

36
<PAGE>

STM WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

In June 1999, upon the release of substantially all of the funds from
escrow, the Company reevaluated certain accruals that were established at the
time of the sale and concluded that certain of these accruals were no longer
required, resulting in an additional gain of $2,964,000 which has been
classified as a gain on the sale of assets in the accompanying consolidated
statement of operations for the year ended December 31, 1999. At December 31,
1999, a balance of approximately $880,000 continues to be accrued primarily
associated with a specific customer dispute and is classified as part of accrued
liabilities in the accompanying consolidated balance sheet at December 31, 1999.

The accompanying consolidated statements of operations reflect the
operations of TMSI through March 31, 1998, the effective date of disposal.

The following sets out summarized financial information giving effect to
the disposal of TMSI.

THREE MONTHS YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
1998 1997
------------------- ----------------
(UNAUDITED)

Net revenues:
STM............................... $ 6,267 $50,440
TMSI.............................. 682 1,708
------------------- ----------------
Total........................ $ 6,949 $52,148
=================== ================

Net loss

STM............................... $(3,929) $(1,592)
TMSI.............................. (145) (459)
------------------- ----------------
Total....................... $(4,074) $(2,051)
=================== ================

(4) DECONSOLIDATION OF DTPI

STM incorporated DTPI in 1996. In March 1998, the Company invested $15
million in DTPI, (comprising $5 million for 1,000,000 shares of Series B
Preferred Stock, and a $10 million loan) and entered into a Product Supply
Agreement with DTPI. The loan was repayable out of the proceeds of future DTPI
financings. Through June 17, 1999, STM consolidated the results of DTPI.

In June 1999, the Company and DTPI completed a financing whereby the
Company sold shares in DTPI representing approximately 31% of the voting stock
of DTPI for approximately $7,100,000 to REMEC, Inc. ("REMEC") and two funds
managed by Pequot Capital Management, Inc. ("Pequot"), thereby reducing STM's
ownership to 44% of the voting stock of DTPI.

In addition, in June 1999, DTPI announced the appointment of a new
chairman and chief executive officer of DTPI. As a result, STM relinquished
operating control of DTPI and changed its accounting for DTPI from the full
consolidation method to the equity method, effective June 17, 1999.

Due to the losses incurred by DTPI from inception through June 17, 1999,
STM's equity investment in DTPI has been reduced to zero. STM has no funding
obligations to DTPI nor has STM guaranteed any obligations of DTPI. Therefore,
in accordance with APB18, STM has not accrued any losses of DTPI subsequent to
June 17, 1999, and will only apply the equity method of accounting for DTPI, at
such time that DTPI is profitable and losses not previously recognized are fully
recovered. Therefore, the accompanying consolidated statement of income for the
year ended December 31, 1999, only includes the results of DTPI for the period
January 1, 1999, through June 17, 1999.

The proceeds of $7,100,000 comprised cash of $2,219,000 net of
transaction costs of $281,000, a reduction in accounts payable of approximately
$2,300,000 and a credit against future purchases of inventory for approximately
$2,300,000. Due to uncertainty concerning the recoverability of the $2,300,000
credit against future purchases, such credit was fully reserved at June 30,
1999, but will be recognized when realized as income in future periods.
Approximately $125,000 of such credits were realized through December 31, 1999.

37
<PAGE>

STM WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

In connection with the sale of the shares in DTPI, STM granted a price
adjustment of approximately $1,500,000 to REMEC whereby the price of all future
purchases of committed product from REMEC were increased and STM granted DTPI a
concession of $1,600,000 against future purchases of product by DTPI from STM.
These obligations were accrued at the time of sale of the DTPI shares.

DTPI also repaid STM $2,500,000 of a $10,000,000 note receivable from
DTPI, with the remaining balance of $7,500,000 of the note to be repaid out of
the proceeds of future DTPI financings, if any. As a result of the foregoing,
there was no gain or loss recognized on the sale of the DTPI shares. (See note
20.)

The following sets out summarized financial information giving effect to
the deconsolidation of DTPI.

THREE MONTHS YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
1999 1998
------------------ ---------------
(unaudited)
Net revenues:
STM................................ $ 2,101 $ 28,419
DTPI............................... 990 13,603
------------------ ---------------
Total......................... $ 3,091 $ 42,022
================== ===============

Net loss

STM................................ $ (5,915) $ (5,013)
DTPI............................... (2,548) (4,393)
------------------ ---------------
Total........................ $ (8,463) $ (9,406)
================== ===============

(5) PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Land................................................................... $ 2,530 $ 2,530
Building and building improvements..................................... 3,549 3,549
Assets for long-term service contracts................................. -- 2,380
Satellite equipment.................................................... 1,424 717
Equipment.............................................................. 8,396 8,198
Furniture and fixtures and leasehold improvements...................... 341 894
----------- -----------
16,240 18,268
Less:
Accumulated depreciation and amortization........................... 8,276 7,212
----------- -----------
$ 7,964 $ 11,056
=========== ===========
</TABLE>

Property, plant and equipment at December 1999 excludes the assets of
DTPI (see note 4).

Assets for long-term service contracts consisted of equipment related to
DTPI's long-term fixed telephony service operations in Mexico. In 1998, DTPI
renegotiated its long-term service contract with its Mexican partner whereby
DTPI was paid approximately $9,500,000 (before expenses) for the sale and
installation of remote terminal equipment utilized in the provision of telephony
services. Under the terms of the revised agreement, DTPI retained ownership of
certain gateway infrastructure equipment, which was classified as assets for
long-term service contracts at December 31, 1998. The sales of remote equipment
were classified as revenue in the accompanying consolidated statement of
operations for 1998.

Due to uncertainty surrounding the recoverability of the gateway
equipment at December 31, 1998, as a result of the Mexican partner experiencing
financial difficulties, DTPI recognized an impairment charge of $500,000, in

38
<PAGE>

STM WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of", to adjust the carrying
value of the equipment to its estimated fair value.

(6) LONG-TERM RECEIVABLES

The Company's long-term receivables as of December 31, 1998 related
primarily to a lease of certain satellite equipment to a customer in Brazil
under a sales-type lease arrangement. Total minimum lease payments receivable
(including interest receivable) on this sales-type lease were $1,632,000 at
December 31, 1998, comprising principal of $1,490,000 and unearned interest of
$142,000.

The receivables were denominated in the Brazilian local currency,
however, the customer contracts contained adjustment provisions to take into
account fluctuations in the local currency against the U.S. dollar. These
adjustment provisions were honored in prior years.

Arising from the devaluation of the Brazilian local currency in the
first quarter of 1999, the customer was unwilling to honor the adjustment
provisions of the contract due to the extent of the devaluation. Brazilian
counsel advised the Company that there was uncertainty as to the enforceability
of such adjustment provisions under Brazilian law. Therefore, the Company
negotiated a settlement with the customer resulting in a concession of
approximately $584,000. Such concession has been classified as part of the
foreign currency devaluation costs in the accompanying consolidated statement of
operations for the year ended December 31, 1999.

(7) ACCRUED LIABILITIES

Accrued liabilities consist of the following:
<TABLE>
<CAPTION>

DECEMBER 31,
----------------------------
1999 1998
------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Accrued salaries, bonuses and payroll related expenses...... $ 506 $ 1,948
Accrued engineering services................................ 23 659
Accrued legal & professional fees........................... 128 254
Accrued agent commissions................................... 80 373
Accrued litigation, concessions and indemnifications........ 2,493 2,654
Accrued licenses............................................ -- 368
Other....................................................... 984 1,000
------------- -------------
$ 4,214 $ 7,256
============= =============
</TABLE>

(8) SHORT-TERM BORROWINGS AND LONG-TERM DEBT

SHORT-TERM BORROWINGS

The Company has a revolving credit facility with one bank totaling
$2,000,000. The facility is secured by the Company's certificates of deposit in
the same amount with the bank. Borrowings are due on demand and accrue interest
at .75% over the certificates of deposit rate. At December 31, 1999 and 1998,
the outstanding balances under this credit facility were $2,000,000 and
$1,600,000, respectively.

At December 31, 1998, the Company had borrowings of $9,050,000 under a
$10,000,000 line of credit. Due to the losses incurred in 1998 and thereafter,
the Company was not in compliance with certain covenants of the loan agreement
and the bank sought repayment of all borrowings. Through cash becoming available
from the sale of stock in DTPI, the partial repayment of a note receivable from
DTPI (see note 4) and the refinancing of the Company's corporate headquarters,
the Company made agreed paydowns of these borrowings during 1999 and fully
repaid all outstanding balances on December 31, 1999.

LONG-TERM DEBT

In connection with the purchase of the Company's headquarters on July
28, 1994, the Company entered into a purchase money promissory mortgage note
("Mortgage Note") in the amount of $4,320,000. In October 1999,

39
<PAGE>

STM WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

the Company refinanced its corporate headquarters through a deed of trust for
$7,000,000, thereby paying off the existing mortgage note for $4,061,000 and
generating cash of $2,939,000. The deed of trust for $7,000,000 is secured by
the Company's land, building and fixtures, accrues interest at 7% per annum, and
requires monthly principal and interest payments of $46,571. The deed of trust
is being amortized over a 30-year period and matures in November 2014, at which
time all remaining principal and accrued interest is due.

Long-term debt consists of the following:

DECEMBER 31,
----------------------------
1999 1998
------------- -------------
(DOLLARS IN THOUSANDS)
Mortgage payable on building.............. $ 6,994 $ 4,063
Notes payable--Banco do Brasil............ 224 --
Capitalized lease obligations............. 373 627
------------- -------------
Total................................ 7,591 4,690
Less current portion...................... (542) (384)
------------- -------------
Long-term debt........................... $ 7,049 $ 4,306
============= =============

The obligations for capital leases relate to leases entered into for the
purchase of computers, fixtures and test equipment. The capitalized leases are
at rates which vary from 9.5% to 12.7% per annum.

Future maturities on long-term debt are as follows:

YEAR ENDED
DECEMBER 31,
-----------------------
(DOLLARS IN THOUSANDS)

2000............................................. $ 542
2001............................................. 192
2002............................................. 85
2003............................................. 88
2004............................................. 95
Thereafter....................................... 6,589
-----------------------
$7,591
=======================

(9) EQUITY INVESTMENT IN AFFILIATES

STM EQUITY INVESTMENT IN DTPI

Effective June 17, 1999, STM deconsolidated the results of DTPI (see
note 4). Due to STM's equity investment being zero, STM having no funding
obligations to DTPI, nor STM guaranteeing any obligations of DTPI, in accordance
with APB18, STM has not accrued any losses of DTPI since June 17, 1999, and will
only apply the equity method of accounting for DTPI at such time that DTPI is
profitable and losses not previously recognized are fully recovered (see note
20).

DTPI EQUITY INVESTMENT IN ALTAIR

In connection with the award of a contract for the provision of rural
telephony services in Venezuela, in May 1998, DTPI formed Altair S.A.
("Altair"), a joint venture with Compania Anonima Nacional Telefonos de
Venezuela (CANTV). Altair is 49% owned by DTPI. In connection with the
deconsolidation of DTPI (see note 4), the Company no longer accounts for DTPI's
investment in Altair from June 17, 1999.

40
<PAGE>

STM WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

At December 31, 1999 and 1998, the Company's equity investment in Altair
was zero and $4,151,000, respectively. The 1998 balance comprised cash of
approximately $625,000, a non-cash contribution of approximately $917,000,
advances of approximately $2,543,000, plus equity in the undistributed earnings
of Altair of approximately $66,000. In 1999, the Company recognized equity
losses of $59,000 for Altair and made additional cash contributions of
$1,102,000 through June 17, 1999 (the date of deconsolidation of DTPI).

(10) REDEEMABLE MINORITY INTEREST

In March 1998, the Company completed a $10 million equity offering with
Pequot for 571,429 shares of STM common stock and 1,200,000 shares of Series A
mandatory redeemable preferred stock of DTPI, the Company's then majority-owned
subsidiary.

The DTPI Series A shares were redeemable at the option of the holder, if
not converted earlier into DTPI common stock, on the fifth anniversary of the
date of issuance, or in the event of an acquisition of the Company where the
Company continued to hold a majority of the voting stock of DTPI and a public
offering of DTPI shares has not been consummated. In the event of such
acquisition, STM had a funding obligation for such redemption amount.

For 1999 and 1998, the Company accrued dividends of $275,000 and
$450,000, respectively, that are classified as minority interest expense in the
accompanying consolidated statements of operations, representing for 1999 the
accretion required for the period January 1, 1999, to June 17, 1999, and for
1998, the accretion required for the period April 1, 1998, to December 31, 1998.

At December 31, 1998, an amount of $6,355,000 representing proceeds from
the issuance of the mandatory redeemable Series A Preferred Stock in DTPI plus
accrued dividends net of unamortized issuance costs were classified as
redeemable minority interest in the accompanying consolidated balance sheet at
such date.

Effective June 17, 1999, the Company deconsolidated DTPI as a result of
the reduction of STM's ownership of the voting stock in DTPI to approximately
44% (see notes 4 and 9). As STM no longer has majority ownership of the stock of
DTPI, there is no funding obligation for the redeemable preferred stock in the
event of an acquisition of STM. Therefore, the redeemable minority interest has
been excluded from STM's balance sheet coinciding with the deconsolidation of
DTPI.

(11) STOCKHOLDERS' EQUITY

PREFERRED STOCK

The Company is authorized to issue 5,000,000 shares of preferred stock.
The Board of Directors has the authority to issue the preferred stock in one or
more series, and to fix the rights, preferences, privileges and restrictions
thereof without any further vote by the holders of common stock.

COMMON STOCK

As set out in the consolidated statement of stockholders' equity for the
year ended December 31, 1998, the Company completed an equity offering of
571,429 shares of STM common stock in a private placement with funds managed by
Pequot Capital Management, Inc. in March of 1998. The offering resulted in net
proceeds of approximately $3,956,000.

In December 1997, the Company issued 480,000 shares of common stock in
exchange for all the outstanding common stock of TI (see note 3).

STOCK OPTIONS

In January 1992, the Company adopted the Incentive Stock Option, Non
Qualified Stock Option and Restricted Stock Purchase Plan--1992 (the "1992
Plan"). The 1992 Plan was amended by the Board of Directors in 1998 to increase
the number of stock options available for grant by 900,000. The 1992 Plan now
provides for the grant by the Company of options and/or rights to purchase up to
an aggregate of 1,750,000 shares of common stock.

41
<PAGE>

STM WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

In October 1994, the Company's Board of Directors adopted the Satellite
Technology Management, Inc. 1994 Option Plan for Non-Employee Directors (the
"1994 Plan"). The 1994 Plan was approved by the Company's stockholders in July
1995. The 1994 Plan provides for the grant by the Company of options to purchase
up to 250,000 shares of common stock to non-employee members of the Company's
Board of directors who are neither employees nor paid consultants of the
Company.

Had the Company determined compensation cost based on the fair value at
the grant date for its stock options under SFAS No. 123, the Company's basic and
diluted net loss and net loss per share would have been adjusted to the
following pro forma amounts:

1999 1998 1997
-------- --------- --------
Net loss:
As reported.......................... $(8,311) $ (9,406) $(2,051)
Pro forma............................ $(8,970) $(10,170) $(2,543)
Loss per basic and fully diluted share:
As reported.......................... $ (1.18) $ (1.36) $ (0.32)
Pro forma............................ $ (1.27) $ (1.47) $ (0.40)

At the date of grant, the weighted average fair value of options granted
were $1,443,000, $2,198,000 and $1,237,000 for 1999, 1998 and 1997,
respectively. This was determined using the Black-Scholes option pricing model
with the following weighted average assumptions for grants in 1999, 1998 and
1997--risk free interest rate of 5.47%, 5.33% and 6.33%, respectively, an
expected life of five years and an expected volatility rate of 84.2%, 72.6% and
68.3%, respectively, and expected dividend yield of 0%.

A summary of stock option transactions under all plans follows:

WEIGHTED-AVERAGE
NUMBER EXERCISE PRICE
OF SHARES PER SHARE
---------- -----------------
Options outstanding at December 31, 1996.. 719,415 $9.71
Granted.............................. 207,000 8.40
Exercised............................ (119,014) 5.54
Canceled............................. (112,858) 9.57
Cancelled for regrant (1)............ (332,850) 12.68
Regranted (1)........................ 332,850 7.13
---------- -----------------
Options outstanding at December 31, 1997.. 694,543 $7.40
Granted.............................. 488,000 8.57
Exercised............................ (22,611) 6.47
Canceled............................. (73,659) 10.37
---------- -----------------
Options outstanding at December 31, 1998.. 1,086,273 $7.75
Granted.............................. 800,100 3.17
Cancelled............................ (734,549) 6.55
---------- -----------------
Options outstanding at December 31, 1999.. 1,151,824 $5.33
========== =================

The following table summarizes information regarding the stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
NUMBER WEIGHTED AVERAGE WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
RANGE OF OUTSTANDING REMAINING EXERCISE PRICE EXERCISABLE EXERCISE PRICE
EXERCISE PRICES AT 12/31/99 CONTRACTUAL LIFE PER SHARE AT 12/31/99 PER SHARE
- ------------------ ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$2.50--6.75....... 656,575 9.03 $3.37 46,875 $4.93
6.83--8.00....... 340,349 6.26 7.16 281,243 7.17
8.05--14.25...... 154,900 8.20 9.66 48,425 9.67
----------- -----------
$2.50--14.25...... 1,151,824 8.10 $5.33 376,543 $7.21
=========== ================ =========== ================
</TABLE>

Common stock received through the exercise of non-qualified stock
options or incentive stock options which are sold by the optionee within two
years of grant or one year of exercise result in a tax deduction for the Company
equivalent to the taxable gain recognized by the optionee. For financial
reporting purposes, the tax effect of this

42
<PAGE>

STM WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

deduction is accounted for as a credit to common stock rather than as a
reduction of income tax expense if such tax benefit is more likely than not to
be realized.

(1) The Company implemented an option cancellation/regrant program
for directors, executive officers, and all other employees holding
stock options with an exercise price per share in excess of the
market value of the Company's common stock at the time the
cancellation/regrant occurred. Optionees who accepted the repricing
agreed that the regranted options would vest ratably over a period
one year longer than the vesting period of the options cancelled.
The program was effected on March 20, 1997 and 332,850 options in
excess of $7.125 per share were cancelled and 332,850 new options
were granted at an exercise price of $7.125, the fair value on the
date of grant.

(12) COMMITMENTS AND CONTINGENCIES

REMEC

Under a Development, Manufacturing and Product Supply Agreement, dated
April 30,1996 as amended, the Company entered into a three year agreement to
undertake the joint development of two products. The agreement required the
Company to reimburse REMEC for engineering expenses for the development of the
products up to $1,250,000 and to purchase products up to approximately
$18,000,000. STM has title to and ownership of the design of the products and
has exclusive rights to the sale of the products. The three year period
commenced with the production of the first unit, which was in late 1998. Should
the Company fail to purchase the minimum requirement of the products or elects
to terminate the agreement, the Company may be required to pay REMEC up to
$2,475,000. To date, the Company has expensed $1,250,000 for engineering
expenses and has purchased approximately $1,600,000 of product through December
31, 1999.

Associated with the sale of shares in DTPI to REMEC (see note 4), the
Company agreed to a price adjustment whereby the purchase price of all future
purchases of committed product from REMEC was increased. At December 31, 1999,
the Company had established an accrual of $1,458,000 for such price increases of
which $729,000 is classified as part of accrued liabilities and $729,000 is
classified as long-term liabilities in the accompanying consolidated balance
sheet at December 31, 1999.

DTPI

The terms of the product supply agreement as amended between STM and
DTPI (see note 4) requires STM to supply equipment to DTPI at significantly
reduced margins, compared to normal third party customers, or in some instances,
at negative margins.

OTHER VENDORS COMMITMENTS

Under a Development, Manufacturing and Product Supply Agreement dated
March 27, 1998, the Company entered into a two-year agreement with a vendor to
undertake the joint development of a product. In November 1999, the Company and
the vendor mutually agreed to cancel this contract and there are no purchase
commitments existing at December 31, 1999.

While management believes that none of its purchase commitments are in
excess of requirements and all purchases will be used to fulfill customer orders
in the normal course of business, there can be no assurance that the Company
will generate any future level of revenues sufficient to satisfy its purchase
commitments.

LEASE COMMITMENTS

In 1998, the Company relocated it Network Systems Division to Georgia
and entered into a five-year lease commitment for administrative offices,
warehouse and manufacturing facilities.

In 1999, the Company relocated its operations back to California as part
of its restructuring of it operations (see note 19). The Company and the
landlord agreed to terminate the lease agreement for a termination fee of
approximately $300,000. At December 31, 1999, there are no remaining lease
commitments for this facility. The

43
<PAGE>

STM WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

termination fee of $300,000 is included as part of restructuring costs of
$1,042,000 in the accompanying consolidated statement of operations for the year
ended December 31, 1999.
Rent expense for 1999 and 1998 was approximately $280,000 and $102,000,
respectively.
In May 1999, the Company entered into a lease agreement under which the
Company leases a portion of its headquarters building to a third party. Future
minimum rental income under this lease as of December 31, 1999 are as follows:
$253,000 in 2000; $266,000 in 2001; $279,000 in 2003; and $106,000 in 2004.
Rental income for 1999 was approximately $153,000.

LITIGATION

The Company is involved as both plaintiff and defendant in various
claims and legal actions arising in the ordinary course of business. In the
opinion of management, the ultimate disposition of these matters will not have a
material adverse effect on the Company's liquidity, financial position or
results of operation.

BID BONDS

At December 31, 1999, the Company was contingently liable for standby
letters of credit for $225,000 for bid bonds issued in connection with customer
tender documents.

(13) INCOME TAXES

The components of loss from operations before income taxes, equity
income and minority interest are as follows:

YEAR ENDED DECEMBER 31,
--------------------------------------------
1999 1998 1997
-------------- -------------- --------------
(DOLLARS IN THOUSANDS)

U.S...................... $ (3,491) $ (3,781) $ (2,294)
Foreign.................. (4,486) (1,583) (189)
-------------- -------------- --------------
Total............... $ (7,977) $ (5,364) $ (2,483)
============== ============== ==============

The components of income tax benefit (expense) consists of the
following:

YEAR ENDED DECEMBER 31,
--------------------------------------------
1999 1998 1997
-------------- -------------- --------------
(DOLLARS IN THOUSANDS)
Current:
Federal............. $ -- $ 272 $ --
State............... -- (88) --
Foreign............. -- (593) --
-------------- -------------- --------------
Total current.. -- (409) --
-------------- -------------- --------------
Deferred:
Federal............. -- (2,777) 224
State............... -- (512) 82
-------------- -------------- --------------
Total deferred. -- (3,289) 306
-------------- -------------- --------------
Total.......... $ -- $ (3,698) $ 306
============== ============== ==============

The actual income tax (expense) benefit differs from the statutory
Federal income tax rate as follows:

YEAR ENDED DECEMBER 31,
-----------------------
1999 1998 1997
----- ------ ------

Statutory Federal income tax rate........... 34.0% 34.0% 34.0%
State taxes, net of Federal tax benefit..... 7.7 (2.0) (3.3)
Effect of foreign operations................ (19.1) (17.5) (19.4)
(Increase) decrease in valuation allowance.. (43.6) (41.9) (1.0)
Other, net.................................. -- 2.0 2.0
Permanent differences....................... 21.0 (43.5) --
----- ------ ------
Effective tax rate..................... --% (68.9)% 12.3%
===== ====== ======

44
<PAGE>

STM WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Cumulative temporary differences which give rise to deferred tax assets
and liabilities at December 31, 1999 and 1998 are as follows:

1999 1998
------- --------
(DOLLARS IN THOUSANDS)
Deferred tax assets:
Inventories.............................. $ 1,923 $ 2,164
Accounts receivable...................... 3,208 186
Accrued expenses......................... 677 348
R&D costs capitalized for tax purposes... 68 139
Tax credit carryforwards................. 792 1,051
Net operating loss carryforwards......... 1,514 793
Other.................................... -- 137
Valuation allowance...................... (8,120) (4,646)
-------- --------

Total deferred tax assets........... 62 172
Deferred tax liabilities:
Fixed assets............................. (62) (172)
-------- --------
Net deferred tax assets............. $ - $ --
======== ========

The valuation allowance established against deferred tax assets was
increased by $3,474,000 in 1999 due to continuing losses over the last three
years. The Company has determined that it is not more likely than not that
deferred tax assets will be realizable.

At December 31, 1999, the Company had available federal net operating
losses of approximately $4,100,000 which expire in 2012 through 2019, state net
operating losses of approximately $2,000,000 which expire in 2004, federal
research and development credits of approximately $600,000 which expire in 2000
through 2014 and alternative minimum tax credits of approximately $192,000 that
are carried forward indefinitely.

Included in the tax provision for 1998 was a reserve for $1,000,000 for
certain tax exposures that have been assessed in Brazil. To date, the Company
has responded to the assessment by the Brazilian tax authorities and intends to
continue to vigorously challenge the tax assessments. Payments of $208,000 were
made in 1999, although none of the tax claims have been finalized to date.

The Company has not provided for U.S. Federal income and foreign
withholding taxes on its foreign subsidiaries' undistributed earnings as of
December 31, 1999, because such earnings are intended to be reinvested
indefinitely. If these earnings are distributed in the future, foreign tax
credits would become available under U.S. law to reduce the effect on the
Company's overall tax liability.

(14) BUSINESS SEGMENT INFORMATION AND SALES TO PRINCIPAL CUSTOMERS

In 1998, the Company adopted SFAS No. 131 "Disclosures About Segments of
an Enterprise and Related Information" ("SFAS 131").

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

45
<PAGE>

STM WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Revenues by geographic area:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1999 1998 1997
------------ ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Total:
Latin & South America............................. $ 9,673 $ 21,101 $ 7,269
Africa & Middle East.............................. 5,632 8,856 2,976
Asia.............................................. 4,332 7,309 35,630
United States..................................... 1,493 4,164 2,362
Europe............................................ 1,096 592 3,911
--------- ---------- ----------
Total sales.................................. $22,226 $ 42,022 $ 52,148
========= =========== ==========
<CAPTION>

YEAR ENDED DECEMBER 31,
-------------------------------------
1999 1998 1997
------------ ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Products:
Latin & South America............................. $ 9,505 $ 19,377 $ 6,865
Africa & Middle East.............................. 4,926 8,856 2,976
Asia.............................................. 3,550 7,034 35,630
United States..................................... 1,255 3,496 442
Europe............................................ 726 592 3,911
--------- ----------- -----------
$19,962 $ 39,355 $49,824
========= =========== ===========
<CAPTION>

YEAR ENDED DECEMBER 31,
--------------------------------------
1999 1998 1997
---------- ------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Services:
Latin & South America............................. $ 168 $ 1,724 $ 404
Africa & Middle East.............................. 706 -- --
Asia.............................................. 782 275 --
United States..................................... 238 668 1,920
Europe............................................ 370 -- --
---------- ------------ -----------
$ 2,264 $ 2,667 $ 2,324
========== ============ ===========
<CAPTION>

YEAR ENDED DECEMBER 31,
--------------------------------------
1999 1998 1997
---------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Operating loss by geographic area is as follows:
Latin & South America............................. $ (2,439) $ (1,117) $ 510
Africa & Middle East.............................. -- -- --
Asia.............................................. (21) 11 (76)
United States..................................... (6,392) (13,658) (2,661)
Europe............................................ -- -- --
---------- ----------- -----------
$ (8,852) $ (14,764) $ (2,227)
========== =========== ===========
<CAPTION>

DECEMBER 31
-------------------------------------
1999 1998 1997
---------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Identifiable assets by geographic area are as follows:
Latin & South America............................... $ 1,332 $11,487 $ 6,145
Africa & Middle East................................ -- -- --
Asia................................................ 926 1,146 53
United States....................................... 32,220 50,568 48,219
Europe.............................................. -- -- --
---------- ----------- -----------
$34,478 $63,201 $ 54,417
========== =========== ===========
</TABLE>

46
<PAGE>

STM WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The Company generates a substantial amount of its revenues from
individually significant orders, primarily on an international basis to both
developed and developing countries. This can give rise to a concentration of
revenues and credit risks to individual customers and in geographic regions.

While in an individual year a customer can represent a significant
proportion of the revenues for that year, the Company does not generate a
significant level of on-going repeat revenues from any individual customer. The
Company's revenues, in general, in any given year represent new projects, to new
or existing customers in new or existing geographic regions.

The Company has generated approximately 44%, 50%, and 14% of its revenue
in Latin and South America in 1999, 1998 and 1997, respectively, 25%, 21% and 6%
of its revenues in Africa and the Middle East in 1999, 1998 and 1997,
respectively, and 20%, 17% and 68% of its revenue in Asia in 1999, 1998 and
1997, respectively. In 1999, the Company had two customers, one in Latin America
and one in Africa, which represented approximately 25% and 16% of the Company's
consolidated revenues for 1999, respectively. In 1998, the Company had two
customers, one in Latin American and one in Asia, which represented
approximately 23% and 10% of the Company's consolidated revenues for 1998,
respectively. In addition, the Company generated approximately 3%, 2% and 59% of
revenues from one Asian customer in 1999, 1998 and 1997, respectively. The
deterioration of the Asian economies is negatively impacting the level of
revenues that the Company is earning from this customer.

LATIN AND SOUTH AMERICA

Sales in Latin and South America in 1999 were to 12 customers. There
were significant sales to one customer for approximately $5,600,000. At December
31, 1999, the accounts receivable balance from this customer was approximately
$1,400,000.

AFRICA & MIDDLE EAST

Sales in Africa and the Middle East were to 7 customers, one of which
represented revenue of approximately $3,600,000 at December 31, 1999. At
December 31, 1999, the account receivable balance from this customer was
approximately $2,300,000.

The Company sells its products and services internationally. To assure
collection, the Company evaluates the credit risk associated with each customer
and will require either letters of credit or similar guarantees, substantial
up-front deposits or when acceptable, may extend credit on an open account
basis.

In 1998, the Company established approximately $1,488,000 in accounts
receivable allowances, primarily for customer concessions and allowances that
were estimated to be required. The majority of such balances have been written
off by December 31, 1999. The Company reduced its accounts receivable reserves
by $136,000 in 1999.

(15) EMPLOYEE BENEFITS

Effective September 1991, the Company adopted a defined contribution
401(k) savings and investment plan. The Company's contributions to the plan are
determined at the discretion of the Board of Directors. During 1997, the Company
made contributions of $7,000 to the Plan.

In 1998, coinciding with the merger of the TI plan into the Company's
plan, the Board of Directors approved a matching contribution equal to the
lesser of, with respect to each participant (a) one-half of the amount
contributed by such participant to the plan, (b) $1,600 or (c) 1% of the
participants salary to be paid on an annual basis. Amounts of approximately
$30,000 and $70,000 were expensed in 1999 and 1998, respectively, for the
Company's matching contributions.

47
<PAGE>

STM WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(16) LOSS PER COMMON SHARE

The following table presents the computation of basic and diluted loss
per share:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- -----------
<S> <C> <C> <C>
Numerator:
Numerator for basic and diluted loss per share--net loss................................ $ (8,311) $ (9,406) $ (2,051)
========== ========== ===========
Denominator:
Denominator for basic loss per share--weighted average number of 7,042 6,936 6,384
common shares outstanding during the period..........................................
Incremental common shares attributable to exercise of outstanding options -- -- --
and warrants.........................................................................
---------- ---------- -----------
Denominator for diluted loss per share.................................................... 7,042 6,936 6,384
========== ========== ===========
Basic loss per share...................................................................... $ (1.18) $ (1.36) $ (0.32)
========== ========== ===========
Diluted loss per share.................................................................... $ (1.18) $ (1.36) $ (0.32)
========== ========== ===========
</TABLE>

The computation of diluted loss per share for 1999, 1998 and 1997
excluded the effect of incremental common shares attributable to the exercise of
outstanding common stock options (see note 11) because their effect would be
anti-dilutive.

(17) RELATED PARTY TRANSACTIONS

DTPI, INC.

The Company's consolidated results include the results of DTPI through
June 17, 1999 (see note 4).

TRANSACTIONS PRIOR TO JUNE 17, 1999

Under the terms of its investment in DTPI (see notes 4 and 10), Pequot
and DTPI entered into a consulting agreement for $100,000 on an annual basis.
Accordingly, the Company recognized an expense to Pequot of approximately
$50,000 and $75,000 for 1999 (through June 17, 1999) and 1998, respectively.

DTPI supplies equipment to its 49% owned joint venture, Altair, S.A.
(see note 9). Sales to Altair in 1999 (through June 17, 1999) and 1998 were
approximately $1,450,000 and $7,250,000, respectively, of which approximately
$740,000 and $3,600,000 were recognized as revenue due to DTPI's investment in
Altair being accounted for under the equity method. DTPI also advanced cash to
Altair to fund its capital expenditures and operating expenses and earned
interest of 13% on all cash advances.

Interest income earned on advances to Altair of approximately $128,000
and $56,000 were recognized in 1999 and 1998, respectively.

At December 31, 1998, the accounts receivable balance due from Altair
was approximately $4,400,000.

TRANSACTIONS SUBSEQUENT TO JUNE 17, 1999

Subsequent to deconsolidation of DTPI, STM had certain related party
transactions with DTPI.

STM supplied equipment for approximately $320,000 and recognized revenue
of approximately $180,000, representing 56% of the value of equipment supplied
due to STM continuing to own 44% of DTPI. This equipment was supplied under the
terms of a product supply agreement between STM and DTPI, as amended. Associated
with the sale of the shares of DTPI by STM on June 17, 1999, STM granted DTPI a
concession of $1,600,000 against future purchases of product by DTPI from STM.
Such concession reduced the value of cash receipts from DTPI subsequent to June
17, 1999, by approximately $150,000.

The terms of the product supply agreement as amended between STM and
DTPI requires STM to supply equipment to DTPI at significantly reduced margins,
compared to normal third party customers, or in some instances, at negative
margins.

48
<PAGE>

STM WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

STM recognized interest income in 1999 of approximately $412,000 on a
$7,500,000 note receivable from DTPI. The note bears interest at 10% per annum.

Due to STM providing office accommodation to certain DTPI employees and
DTPI employees participating in STM's employee benefit plan, there were certain
normal course recharges of expenses to DTPI at estimated cost. For the period
subsequent to June 17, 1999, such recharges were approximately $200,000.

OTHER RELATED PARTY TRANSACTIONS

In the normal course of business, the Company contracts with Gulf
Communications International, Inc. ("GCI") to provide installation services for
its products. GCI was formerly 50% owned by, a former officer and director of
the Company. Total purchases by the Company from GCI were approximately
$327,000, $921,000 and $720,000 in 1999, 1998 and 1997, respectively.

(18) 1998: FOURTH QUARTER ADJUSTMENTS

The results for the fourth quarter of 1998 includes charges of
approximately $7,100,000 which comprised approximately $2,500,000 for inventory
obsolescence associated with an earlier version of the Company's products,
certain items that are considered excess to requirements and reserves
established for certain inventory on long-term loan to customers, approximately
$3,200,000 for taxes comprising the write-off of deferred tax assets due to
uncertainty concerning the realizability of such assets due to continued losses
by the Company and a reserve established for certain tax exposures in Brazil,
reserves established for accounts receivable balances of approximately $900,000
associated with the DTPI's Mexican partner and other STM overdue balances and an
impairment reserve of $500,000 associated with the carrying value of certain
long-term revenue generating assets due to DTPI's Mexican partner experiencing
financial difficulties.

(19) RESTRUCTURING COSTS

In recognition of the low overall level of revenues and the foreign
currency losses incurred primarily in the quarter ended March 31, 1999, the
Company implemented cost reduction programs in both Quarter 1, 1999 and Quarter
2, 1999, to improve the operating performance of the business. As a result of
these cost reduction programs, the Company exited its Atlanta facility,
relocated its manufacturing operations back to California and terminated its
Atlanta workforce. Restructuring costs of $1,042,000 were recognized in 1999,
comprising severance obligations of $502,000 for approximately 70 terminated
employees, costs of $190,000 associated with writing-off the assets of the
Company's Brazilian subsidiary and costs of $350,000 associated with exiting the
Atlanta lease commitment, which was excess to requirements. All such expenses
were paid in 1999 and there is no restructuring related accrual balance
remaining at December 31, 1999.

(20) SUBSEQUENT EVENTS (UNAUDITED)

On March 28, 2000, DTPI completed a $45 million financing which reduced
STM's ownership to 15% of DTPI, on a fully diluted basis. Coinciding with this
financing, STM received $3,750,000 in cash from DTPI.

49
<PAGE>

SCHEDULE II

STM WIRELESS, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

ACCOUNTS RECEIVABLE ALLOWANCES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>

CHARGED
BALANCE AT (CREDITED) TO
BEGINNING COSTS AND BALANCE AT
OF PERIOD EXPENSES DEDUCTIONS END OF PERIOD
---------------- -------------- --------------- ----------------
YEAR ENDED
<S> <C> <C> <C> <C>
December 31, 1999.................................. $ 2,022 (136) 1,296 $ 590
December 31, 1998.................................. $ 1,019 1,488 485 $ 2,022
December 31, 1997.................................. $ 2,006 91 1,078 $ 1,019

INVENTORY RESERVES
(DOLLARS IN THOUSANDS)

CHARGED
BALANCE AT (CREDITED)
BEGINNING TO COSTS AND BALANCE AT
OF PERIOD EXPENSES DEDUCTIONS END OF PERIOD
--------------- -------------- -------------- ----------------
YEAR ENDED
December 31, 1999.................................. $ 5,650 (189) 4,229 $ 1,232
December 31, 1998.................................. $ 3,010 2,640 -- $ 5,650
December 31, 1997.................................. $ 3,466 (456) -- $ 3,010
</TABLE>

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

Not applicable.

50
<PAGE>

PART III

ITEM 10--DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The Company currently has a Board of Directors consisting of five members.
The following sets forth certain information relating to the Company's
directors, executive officers and vice-presidents:

FRANK T. CONNORS, 66, has been a director of the Company since June 1988,
and served as its Chairman of the Board of Directors since September 1999 and
from June 1988 to September 1993, and as its Chief Executive Officer from June
1988 to January 1991. From March 1999 to September 1999, Mr. Connors served as
acting President of the Company. From January 1998 to January of 1999, Mr.
Connors served as President of Direc-To-Phone International, Inc. (now
SkyOnline, Inc.). From October of 1994 to January 1998, Mr. Connors was
Executive Vice President of the Company. From December 1982 to January 1988, Mr.
Connors was the Chief Executive Officer of Doelz Networks, a manufacturer of
packet switching equipment. From 1979 to 1981, Mr. Connors was Group Vice
President of Northern Telecom's Computer Systems Group. Mr. Connors is currently
a director of DISC, Inc. (NASDAQ NMS: DCSC; DCSCW), an optical computer storage
manufacturing Company located in northern California, and SkyOnline, Inc., the
Company's formally majority-owned services subsidiary.

EMIL YOUSSEFZADEH, 47, is the founder of the Company. He has been a
director of the Company and has served as Chief Executive Officer from January
1982 to June 1988 and since January 1991. Mr. Youssefzadeh has served as
President from January 1982 to January 1998 and since September 1999. From
January 1979 until founding the Company, Mr. Youssefzadeh was a satellite
research engineer with Hughes Aircraft Company where his projects included
design of satellite communications systems and satellite earth stations. He also
was a member of the team for communications system engineering for the Intelsat
VI spacecraft.

DR. ERNEST U. GAMBARO, 61, has been a director of the Company since March
1997. In 1988, Dr. Gambaro directed the formation of Infonet Services Corp.
(NYSE: IN), a provider of cross-border managed data communications services to
multinational corporations worldwide, and has since served as its Senior Vice
President, General Counsel and Secretary. Prior to 1988, Dr. Gambaro was
Assistant General Counsel for Computer Sciences Corporation focusing on the
Company's international, acquisition and divestiture activities. Between 1962
and 1975, Dr. Gambaro directed programs at The Aerospace Corporation relating to
the conceptual definition and implementation of advanced technology systems for
space.

CLAUDE BURGIO, 55, has been Chairman and Chief Executive Officer of
SkyOnline, Inc. since June 1999 and a director of the Company since September
1999. From October 1997 to June 1999, Mr. Burgio was president of Lockheed
Martin Telecommunications and President of the Global Transport Services and
Operations unit of Lockheed Martin Global Telecommunications (LMGT). From
September 1995 to October 1997 Mr. Burgio was Vice President, Engineering for
the International Telecommunications Satellite Organization (INTELSAT),
responsible for all aspects of the INTELSAT system, including new service
development in areas such as broadband access and Internet via satellite,
wireless local loop and direct-to-home interactive services. From April 1984 to
August 1995, Mr. Burgio was Director of the Telecommunications and Systems
Division of Aerospatiale. Mr. Burgio significantly expanded the commercial scope
of the telecommunications activities of Aerospatiale, providing a worldwide
network of customers with satellite based telecommunications systems and
services.

DR. MARK SHAHRIARY, 55, has been a director of the Company since March
2000. From JANUARY 1999 to SEPTEMBER 1999, Dr. Shahriary served as President of
Teledesic LLC, which is building a global, satellite-based network to offer
telecommunications services. From SEPTEMBER 1983 to JANUARY 1999, Dr. Shahriary
held various management positions at Hughes Space and Communications, most
recently as executive vice president in charge of operations. Dr. Shahriary is
the winner of the 1989 L.A. Hyland Patent Award, the highest award given at
Hughes, and holds seven U.S. patents related to various communication designs.
He earned his BSEE and MSEE from California State University and his Ph.D. in
solid state engineering from the University of California at Los Angeles. Dr.
Shahriary is also on the Board of Directors of Peregrine Semiconductor
Corporation.

JOSEPH J. WALLACE, 40, has been Vice President-Finance and Chief Financial
Officer of the Company since March 1997. From April 1994 to March 1997, Mr.
Wallace was Corporate Controller of MAI Systems Corporation, a publicly held
worldwide provider of total information system solutions. From 1990 to 1993, Mr.
Wallace was Controller and Chief Financial Officer of Simmons Magee, PLC, a
British based value added reseller of computer

51
<PAGE>

products and services. Mr. Wallace is a Fellow of the Institute of
Chartered Accountants in Ireland (equivalent to the American CPA or a masters
program).

JACQUES YOUSSEFMIR, 28, has been Vice President and General Counsel of the
Company since April 1998. From 1995 to April 1998, Mr. Youssefmir practiced law
as an associate in the Los Angeles office of Latham & Watkins, where he
specialized in corporate transactions. Mr. Youssefmir received his B.A. in 1992
from Arizona State University and his J.D. in 1995 from the Harvard Law School.

BERND STEINEBRUNNER, 36, has been Vice President, Product Management and
Sales Engineering since he joined the Company in September 1999. Prior to
joining the Company, Mr. Steinebrunner spent 11 years at Bosch Telecom GmbH in
Germany, where he held several positions including Supervisor of the Proposal
Management Team. Mr. Steinebrunner received his DIPLOM INGENIEUR at the
University of Ulm, Germany.

RENATO GONCALVES DIAS, 48, joined the Company in 1994 and has been Vice
President for Latin American Sales since JULY 1999. Prior to joining the
Company, Mr. Dias held positions in several Brazilian firms including SID
Telecon, where he was a Cellular System Engineering Manager, and Avionics
Systems, where he was a Commercial Manager in charge of sales of on-board
avionics for commercial and military aircraft. Mr. Dias received his bachelors
degree in engineering from the Institute of Technology of Aeronautics in Brazil
and an M.A. in International Affairs from George Washington University.

DAVID BREDENDICK, 33, joined the Company in 1996 and has served as its Vice
President, Business Development since February 2000, and Regional Director, Asia
from February 1996 to February 2000. Prior to joining the Company, Mr.
Bredendick worked as a business development manager and system engineer at
McDonnell Douglas. Mr. Bredendick has a B.S. from University of California, Los
Angeles, and has an M.B.A. from the University of California, Irvine.

GENE MEISTAD, 61, joined the Company in 1986 and has served as Vice
President of Manufacturing since November 1999 and from FEBRUARY 1986 to
November 1998. Prior to joining the Company, Mr. Meistad was Manager at
Production Control at BASF, where he helped develop their manufacturing resource
planning system. Prior to joining BASF, Mr. Meistad was a Materials Manager at
Siemen's AG. Mr. Meistad attended Fullerton College and has served in the U.S.
Armed Forces.

PAUL PERSON, 53, joined the Company in 1985 and has served as its Chief
Scientist since APRIL 1997. Mr. Person currently oversees the Company's
operating systems and networking software. Prior to joining the Company, Mr.
Person was a systems engineer at Teledyne Corp. and at Compucorp, Inc. Mr.
Person attended the University of Minnesota and served in the US Air Force,
where he worked on missile guidance electronics.

Mr. Youssefzadeh and Mr. Youssefmir are cousins. There are no other family
relationships between any director, executive officer or person nominated or
chosen by the Registrant to become a director or executive officer.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Based solely upon its review of the copies of reporting forms furnished to
the Company, or written representations that no annual Form 5 reports were
required, the Company believes that all filing requirements under Section 16(a)
of the Exchange Act applicable to its directors, executive officers and any
persons holding 10% or more of the Registrant's common stock with respect to the
Registrant's year ended December 31, 1999, were satisfied, except as follows:
Frank Connors filed a late Form 4 with respect to the sale of 20,000 shares of
the Company's common stock in December 1999; and Claude Burgio filed a late form
3 with respect to becoming a director of the Company in September 1999.

52
<PAGE>

ITEM 11--EXECUTIVE COMPENSATION

The following table sets forth compensation received for the three years
ended December 31, 1999, by the Company's Chief Executive Officer, Chairman and
the four other most highly compensated executive officers of the Company serving
at December 31, 1999 (collectively, the "Named Executive Officers"):

SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------------------
NAME AND PRINCIPLE POSITION YEAR SALARY ($) BONUS ($) OTHER ($) AWARDS OPTIONS (#)
- ------------------------------------- ------ ----------- ----------- ---------- ---------------------
<S> <C> <C> <C> <C> <C>
Emil Youssefzadeh.................... 1999 299,905 0 33,020(7) 0
President and Chief 1998 310,574 0 33,020(7) 0
Executive Officer 1997 239,698 0 33,020(7) 10,000(10)

Frank Connors (1).................... 1999 12,267 0 141,600(8) 20,000
Chairman of the Board 1998 206,092 0 0 0
1997 165,577 0 0 15,000(10)

Joseph Wallace (2)................... 1999 148,700 0 1,600(9) 40,000
Vice President, Finance & 1998 149,811 30,000(5) 0 0
Chief Financial Officer 1997 95,673 0 0 25,000

Jacques Youssefmir (3)............... 1999 120,000 10,000 1,385(9) 20,000
Vice President & 1998 84,000 49,860(6) 12,500(11)
General Counsel

Renato Goncalves Dias............... 1999 125,000 0 1,300(9) 23,000
Vice President, 1998 124,283 8,000 0 0(11)
Latin American Sales 1997 114,613 7,000 0 15,000(10)

Bernd Steinebrunner (4).............. 1999 34,102 0 0 20,000
Vice President, Product Management
& Sales Engineering
</TABLE>

- --------------

(1) Mr. Connors served as acting President of the Company from March 1999
through September 1999.
(2) Mr. Wallace commenced employment with the Company in March 1997.
(3) Mr. Youssefmir commenced employment with the Company in April 1998.
(4) Mr. Steinebrunner commenced employment with the Company in September
1999.
(5) Represents bonus paid in connection with the sale of substantially all
of the assets of Telecom Multimedia Systems, Inc., the Company's
subsidiary, to Inter-Tel, Incorporated in June 1998.
(6) Comprised of (a) $6,000 sign on bonus and (b) $43,860 bonus paid in
connection with the sale of substantially all of the assets of Telecom
Multimedia Systems, Inc., the Company's subsidiary, to Inter-Tel,
Incorporated in June 1998.
(7) Amounts represent automobile allowance and expenses paid by the Company
for the benefit of Mr. Youssefzadeh.
(8) Represents (a) $100,000 paid to Mr. Connors in connection with his
retirement as an officer in January 1999, (b) $25,000 paid to Mr.
Connors while he served as acting President from March 1999 to September
1999, (c) $15,000 in directors fees and (d) $1,600 Company match under
the Company's 401k plan.
(9) Figures represent Company matches under the Company's 401k plan.
(10) Includes regrants to Mr. Youssefzadeh, Mr. Connors and Mr. Dias of
10,000 options, 15,000 options and 15,000 options, respectively, on
March 20, 1997 in connection with the Company's option
cancellation/regrant program
(11) During 1998, Mr. Youssefmir and Mr. Dias were granted options to
purchase common stock of Direc-To-Phone International, Inc. (now
SkyOnline, Inc.), the Company's then majority-owned subsidiary.

53
<PAGE>

Mr. Youssefmir and Mr. Dias were granted options to purchase 25,000
shares and 14,400 shares, respectively, of SkyOnline, Inc. common stock.

OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth information concerning individual grants
of STM Wireless, Inc. stock options made during the fiscal year ended December
31, 1999, to each of the Named Executive Officers:
<TABLE>
<CAPTION>
% TOTAL POTENTIAL REALIZABLE
OPTIONS VALUE AT ASSUMED
OPTIONS GRANTED TO EXERCISE ANNUAL RATES OF STOCK
GRANTED EMPLOYEES IN PRICE EXPIRATION PRICE APPRECIATION
NAME (NO.) FISCAL YR. (1) ($/SHARE) DATE (2) FOR OPTION TERM (3)
- ------------------------ --------- ------------- --------- ---------- ---------------------
5% ($) 10% ($)
------- --------
<S> <C> <C> <C> <C> <C> <C>
Frank Connors........... 20,000 2.5 % $5.375 1/8/09 $67,606 $171,327
Joseph Wallace.......... 40,000 5.0 % 2.75 7/28/09 69,178 175,312
Jacques Youssefmir...... 20,000 2.5 % 2.75 7/28/09 34,589 87,656
Renato Goncalves Dias... 23,000(4) 2.87% 2.696(4) (4) 38,996 98,825
Bernd Steinebrunner..... 20,000 2.5 % 3.50 9/16/09 44,000 111,561
</TABLE>

- -------------

(1) Options to purchase an aggregate of 800,100 shares of Common Stock were
granted to employees, including the named Executive Officers, during the
year ended December 31, 1999.
(2) Options granted have a term of ten years, subject to earlier termination
on certain events related to termination of employment or service to the
Company.
(3) The potential realizable value is calculated based on the term of the
option at its time of grant (10 years). It is calculated by assuming
that the stock price appreciates at the indicated annual rate compounded
annually for the entire term of the option and that the option is
exercised and sold on the last day of its term for the appreciated stock
price. No gain to the option holder is possible unless the stock price
increases over the option term.
(4) Mr. Dias received stock options on two separate grant dates. Mr. Dias
received 5,000 stock options at an exercise price of $2.50 per share on
March 12, 1999. These options expire on March 12, 2009. Mr. Dias also
received 18,000 options at an exercise price of $2.75 per share on July
28, 1999. These options expire on July 28, 2009.

The following table sets forth information concerning exercises of stock
options during the fiscal year ended December 31, 1999, by each of the named
executive officers and the year-end value of unexercised options:
<TABLE>
<CAPTION>
VALUES OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL OPTIONS AT
YEAR END (NO.) FISCAL END($)
SHARES ACQUIRED ON EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (NO.) VALUE REALIZED ($) UNEXERCISABLE UNEXERCISABLE(1)
- ------------------------------------------------ ------------------- ------------------- ----------------- ----------------
<S> <C> <C><C> <C>
Emil Youssefzadeh.............................. 0 0 10,000/0 0/0
Frank Connors.................................. 0 0 15,000/20,000 0/$25,000
Joseph Wallace................................. 0 0 12,500/52,500 0/$155,000
Jacques Youssefmir............................. 0 0 2,500/30,000 0/$77,500
Renato Dias.................................... 0 0 7,500/30,500 0/$90,375
Bernd Steinebrunner............................ 0 0 0/20,000 0/$62,500
</TABLE>
- ---------------

(1) Value is based on fair market value of Common Stock as of December 31,
1999 stock market close minus the exercise price or base price of
"in-the-money" options. The closing sales price for the Company's Common
Stock as of December 31, 1999 on the NASDAQ Stock Market was $6.625.

DIRECTORS' FEES

Each of the outside directors receives an annual retainer at the rate of
$15,000 for services rendered in his or her capacity as a director of the
Company. Accordingly, during 1999, Mr. Connors received $15,000; Mr. Gambaro

54
<PAGE>

received $15,000; and Mr. Burgio received $ 3,750 (as he joined the Company's
Board in September of 1999) for their services as outside directors of the
Company. The Company's outside directors also receive options to purchase 20,000
shares of the Company's common stock upon joining the Company's board, with an
exercise price equal to the fair market value of the common stock at the time of
grant. The Company's outside directors were also reimbursed for expenses
incurred for meetings of the Board of Directors which they attended.

RETIREMENT OF MR. CONNORS

In 1999, Mr. Connors retired from his position as an executive officer
of the Company, at which time, the Company granted Mr. Connors a retirement
package which consists of (a) $100,000 and (b) retention, at the Company's
expense, of medical and health benefits for Mr. Connors and his dependents
through 1999. Mr. Connors also received $25,000 in connection with his services
to the Company as Acting President from March 1999 through September 1999. In
addition, as long as Mr. Connors remains on the Company's Board of Directors, he
will be entitled to the same remuneration as the other outside directors.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee of the Company's Board of Directors consists
of three members. During the year ended December 31, 1999, Dr. Gambaro, Lawrence
D. Lenihan, Jr. and Guy W. Numann were members of the Compensation Committee
until the annual meeting of the stockholders of the Company in September of
1999. Following the annual meeting of the stockholders of the Company, the
Compensation Committee was comprised of Dr. Gambaro, Mr. Connors and Mr. Burgio.
Mr. Connors served as acting President of the Company from March 1999 to
September 1999 and President of SkyOnline from January 1998 to January 1999.

55
<PAGE>

REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEE

The following report is submitted by the Compensation and Stock Option
Committee of the Board of Directors with respect to the executive compensation
policies established by the Compensation and Stock Option Committee and
recommended to the Board of Directors and compensation paid or awarded to
executive officers for the fiscal year ended December 31, 1999.

The Compensation and Stock Option Committee determines the annual salary,
bonus and other benefits, including incentive compensation awards, of the
Company's senior management and recommends new employee benefit plans and
changes to existing plans to the Company's Board of Directors. The Compensation
Committee of the Company's Board of Directors consists of three members. During
the year ended December 31, 1999, Dr. Gambaro, Lawrence D. Lenihan, Jr. and Guy
W. Numann were members of the Compensation Committee until the annual meeting of
the stockholders of the Company in September of 1999. Following the annual
meeting of the stockholders of the Company, the Compensation Committee was
comprised of Dr. Gambaro, Mr. Connors and Mr. Burgio.

COMPENSATION POLICIES AND OBJECTIVES

In establishing and evaluating the effectiveness of compensation programs
for executive officers, as well as other employees of the Company, the
Compensation and Stock Option Committee is guided by three basic principles:

o The Company must offer competitive salaries to be able to attract and
retain highly-qualified and experienced executives and other
management personnel.

o Annual executive compensation in excess of base salaries should be
tied to individual and Company performance.

o The financial interests of the Company's executive officers should be
aligned with the financial interest of the stockholders, primarily
through stock option grants which reward executives for improvements
in the market performance of the Company's Common Stock.

SALARIES AND EMPLOYEE BENEFIT PROGRAMS. In order to retain executives and
other key employees, and to be able to attract additional well-qualified
executives when the need arises, the Company strives to offer salaries, and
health care and other employee benefit programs, to its executives and other key
employees that are comparable to those offered to persons with similar skills
and responsibilities by competing businesses in the local geographic area.

In recommending salaries for executive officers, the Compensation and Stock
Option Committee (i) reviews the historical performance of the executives and
(ii) informally reviews available information, including information published
in secondary sources, regarding prevailing salaries and compensation programs
offered by competing businesses that are comparable to the Company in terms of
size, revenue, financial performance and industry group. Many, though not all,
of these competing businesses, that have securities which are publicly traded,
are included in the S&P Communication--Equipment Manufacturer Index used in the
Stock Performance Graph below. Another factor which is considered in
recommending salaries of executive officers is the cost of living in Southern
California where the Company is headquartered, as such cost generally is higher
than in other parts of the country.

In order to retain qualified management personnel, the Company has followed
the practice of seeking to promote executives from within the Company whenever
practicable. The Board of Directors believes that this policy enhances employee
morale and provides continuity of management. Typically, modest salary increases
are made in conjunction with such promotions.

PERFORMANCE-BASED COMPENSATION. The Board of Directors believes that the
motivation of executives and key employees increases as the market value of the
Company's Common Stock increases. Nevertheless, the Company provides a merit
bonus in cash or stock options to executives and key employees which is
dependent on the Company's achievements and the direct contributions made by
each executive and other key employees. Accordingly, at the beginning of each
fiscal year, the Company establishes short term and long term plans, and at the
end of the fiscal year, the collective and individual contributions of the
executives to the Company's achievements are evaluated. Cash bonuses are awarded
if the Company achieves or exceeds the earnings goal

56
<PAGE>

established for the fiscal year and are limited, subject to extraordinary
exceptions, to amounts ranging from five percent (5%) to fifty percent (50%) of
an executive's base salary.

The earnings goal is established on the basis of the annual operating plan
developed by management and approved by the Board of Directors. The annual
operating plan, which is designed to maximize profitability within the
constraints of economic and competitive conditions, some of which are outside
the control of the Company, is developed on the basis of (i) the Company's
performance for the prior fiscal year; (ii) estimates of sales revenue for the
plan year based upon recent market conditions, trends and competition and other
factors which, based on historical experience, or expected to affect the level
of sales that can be achieved; (iii) historical operating costs and cost savings
that management believes can be realized; (iv) competitive conditions faced by
the Company; and (v) additional expenditures beyond prior fiscal years in
expansion or research and development toward growth of the Company's business in
future fiscal years. By taking all of these factors into account, including
market conditions, the earnings goal in the annual operating plan is determined.

In certain instances, bonuses are awarded not only on the basis of the
Company's overall profitability, but also on the achievement by an executive of
specific objectives within his or her area of responsibility. For example, a
bonus may be awarded for any executive's efforts in achieving greater than
anticipated cost savings, or completing a new product on target.

As a result of this performance-based merit bonus program, executive
compensation, and the proportion of each executive's total cash compensation
that is represented by incentive or bonus income, may increase in those years in
which the Company's profitability increases.

STOCK OPTIONS AND EQUITY-BASED PROGRAMS. In order to align the financial
interests of executive officers and other key employees with those of the
stockholders, the Company grants stock options to its executive officers and
other key employees on a periodic basis, taking into account the size and terms
of previous grants of equity-based compensation and stock holdings in
determining awards. Stock option grants, in particular, reward executive
officers and other key employees for performance that results in increases in
the market price of the Company's Common Stock, which directly benefit all
stockholders. Moreover, the Compensation and Stock Option Committee generally
has followed the practice of granting options on terms which provide that the
options become exercisable in cumulative annual installments, generally over a
three to five-year period. The Compensation and Stock Option Committee believes
that this feature of the option grants not only provides an incentive for
executive officers to remain in the employ of the Company, but also makes longer
term growth in share prices important for the executives who receive stock
options.

FISCAL YEAR 1999 COMPENSATION

The salaries of the Named Executive Officers generally decreased over the
salaries paid in fiscal 1998, primarily as a result of cost cutting measures the
Company took in 1999. Since the Company did not meet the earnings goals
established for the year, no bonus payments were made to any of the Named
Executive Officers for the year ended December 31, 1999 except for Mr.
Youssefmir who received a bonus of $10,000.

The Company is required to disclose its policy regarding qualifying
executive compensation deductibility under Section 162(m) of the Internal
Revenue Code of 1986, as amended, which provides that, for purposes of the
regular income tax and the alternative minimum tax, the otherwise allowable
deduction for compensation paid or accrued with respect to a covered employee of
a public corporation is limited to no more than $1 million per year. It is not
expected that the compensation to be paid to the Company's executive officers
for fiscal 2000 will exceed the $1 million limit per officer. The Company's
Incentive Stock Option, Non-Qualified Stock Option and Restricted Stock Purchase
Plan--1992 is structured so that any compensation deemed paid to an executive
officer when he exercises an outstanding option under the plan, with an exercise
price equal to the fair market value of the option shares on the grant date,
will qualify as performance-based compensation that will not be subject to the
$1 million limitation.

The Compensation Committee of the
Board of Directors

Dr. Ernest U. Gambaro
Frank Connors
Claude Burgio

57
<PAGE>

STOCK PERFORMANCE GRAPH

Set forth below is a line graph comparing the cumulative stockholder
return on the Company's Common Stock with the cumulative total return of the S&P
Communications-Equipment/Manufacturer Index and the NASDAQ Stock Market--US
Index for the period commencing December 31, 1994 and ended on December 31,
1999.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG STM WIRELESS, INC., THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE S & P COMMUNICATIONS EQUIPMENT INDEX

[PERFORMANCE CHART APPEARS HERE]
<TABLE>
<CAPTION>

12/94 12/95 12/96 12/97 12/98 12/99
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
STM Wireless, Inc. 100 131 47 58 32 45
Nasdaq Stock Market (U.S.) 100 141 174 213 300 542
S&P Communications Equipment 100 150 175 228 402 883
</TABLE>

* $100 INVESTED ON 12/31/94 IN STOCK OR INDEX -
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING DECEMBER 31.

58
<PAGE>

ITEM 12--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Set forth below is certain information as of March 22, 2000, regarding the
beneficial ownership of the Company's common stock by (i) any person who was
known by the Company to own more than 5% of the voting securities of the
Company, (ii) each of the directors, (iii) each of the Named Executive Officers
and (iv) all directors and executive officers as a group. Except as otherwise
indicated, the Company believes, based on information furnished by such owners,
that the beneficial owners of the Registrant's Common Stock listed below have
sole investment and voting power with respect to such shares, subject to
applicable community property laws.

FIVE PERCENT SHAREHOLDERS, DIRECTORS, AMOUNT AND NATURE
NAMED EXECUTIVE OFFICERS OF BENEFICIAL PERCENT OF
AND DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP OWNERSHIP CLASS
- ------------------------------------------------------ -------------------- ---------------
<S> <C> <C>

Emil Youssefzadeh (1)................................ 1,336,755 18.5%
STM Wireless, Inc.
One Mauchly
Irvine, California 92618

Dimensional Fund Advisors, Inc. (2).................. 430,500 6.0%
1299 Ocean Avenue
11th Floor
Santa Monica, CA 90401

Pequot Capital Management, Inc(3).................... 426,000 5.9%
c/o David J. Malat
500 Nyala Farm Road, Westport, CT 06880

Frank Connors.................................... (4) 178,080 2.5%

Mark Shahriary....................................... 12,000 *

Dr. Ernest U. Gambaro............................ (5) 15,000 *

Claude Burgio........................................ 0 *

Joseph Wallace................................... (6) 18,750 *

Jacques Youssefmir............................... (7) 5,000 *

Renato Goncalves Dias............................ (8) 11,250 *

Bernd Steinebrunner.................................. 0 *

All Directors and Executive Officer as a group
(9 persons) (1)(4)(5)(6)(7)(8) 1,576,835 21.8%
- ---------------------------------

</TABLE>

* Less than 1%
(1) Includes 249,000 and 244,020 shares held by Kamil Youssefzadeh and Shafig
Youssefzadeh, respectively, who are brothers of Emil Youssefzadeh, for
which Emil Youssefzadeh has voting rights. Accordingly, Emil Youssefzadeh
is deemed to share beneficial ownership of these shares. Further, includes
10,000 shares issuable upon exercise of stock options exercisable within
60 days of March 31, 2000.
(2) According to a report filed with the Securities and Exchange Commission,
Dimensional Fund Advisors Inc. ("Dimensional"), an investment advisor
registered under Section 203 of the Investment Advisors Act of 1940,
furnishes investment advice to four investment companies registered under
the Investment Company Act of 1940, and serves as investment manager to
certain other commingled group trusts and separate accounts. These
investment companies, trusts and accounts are the "Funds". In its role as
investment adviser or manager, Dimensional possesses voting and/or
investment power over 430,500 shares of common stock of the

59
<PAGE>

Company that are owned the Funds. All such securities are owned by the
Funds and Dimensional disclaims beneficial ownership of such securities.
(3) Based on a report filed with the Securities and Exchange Commission on
March 21, 2000.
(4) Inclusive of 20,000 shares issuable upon exercise of stock options
exercisable within 60 days of March 31, 2000.
(5) Inclusive of 15,000 shares issuable upon exercise of stock options
exercisable within 60 days of March 31, 2000.
(5) Inclusive of 18,750 shares issuable upon exercise of stock options
exercisable within 60 days of March 31, 2000.
(6) Inclusive of 5,000 shares issuable upon exercise of stock options
exercisable within 60 days of March 31, 2000.
(7) Inclusive of 11,250 shares issuable upon exercise of stock options
exercisable within 60 days of March 31, 2000.
(8) Inclusive of 3,750 shares issuable upon exercise of stock options
exercisable within 60 days of March 31, 2000.

ITEM 13--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Company continues to contract with Gulf Communications International,
Inc. ("GCI") in the normal course of business to provide installation services.
Until June 1998, Jack Acker, the president of the Company's Network Systems
Division from January 1998 to March 1999 and a member of the Company's Board of
Directors from September 1998 to March 1999, served as the Chairman of the Board
of GCI and was a 50% owner of GCI. Total purchases by the Company from GCI were
approximately $327,000, $921,000 and $720,000 in 1999, 1998 and 1997,
respectively.

In December 1997, the Company entered into an Agreement and Plan of Merger
with Telecom International, Inc. ("TI") pursuant to which TI merged with and
into a wholly-owned subsidiary of the Company. Under the terms of the
acquisition, the Company issued 480,000 shares of its Common Stock to TI's
former stockholders, including Jack Acker, who received 260,458 shares of the
Company's Common Stock as a result of the acquisition.

In March 1998, the Company completed a $10 million equity offering of
shares of the Company and Direc-To-Phone International, Inc. (subsequently
renamed SkyOnline, Inc.), the Company's former subsidiary, to two funds managed
by Pequot Capital Management, Inc. Through the transaction, Pequot also acquired
571,429 shares in the Company. In June 1999, Pequot purchased additional
SkyOnline shares from the Company for $2.5 million. Lawrence Lenihan, a
principal of Pequot, was a member of the board of directors of the Company from
September 1998 to March 2000.

The Company has entered into a product supply agreement with SkyOnline
pursuant to which the Company is required to offer SkyOnline certain product at
the lowest price available to the Company's other customers. Claude Burgio, a
member of the Company's Board of Directors since September 1999, is SkyOnline's
chief executive officer and chairman of the board.

60
<PAGE>

PART IV

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

(a) FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULE AND EXHIBITS

(1) FINANCIAL STATEMENTS: THE FOLLOWING CONSOLIDATED FINANCIAL STATEMENTS
OF THE COMPANY, ARE INCORPORATED BY REFERENCE UNDER PART II, ITEM 8
HEREIN.

PAGE
Consolidated Balance Sheets as of December 31, 1999 and 1998............. 28
Consolidated Statements of Operations for the Years Ended December 31,
1999, 1998 and 1997...................................................... 29
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1999, 1998 and 1997......................................... 30
Consolidated Statements of Cash Flows for the Years Ended December 31,
1999, 1998 and 1997...................................................... 31
Notes to Consolidated Financial Statements.............................. 33
Independent Auditors' Report............................................ 27

The following schedule is filed herewith:

Schedule II--Valuation and Qualifying Accounts and Reserves are
incorporated by reference under Part II, Item 8 herein.

Selected Quarterly Financial Data are incorporated by reference under Part
II, Item 6 herein.

All other schedules are omitted because they are not required, are not
applicable or the information is included in the consolidated financial
statements or notes thereto.

(3) EXHIBITS

EXHIBIT NO. DESCRIPTION REPORT
----------- ----------- ------
3.1**** Restated Certificate of Incorporation of the Company

3.2**** Bylaws of the Company

10.1* Satellite Technology Management, Inc. Incentive Stock
Option, Nonqualified Stock Option and Restricted Stock
Purchase Plan--1992 (the "Plan")

10.2* Form of Incentive Stock Option Agreement pertaining to
the Plan

10.3* Form of Nonqualified Stock Option agreement pertaining
to the Plan

10.4* Form of Indemnification Agreement between Registrant
and its directors

10.16** Federal Communication Commission authorization and order.
File Nos. 2061/2062-DSE-P/L84 and 3379/3380-DSE-P/L84.

10.21**** 1994 Stock Option Plan for Non-Employee Directors

10.22***** Stock Purchase Agreement between STM Wireless, Inc.
and REMEC, Inc. dated March 31, 1996

10.31****** Loan and Security Agreement, dated March 27, 2000, by and
between STM Wireless, Inc. and the CIT Group/Business
Credit, Inc.

10.32****** Loan Agreement dated September 29, 1999, by and between
STM Wireless, Inc. and the Zapara Family Trust u/d/t dated
March 4, 1982.

61
<PAGE>

****** 21. Subsidiaries of Registrant

****** 23.1 Consent of KPMG LLP

****** 27.1 Financial Data Schedule

Year Ended 1999

- ---------------

* Incorporated herein by reference to the referenced exhibit number to
the Company's Registration Statement on Form S-1, Reg. No. 33-45694.

** Incorporated by reference to the referenced exhibit number to the
Company's Form 10-Q for the Quarter ended June 30, 1994.

*** Incorporated by reference to the referenced exhibit number to the
Company's Form 10-Q for the Quarter ended September 30, 1994.

**** Incorporated by reference to the Company's Form 10-K filed for the
year ended December 31, 1995.

***** Incorporated by reference to the referenced exhibit to the Company's
Form 10-Q for the Quarter ended March 31, 1996.

****** Filed herewith.

EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS

EXHIBIT NO. DESCRIPTION REPORT
----------- ----------- ------

10.1 Satellite Technology Management, Inc. Incentive Stock
Option, Nonqualified Stock Option and Restricted Stock
Purchase Plan--1992 (the "Plan").*

10.2 Form of Incentive Stock Option Agreement pertaining to the Plan.*

10.3 Form of Nonqualified Stock Option Agreement pertaining to the Plan.*

10.21 1994 Stock Option Plan for Non-Employee Directors****

(b) REPORTS ON FORM 8-K

None.

62
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

Dated: March 30, 2000

STM WIRELESS, INC.

By: /s/ EMIL YOUSSEFZADEH
-----------------------------------
Emil Youssefzadeh
President & Chief Executive Officer

By: /s/ JOSEPH WALLACE
-----------------------------------
Joseph Wallace
Vice President, Finance, Chief Financial
Officer and Principal Accounting Officer

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated. Each person whose
signature to this report on Form 10-K appears below hereby appoints Emil
Youssefzadeh and Joseph Wallace, or either of them, to act severally as
attorneys-in-fact and agents, with power of substitution and resubstitution, for
each of the undersigned, for any and all capacities, to sign on his behalf,
individually and in the capacities stated below, and to file any and all
amendments to this report on Form 10-K, which amendment or amendments may make
changes and additions as such attorneys-in-fact may deem necessary.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ EMIL YOUSSEFZADEH Chief Executive Officer and Director March 30, 2000
- ----------------------------------------
Emil Youssefzadeh

/s/ JOSEPH J. WALLACE Vice President, Finance, Chief Financial Officer March 30, 2000
- ---------------------------------------- and Principal Accounting Officer
Joseph J. Wallace

/s/ FRANK T. CONNORS Chairman of the Board March 30, 2000
- ----------------------------------------
Frank T. Connors

/s/ CLAUDE BURGIO Director March 30, 2000
- ----------------------------------------
Claude Burgio

/s/ MARK SHAHRIARY Director March 30, 2000
- ----------------------------------------
Mark Shahriary

/s/ DR. ERNEST U. GAMBARO Director March 30, 2000
- ----------------------------------------
Dr. Ernest U. Gambaro
</TABLE>

<PAGE>

LOAN AND SECURITY AGREEMENT

This Agreement is between the undersigned Borrower and the undersigned
Lender concerning loans and other credit accommodations to be made by Lender to
Borrower.

SECTION 1. PARTIES

1.1 The "BORROWER" is identified in Section 10.5(c) and its successors and
assigns. If more than one Borrower is specified in Section 10.5(c), all
references to Borrower shall mean each of them, jointly and severally,
individually and collectively, and the successors and assigns of each.

1.2 The "LENDER" is THE CIT GROUP/BUSINESS CREDIT, INC. and its agents,
designees, representatives, successors and assigns.

SECTION 2. LOANS AND OTHER CREDIT ACCOMMODATIONS

2.1 REVOLVING LOANS. Lender shall, subject to the terms and conditions
contained herein, make revolving loans to Borrower ("REVOLVING LOANS") in
amounts requested by Borrower from time to time, but not in excess of the lesser
of (i) the amount set forth in Section 10.1(f) and (ii) the Net Availability
existing immediately prior to the making of the requested loan and provided the
requested loan would not cause the outstanding Obligations hereunder to exceed
the Maximum Credit.

(a) The "MAXIMUM CREDIT" is set forth in Section 10.1(a).

(b) The "GROSS AVAILABILITY" is at any time (i) the product of the
outstanding amount of Eligible Accounts, multiplied by the Eligible Accounts
Percentage set forth in Section 10.1(b), plus: (ii) the product obtained by
multiplying the applicable Eligible Inventory Percentage set forth in Section
10.1(b) by the values (based on the lower of cost, market, or export purchase
orders and contracts stated at cost) of Eligible Inventory, but the amount so
added shall not exceed any sublimits set forth in Section 10.1(c).

(c) The "NET AVAILABILITY" shall be calculated at any time as an amount
equal to the Gross Availability minus the aggregate amount of all
then-outstanding Obligations (including Accommodations other than Accommodations
provided under Section 2.3(b)) to Lender.

(d) "ELIGIBLE ACCOUNTS" are accounts created by Borrower in the ordinary
course of its business which are and remain reasonably acceptable to Lender for
lending purposes. General criteria for Eligible Accounts are set forth below but
may be revised from time to time by Lender, in its reasonable business judgment,
on fifteen (15) days' prior written notice to Borrower. Lender shall, in
general, deem and continue to deem accounts to be Eligible Accounts if: (1) such
accounts arise from bona fide completed transactions and have not remained
unpaid for more than the number of days after the invoice date set forth in
Section 10.1(d); (2) the amounts of the accounts reported to Lender are
absolutely owing to Borrower and payment is not conditional or contingent, (such
as consignments, guaranteed sales or right of return or other similar terms);
(3) the accounts are eligible under Export-Import Bank's Working Capital
<PAGE>

Guarantee Program (including any waivers granted by Export Import Bank); (4)
such accounts do not arise from retainages or bill and hold sales; (5) there are
no contra relationships, setoffs, counterclaims or disputes existing with
respect thereto and there are no other facts existing or threatened which would
materially impair or delay the collectibility of all or any portion thereof; (6)
the goods giving rise thereto were not at the time of the sale subject to any
liens except those permitted in this Agreement; (7) such accounts are not
accounts with respect to which the account debtor or any officer or employee
thereof is an officer, employee or agent of or is affiliated with Borrower,
directly or indirectly, whether by virtue of family membership, ownership,
control, management or otherwise; (8) such accounts are invoiced by Borrower and
denominated only in United States dollars and payable in the United States; (9)
Borrower has delivered to Lender such documents as Lender may have requested
pursuant to Section 5.9 hereof in connection with such accounts and Lender shall
have received verifications of such accounts, reasonably satisfactory to it, if
sent to the account debtors or any other obligors or any bailees pursuant to
Section 5.5 hereof; (10) there are no facts existing or threatened which Lender
reasonably believes would result in any material adverse change in the account
debtor's financial condition; (11) not more than fifty percent (50%) of the
accounts of an account debtor or its affiliates owed to Borrower are more than
the number of days set forth in Section 10.1(d); (12) such accounts are owed by
account debtors whose total indebtedness to Borrower does not exceed the amount
of any customer credit limits as reasonably established from time to time on
notice to Borrower (the amount exceeding the credit limit shall not be
eligible); (13) such accounts are owed by account debtors reasonably deemed
creditworthy at all times by Lender; (14) such accounts are owed by account
debtors located in countries on Export-Import Bank's approved list and , if
required by Export-Import Bank, are insured by foreign credit insurance
acceptable to Export-Import Bank and Lender and assigned to Lender; and (15)
such accounts are not owed by an account debtor that is a defense or military
agency of a foreign government.

(e) "ELIGIBLE INVENTORY" is raw material, work in process and finished
goods inventory, owned by Borrower and designated for foreign sale, which is and
remains reasonably acceptable to Lender for lending purposes and is located at
one of the addresses set forth in Section 10.5(e). Borrower shall deliver to
Lender copies of foreign purchase orders with such frequency as Lender may
reasonably require.

(f) Lender shall have a continuing right to reduce the Gross Availability
by implementing reasonable Reserves ("RESERVES"), and to increase and decrease
such Reserves from time to time, if and to the extent that, in Lender's
reasonable business judgment, such Reserves are necessary to protect Lender
against any state of facts which does, or would, with notice or passage of time
or both, constitute an Event of Default or have a material adverse effect on any
Collateral. Without limiting the forgoing, Lender may establish Reserves for the
product supply agreement between Borrower and SkyOnline, Inc. up to $1,200,000
and such Reserves will be subject to reduction as the product supply agreement
between Borrower and SkyOnline, Inc. is fulfilled as indicated by Borrower's
written notice to Lender.

(g) If a voluntary or involuntary petition under the Bankruptcy Code is
filed against the Borrower, then Lender need not make loans.

(h) Revolving Loans will not at any time exceed the Gross Availability
unless Lender has consented in writing.

2
<PAGE>

(i) Subject to the terms and conditions hereof, including but not limited
to the existence of sufficient Gross Availability and Net Availability, Borrower
agrees to borrow sufficient amounts from time to time so that the outstanding
Revolving Loans and Accommodations, shall at all times equal or exceed the
principal amount set forth in Section 10.1(e) as the Minimum Borrowing;
provided, that if Borrower fails to do so, interest shall nevertheless accrue on
the Obligations as if Borrower had borrowed such amounts as would have been
sufficient to maintain the outstanding Revolving Loans and Accommodations at an
amount equal to the Minimum Borrowing (and Lender shall have the right to charge
Borrower's loan account for such additional interest), and provided further that
such accrual shall not impose upon Lender any obligation to make loans to
Borrower to increase the outstanding Revolving Loans or Accommodations to such
Minimum Borrowing. Borrower will maintain Gross Availability at all times in
amounts sufficient to permit Borrower to comply with the Minimum Borrowing
requirement.

2.2 INTENTIONALLY OMITTED.

2.3 ACCOMMODATIONS.

(a) Lender shall issue or cause to be issued, from time to time at
Borrower's request and on terms and conditions and for purposes reasonably
satisfactory to Lender, credit accommodations consisting of letters of credit,
bankers' acceptances, merchandise purchase guaranties or other guaranties or
indemnities for Borrower's account ("ACCOMMODATIONS"). Borrower shall execute
and perform additional agreements relating to the Accommodations in form and
substance reasonably acceptable to Lender and the issuer of any Accommodations,
all of which shall supplement the rights and remedies granted herein. Any
payments made by Lender or any affiliate of Lender in connection with the
Accommodations shall constitute additional Revolving Loans to Borrower. The
aggregate undrawn face amount of all Accommodations outstanding under this
Section 2.3(a) shall not exceed $750,000 at any time. Lender will establish
Reserves equal to (i) 25% of the face amount of standby and (ii) 30% of the face
amount of commercial letters of credit used for purchases of Eligible Inventory.

(b) In the event Borrower does not have sufficient Gross Availability and
Net Availability for Accommodations under Section 2.3(a), Lender shall issue or
cause to be issued, from time to time at Borrower's request and on terms and
conditions and for purposes reasonably satisfactory to Lender, Accommodations
under this Section 2.3(b) provided that Borrower shall have deposited an amount
of cash collateral in form and substance reasonably satisfactory to Lender equal
to 100% of the face amount of such Accommodations and so long as no Event of
Default has occurred and is continuing Lender will remit to Borrower any
interest generated from such cash collateral on a monthly basis. The
Accommodations under this Section 2.3(b) shall not be part of the EXIM guaranty
facility except to the extent the reimbursement to Lender results in the
creation of Revolving Loans. Borrower shall execute and perform additional
agreements relating to the Accommodations in form and substance acceptable to
Lender and the issuer of any Accommodations, all of which shall supplement the
rights and remedies granted herein. Any payments made by Lender or any affiliate
of Lender in connection with the Accommodations shall be repaid from the cash
collateral provided under this Section 2.3(b) and to the extent such cash
collateral is insufficient then such payments shall constitute additional
Revolving Loans to Borrower. The aggregate undrawn face amount of all
Accommodations

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outstanding under this Section 2.3(b) shall not exceed $500,000
at any time and shall not exceed the Maximum Credit when added to all then
outstanding Obligations. Unless otherwise provided, "Accommodations" shall
include Accommodations provided under this Section 2.3(b).

SECTION 3. INTEREST AND FEES

3.1 INTEREST.

(a) Interest on the Revolving Loans shall be payable by Borrower on the
first day of each month, calculated upon the closing daily balances in the loan
account of Borrower for each day during the immediately preceding month, at the
per annum rate set forth as the Interest Rate in Section 10.3(a). The Interest
Rate shall increase or decrease by an amount equal to each increase or decrease,
respectively, in the Prime Rate (as defined below), effective as of the date of
each such change. Interest shall in no month be less than the Interest Rate
multiplied by the Minimum Borrowing set forth in Section 10.1(e). In no event
shall charges constituting interest exceed the rate permitted under any
applicable law or regulation, and if any provision of this Agreement is in
contravention of any such law or regulation, such provision shall be deemed
amended to conform thereto.

(b) The "PRIME RATE" is the rate of interest publicly announced by The
Chase Manhattan Bank in New York, New York, or its successors and assigns from
time to time as its prime rate (the Prime Rate is not intended to be the lowest
rate of interest charged by The Chase Manhattan Bank to its borrowers).

3.2 FEES. Borrower shall pay to Lender:

(a) CLOSING FEE. At closing, a fee in the amount set forth in Section
10.3(c).

(b) EXIM BANK FEE. Borrower shall pay Lender an annual Export-Import Bank
Facility Fee in the amounts required by Export-Import Bank (currently 0.25% of
Maximum Credit on first $2,000,000 and 0.75% on balance of the amount under
Section 10.1(f)), and shall reimburse Lender for any and all fees, costs and
expenses paid to Export-Import Bank by Lender in connection with this
transaction under the Export-Import Bank Working Capital Guarantee Program.

(c) FACILITY FEE. A Facility Fee at each anniversary of closing as set
forth in Section 10.3(d) provided that no Facility Fee will be due on the
anniversary if the Obligations are paid in full on such anniversary date in
accordance with this Agreement.

(d) ACCOMMODATION FEES. Fees equal to 2.0% per annum of the face amount of
outstanding Accommodations, plus fees and costs incurred by Lender in connection
with such Accommodations, payable monthly in arrears.

SECTION 4. GRANT OF SECURITY INTEREST

4.1 GRANT OF SECURITY INTEREST. To secure the payment and performance in
full of all Obligations, Borrower hereby grants to Lender a continuing security
interest in and lien upon,

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and a right of setoff against, and Borrower hereby assigns and pledges to
Lender, all of the Collateral, including any Collateral not deemed eligible for
lending purposes.

4.2 "OBLIGATIONS" shall mean any and all Revolving Loans and
Accommodations, and all other indebtedness, liabilities and obligations of every
kind, nature and description owing by Borrower to Lender and/or its affiliates,
including principal, interest, charges, fees and expenses, however evidenced,
whether as principal, surety, endorser, guarantor or otherwise, arising under or
in connection with this Agreement or otherwise, whether now existing or
hereafter arising, whether arising before, during or after the initial or any
renewal Term or after the commencement of any case with respect to Borrower
under the United States Bankruptcy Code or any similar statute, whether direct
or indirect, absolute or contingent, joint or several, due or not due, primary
or secondary, liquidated or unliquidated, secured or unsecured, original,
renewed or extended and whether arising directly or howsoever acquired by Lender
including from any other entity outright, conditionally or as collateral
security, by assignment, merger with any other entity, participations or
interests of Lender in the obligations of Borrower to others, assumption,
operation of law, subrogation or otherwise and shall also include all amounts
chargeable to Borrower under this Agreement or in connection with any of the
foregoing.

4.3 "COLLATERAL" shall mean all of the following property of Borrower:

(a) All now owned and hereafter acquired right, title and interest of
Borrower in, to and in respect of all: accounts, interests in goods represented
by accounts, returned, reclaimed or repossessed goods with respect thereto and
rights as an unpaid vendor; contract rights; chattel paper; investment property
(excluding the stock of SkyOnline, Inc. owned by Borrower); general intangibles
(including, but not limited to, tax and duty refunds, registered and
unregistered patents, trademarks, service marks, copyrights, trade names,
applications for the foregoing, trade secrets, goodwill, processes, drawings,
blueprints, customer lists, licenses, whether as licensor or licensee, choses in
action and other claims, and existing and future leasehold interests in
equipment and fixtures); documents; instruments; letters of credit, bankers'
acceptances or guaranties; cash moneys, deposits, securities, bank accounts,
deposit accounts, credits and other property now or hereafter held in any
capacity by Lender, its affiliates or any entity which, at any time,
participates in Lender's financing of Borrower or at any other depository or
other institution; agreements or property securing or relating to any of the
items referred to above;

(b) All now owned and hereafter acquired right, title and interest of
Borrower in, to and in respect of goods, including, but not limited to:

(i) All inventory, wherever located, whether now owned or hereafter
acquired, of whatever kind, nature or description, including all raw materials,
work-in-process, finished goods, and materials to be used or consumed in
Borrower's business; and all names or marks affixed to or to be affixed thereto
for purposes of selling same by the seller, manufacturer, lessor or licensor
thereof;

(ii) All equipment and fixtures, wherever located, whether now owned or
hereafter acquired, including, without limitation, all machinery, equipment,
motor vehicles, furniture and fixtures, and any and all additions,
substitutions, replacements (including spare parts), and accessions thereof and
thereto; and

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(iii) All consumer goods, farm products, crops, timber, minerals or the
like (including oil and gas), wherever located, whether now owned or hereafter
acquired, of whatever kind, nature or description;

(c) All now owned and hereafter acquired right, title and interests of
Borrower in, to and in respect of any personal property in or upon which
Borrower has or may hereafter have a security interest, lien or right of setoff;

(d) All present and future books and records relating to any of the above
including, without limitation, all computer programs, printed output and
computer readable data in the possession or control of the Borrower, any
computer service bureau or other third party; and

(e) All products and proceeds of the foregoing in whatever form and
wherever located, including, without limitation, all insurance proceeds and all
claims against third parties for loss or destruction of or damage to any of the
foregoing.

SECTION 5. COLLECTION AND ADMINISTRATION

5.1 COLLECTIONS. Borrower will, at its expense as Lender requests, direct
that all remittances and all other proceeds of accounts and other Collateral be
sent to a bank account selected by Lender. Borrower shall bear all risk of loss
of any funds deposited into such account. In connection therewith, Borrower
shall execute such lock box and bank account agreements as Lender shall specify.
Any collections or other proceeds received by Borrower shall be held in trust
for Lender and immediately remitted to Lender in kind.

5.2 CHARGES TO LOAN ACCOUNT. At Lender's option, all payments of principal,
interest, fees, costs, expenses and other charges provided for in this
Agreement, or in any other agreement now or hereafter existing between Lender
and Borrower, may be charged on the date when due, as principal to any loan
account of Borrower maintained by Lender. Interest, fees for Accommodations and
any other amounts payable by Borrower to Lender based on a per annum rate shall
be calculated on the basis of actual days elapsed over a 360-day year.

5.3 PAYMENTS. All Obligations shall be payable at Lender's Office set forth
in Section 10.5(a) or at Lender's bank designated in Section 10.5(b) or at such
other bank or place as Lender may expressly designate from time to time for
purposes of this Section. Lender shall apply all proceeds of accounts or other
Collateral received by Lender and all other payments in respect of the
Obligations to the Revolving Loans whether or not then due or to any other
Obligations then due, in whatever order or manner Lender shall determine. For
purposes of determining Gross Availability and Net Availability and for the
calculation of the Minimum Borrowing, remittances and other payments will be
treated as credited to the loan account of Borrower maintained by Lender and
Collateral balances to which they relate, upon the date of Lender's receipt of
advice from Lender's bank that such remittances or other payments have been
credited to Lender's account or in the case of remittances or other payments
received directly in kind by Lender, upon the date of Lender's deposit thereof
at Lender's bank, subject to final payment and collection. In computing interest
charges, the loan account of Borrower will be credited with remittances and
other payments the number of days set forth in SECTION 10.3(b) after the day
Lender has received advice of receipt of remittances in Lender's account at

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Lender's Bank. For purposes of this Agreement, "BUSINESS DAY" shall mean any day
other than a Saturday, Sunday or any other day on which Lender or banks located
in states where Lender has its offices, are authorized to close.

5.4 LOAN ACCOUNT STATEMENTS. Lender shall render to Borrower monthly a loan
account statement. Each statement shall be considered correct and binding upon
Borrower as an account stated, except to the extent that Lender receives, within
ninety (90) days after the mailing of such statement, written notice from
Borrower of any specific exceptions by Borrower to that statement, provided
that, at any time after the date hereof, Borrower advises Lender in writing of
an error or overcharge of interest or fees in the loan account statement, Lender
shall take steps to correct the error.

5.5 DIRECT COLLECTIONS. Lender may, at any time, (a) either (i) after an
Event of Default (unless Lender has specifically waived the Event of Default in
writing) or (ii) if Lender has reasonable concerns about the collection of
Borrower's accounts receivable and upon one Business Day notice to Borrower,
notify any account debtor that the accounts and other Collateral which includes
a monetary obligation have been assigned to Lender by Borrower and that payment
thereof is to be made to the order of and directly to Lender, (b) send, or cause
to be sent by its designee, requests (which may identify the sender by a
pseudonym) for verification by telephone, in writing or otherwise of accounts
and other Collateral directly to any account debtor or any other obligor or any
bailee with respect thereto, (c) demand, collect or enforce payment of any
accounts or such other Collateral, but without any duty to do so, and Lender
shall not be liable for any failure to collect or enforce payment thereof, (d)
take or bring, in the name of Lender or Borrower, all steps, actions, suits or
proceedings deemed by Lender necessary or desirable to effect collection of or
other realization upon the accounts and other Collateral, (e) after an Event of
Default, change the address for delivery of mail to Borrower and to receive and
open mail addressed to Borrower, and (f) after an Event of Default, extend the
time of payment of, compromise or settle for cash, credit, return of
merchandise, and upon any terms or conditions, any and all accounts or other
Collateral which includes a monetary obligation and discharge or release the
account debtor or other obligor, without affecting any of the Obligations. At
Lender's request, all invoices and statements sent to any account debtor, other
obligor or bailee, shall state that the accounts and such other Collateral have
been assigned to Lender and are payable directly and only to Lender .

5.6 ATTORNEY-IN-FACT. Borrower hereby irrevocably appoints Lender as
Borrower's attorney-in-fact and authorizes Lender at Borrower's sole expense, to
exercise at any times in Lender's discretion reasonably exercised all or any of
the powers necessary for Lender to obtain information about the Collateral or to
enforce Lender's rights.

5.7 LIABILITY. Borrower hereby releases and exculpates Lender, its officers
and employees from any liability arising from any acts under this Agreement or
in furtherance thereof, except for gross negligence or willful misconduct.
Lender will not have any liability to Borrower for lost profits or other special
or consequential damages.

5.8 ADMINISTRATION OF ACCOUNTS. After written notice by Lender to Borrower
or without notice after an Event of Default, Borrower shall not, (a) materially
amend, modify, settle or compromise any of the accounts or any other Collateral
which includes a monetary

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obligation, (b) release in whole or in part any account debtor or other person
liable for the payment of any of the accounts or any such other Collateral, or
(c) grant any credits, discounts, allowances, deductions, return authorizations
or the like with respect to any of the accounts or any such other Collateral.

5.9 DOCUMENTS. Borrower shall deliver to Lender, as Lender may request, all
documents, schedules, invoices, proofs of delivery, purchase orders, statements,
contracts and all other information evidencing or relating to the Collateral, in
form and substance reasonably satisfactory to Lender and duly executed by
Borrower. Without limiting the provisions of Section 5.5, Borrower's granting of
credits, discounts, allowances, deductions, return authorizations or the like
will be promptly reported to Lender in writing. In no event shall any schedule
or confirmatory assignment (or the absence thereof or omission of any of the
accounts or other Collateral therefrom) limit or in any way be construed as a
waiver, limitation or modification of the security interests or rights of Lender
(unless such waiver, limitation or modification is consented to in writing by
Lender) or the warranties, representations and covenants of Borrower under this
Agreement. Any documents, schedules, invoices or other paper delivered to Lender
by Borrower may be destroyed or otherwise disposed of by Lender six (6) months
after receipt by Lender, unless Borrower requests their return in writing in
advance and makes prior arrangements for their return at Borrower's expense.

5.10 ACCESS. Lender shall have access, prior to an Event of Default during
reasonable business hours and on or after an Event of Default at any time, to
all of the premises where Collateral is located for the purposes of inspecting
or copying the Collateral, and all Borrower's books and records. Lender, at no
charge, may reasonably use such of Borrower's personnel, equipment, including
computer equipment, programs, printed output and computer readable media,
supplies and premises for the collection of accounts and realization on other
Collateral as Lender, in its sole discretion, deems appropriate. Borrower hereby
irrevocably authorizes all accountants and third parties to disclose and deliver
to Lender at Borrower's expense all financial information, books and records,
work papers, management reports and other information in their possession
regarding Borrower.

5.11 ENVIRONMENTAL AUDITS. At such time as Lender reasonably believes there
is an environmental issue in connection with any of Borrower's property or if
required by Export-Import Bank, at the sole expense of Borrower, Borrower shall
provide Lender, or its designee, complete access to all of Borrower's facilities
for the purpose of conducting an environmental audit of such facilities as
Lender may deem necessary.

SECTION 6. ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS

Borrower hereby represents, warrants and covenants to Lender the following,
the truth and accuracy of which, and compliance with which, shall be continuing
conditions of the making of loans or other credit accommodations by Lender to
Borrower:

6.1 FINANCIAL AND OTHER REPORTS. Borrower shall keep and maintain its books
and records in accordance with generally accepted accounting principles,
consistently applied. Borrower shall, at its expense on

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or before Wednesday of each week, deliver to Lender true and complete weekly
inventory reports relating to the prior week. Borrower shall, at its expense on
or before the tenth (10th) day of each month, deliver to Lender: (a) true and
complete monthly agings of its accounts receivable and accounts payable; (b)
monthly inventory reports; and (c) before the twentieth (20th) day of each
month, internally prepared interim financial statements. Annually, Borrower
shall deliver audited financial statements of Borrower accompanied by the report
and opinion thereon of independent certified public accountants acceptable to
Lender, as soon as available, but in no event later than ninety (90) days after
the end of Borrower's fiscal year. Annually, not later than 30 days prior to the
beginning of each fiscal year, Borrower shall provide cash flow projections in a
format reasonably acceptable to Lender. Borrower shall at its own expense and as
frequently as requested deliver to Lender and Export-Import Bank all reports
required by Export-Import Bank. All of the foregoing shall be in such form and
together with such information with respect to the business of Borrower or any
guarantor, as Lender may in each case reasonably request.

6.2 TRADE NAMES. Borrower may from time to time render invoices under its
trade names set forth in Section 10.5(g) and, Borrower represents that: (a) each
trade name does not refer to another corporation or other legal entity, (b) all
accounts and proceeds thereof (including any returned merchandise) invoiced
under any such trade names are owned exclusively by Borrower and (c) Lender may
receive, endorse and deposit to any loan account of Borrower maintained by
Lender all checks or other remittances made payable to any trade name of
Borrower representing payment with respect to such sales or services.

6.3 LOSSES. Borrower shall promptly notify Lender in writing of any
material loss, damage, investigation, action, suit, proceeding or claim relating
to a portion of the Collateral or which may result in any material adverse
change in Borrower's business, assets, liabilities or condition, financial or
otherwise.

6.4 BOOKS AND RECORDS. Borrower's books and records concerning accounts and
its chief executive office are and shall be maintained only at the address set
forth in Section 10.5(d). Borrower's only other places of business and the only
other locations of Collateral of the type described in Sections 4.3(b), (c) and
(d), if any, are and shall be the addresses set forth in Section 10.5(f) hereof,
except Borrower may change such locations or open a new place of business after
thirty (30) days prior written notice to Lender. Borrower shall execute and
deliver or cause to be executed and delivered to Lender such financing
statements, amendments, financing documents and security and other agreements as
Lender may reasonably require.

6.5 TITLE. Borrower has and at all times will continue to have good and
marketable title to all of the Collateral and all of the stock of SkyOnline,
Inc. owned by Borrower, free and clear of all liens, security interests, claims
or encumbrances of any kind except in favor of Lender and except, if any, those
set forth on Schedule A hereto and Borrower will not sell or encumber the stock
of SkyOnline, Inc. owned by Borrower without Lender's prior written consent;
provided that the representations and warranties of Borrower in this Section 6.5
do not apply to any part of the Collateral which is the subject of the Security
Agreement (Intellectual Property) by and between Borrower and Lender dated as of
even date herewith.

6.6 DISPOSITION OF ASSETS. Borrower shall not directly or indirectly: (a)
sell, lease, transfer, assign, abandon or otherwise dispose of any material part
of the Collateral or any material portion of its other assets (other than sales
of inventory to buyers in the ordinary course

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of business or sales of inventory to SkyOnline, Inc. pursuant to the product
supply agreement between SkyOnline, Inc. and Borrower) or (b) consolidate with
or merge with or into any other entity, or permit any other entity to
consolidate with or merge with or into Borrower or (c) form or acquire any
interest in any firm, corporation or other entity without Lender's prior written
consent which consent shall be within Lender's reasonable business judgment.
Notwithstanding the foregoing, Borrower may refinance its real property located
at One Mauchly, Irvine, California, provided (i) Borrower has received the prior
written consent of Lender and the Export-Import Bank, (ii) no Event of Default
has occurred and is continuing, and (iii) the proceeds from such refinancing are
retained by Borrower and utilized as working capital.

6.7 INSURANCE. Borrower shall at all times maintain, with financially sound
and reputable insurers, adequate insurance (including, without limitation, at
the option of Lender, earthquake and flood insurance) with respect to the
Collateral and other assets. All such insurance policies shall be in such form,
substance, amounts and coverage as may be reasonably satisfactory to Lender and
shall provide for thirty (30) days' prior written notice to Lender of
cancellation or reduction of coverage. Lender may obtain at Borrower's expense,
any such insurance should Borrower fail to do so and adjust or settle any claim
or other matter under or arising pursuant to such insurance or to amend or
cancel such insurance. Borrower shall provide evidence of such insurance and a
lender's loss payable endorsement satisfactory to Lender. Borrower shall deliver
to Lender, in kind, all instruments representing proceeds of insurance received
by Borrower. Lender may apply any insurance proceeds received at any time to the
cost of repairs to or replacement of any portion of the Collateral and/or, at
Lender's option, to payment of or as security for any of the Obligations in any
order or manner as Lender determines.

6.8 COMPLIANCE WITH LAWS. Borrower is and at all times will continue to be
in material compliance with the requirements of all material laws, rules,
regulations and orders of any governmental authority relating to its business
(including laws, rules, regulations and orders relating to income, withholding,
excise, property and social security taxes, minimum wages, employee retirement
and welfare benefits, employee health and safety, or environmental matters).
Borrower shall promptly notify Lender and in any event no later than two
Business Days after Borrower receives notice from a third party alleging that
Borrower is in default under any material agreement or other instrument binding
on Borrower or its property. Borrower shall pay and discharge all taxes,
assessments and governmental charges against Borrower or any Collateral when
due, unless the same are being contested in good faith. Lender may establish
Reserves for the amount contested and penalties which may accrue thereon.

6.9 ACCOUNTS. With respect to each account deemed an Eligible Account,
except as reported in writing to Lender, Borrower has no knowledge that any of
the criteria for eligibility are not or are no longer satisfied and the
Eligibility criteria will continue to be satisfied. All statements made and all
unpaid balances and other information appearing in the invoices, agreements,
proofs of rendition of services and delivery of goods and other documentation
relating to the accounts, and all confirmatory assignments, schedules,
statements of account and books and records with respect thereto, are true and
correct and in all respects what they purport to be.

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6.10 EQUIPMENT. With respect to Borrower's equipment, Borrower shall keep
the equipment in good order and repair, and in running and marketable condition,
ordinary wear and tear excepted.

6.11 FINANCIAL COVENANTS. Borrower shall have, as of the end of each
quarter, aggregate excess availability under this Agreement (including
unrestricted and unencumbered (other than liens in favor of Lender) U.S. Dollars
in domestic bank accounts) in the amount set forth in Section 10.4.

6.12 SKYONLINE, INC. NOTE. If the SkyOnline, Inc. financing transaction
described in Borrower's press release dated January 24, 2000 does not close
within 90 days of the date hereof, Borrower shall assign and deliver to Lender
the note(s) receivable owing to Borrower from SkyOnline, Inc., provided that so
long as no Event of Default has occurred and is continuing Borrower may use
payments received under such note(s) as working capital.

6.13 AFFILIATED TRANSACTIONS. Borrower will not, directly or indirectly:
(a) lend or advance money or property to, guarantee or assume indebtedness of,
or invest (by capital contribution or otherwise) in any person, firm,
corporation or other entity in an aggregate amount outstanding at any one time
exceeding $100,000; or (b) declare, pay or make any dividend, redemption or
other distribution on account of any shares of any class of stock of Borrower
now or hereafter outstanding; or (c) make any payment of the principal amount of
or interest on any indebtedness owing to any officer, director, shareholder, or
affiliate of Borrower; or (d) make any loans or advances to any officer,
director, employee, shareholder or affiliate of Borrower except in the ordinary
course of business in an aggregate amount outstanding at any one time not
exceeding $50,000 for normal business purposes including, but not limited to,
reimbursement of travel expenses, (e) enter into any sale, lease or other
transaction with any officer, director, employee, shareholder or affiliate of
Borrower on terms that are less favorable to Borrower than those which might be
obtained at the time from persons who are not an officer, director, employee,
shareholder or affiliate of Borrower.

6.14 FEES AND EXPENSES. Borrower shall pay, on Lender's demand, all costs,
expenses, filing fees and taxes payable in connection with the preparation,
execution, delivery, recording, administration, collection, liquidation,
enforcement and defense of the Obligations, Lender's rights in the Collateral,
this Agreement and all other existing and future agreements or documents
contemplated herein or related hereto, including any amendments, waivers,
supplements or consents which may hereafter be made or entered into in respect
hereof, or in any way involving claims or defense asserted by Lender or claims
or defense against Lender asserted by Borrower, any guarantor or any third party
directly or indirectly arising out of or related to the relationship between
Borrower and Lender or any guarantor and Lender, including, but not limited to
the following, whether incurred before, during or after the initial or any
renewal Term or after the commencement of any case with respect to Borrower or
any guarantor under the United States Bankruptcy Code or any similar statute:
(a) all costs and expenses of filing or recording (including Uniform Commercial
Code financing statement filing taxes and fees, documentary taxes, intangibles
taxes and mortgage recording taxes and fees, if applicable); (b) all title
insurance and other insurance premiums, appraisal fees, fees incurred in
connection with any environmental report, audit or survey and search fees; (c)
all fees as then in effect relating to the wire transfer of loan proceeds and
other funds and fees then in effect for returned checks,

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lock boxes, collateral proceeds accounts and credit reports; (d) all reasonable
expenses and costs heretofore and from time to time hereafter incurred by Lender
during the course of periodic field examinations of the Collateral and
Borrower's operations including field examiner travel, food and lodging, plus a
per diem charge at the rate and subject to the limit set forth in Section
10.3(g) (or if higher, at the then prevailing rate charged by Lender) for
Lender's examiners in the field and office; and (e) the costs, disbursements and
fees of in-house and outside counsel to Lender, including but not limited to
such fees and disbursements incurred as a result of a workout, restructuring,
reorganization, liquidation, insolvency proceeding or litigation between the
parties hereto, any third party and in any appeals arising therefrom.

6.15 FURTHER ASSURANCES. At the request of Lender, at any time and from
time to time, at Borrower's sole expense, Borrower shall execute and deliver or
cause to be executed and delivered to Lender, such agreements, documents and
instruments, including waivers, consents and subordination agreements from
mortgagees or other holders of security interests or liens, landlords or
bailees, and do or cause to be done such further acts as Lender, in its
discretion reasonably exercised, deems necessary or desirable to create,
preserve, perfect or validate any security interest of Lender or the priority
thereof in the Collateral and otherwise to effectuate the provisions and
purposes of this Agreement. Borrower hereby authorizes Lender to file financing
statements or amendments against Borrower in favor of Lender with respect to the
Collateral, without Borrower's signature and to file as financing statements any
carbon, photographic or other reproductions of this Agreement or any financing
statements signed by Borrower. Without limiting the foregoing, the obligation of
Lender to make the initial advance hereunder is subject to, among other things,
the delivery or satisfaction in Lender's discretion of each of the following
conditions, agreements and documents as applicable: (a) grant to Lender of a
second trust deed on Borrower's real property located at One Mauchly, Irvine,
California supported by a policy of title insurance with respect to such trust
deed in form reasonably acceptable to Lender; (b) intellectual property security
agreements; (c) a blocked or Lender bank account established for the proceeds of
Collateral; (d) excess availability (including unrestricted and unencumbered
U.S. Dollars in domestic bank accounts) after giving effect to contemplated
initial advances and Reserves established by Lender equals or exceeds $2,500,000
plus an amount equal to any Reserves for past due accounts payable as deemed
reasonably appropriate by Lender (provided that no Reserve for past due accounts
payable owing to Benchmark Electronics, Inc. shall be implemented by Lender in
calculating minimum excess availability under this subsection 6.15(d) and
Section 6.11 so long as Lender is in receipt of satisfactory evidence that
Borrower is in full compliance with the payment terms for accounts payable owed
to Benchmark Electronics, Inc.) and provided Borrower has no past due taxes; (e)
Lender shall have received the written waiver of the Export-Import Bank with
respect to such matters as Lender reasonably deems necessary or appropriate; (f)
all Export-Import Bank approvals, guaranties, waivers and other documentation
shall have been executed and delivered by all parties thereto and Lender shall
be reasonably satisfied that the Export-Import Bank Working Capital Guaranty
Program is in effect with respect to the Revolving Loans and Accommodations
hereunder (other than Accommodations provided under Section 2.3(b)), and
Borrower shall have paid all fees, costs and expenses required by Export-Import
Bank; (g) landlord waivers on all of Borrower's leased locations; (h) mortgagee
waivers on all of Borrower's owned locations; (i) subordination agreements from
such parties, if any, as Lender shall require; (j) first priority lien on all of
the Collateral including, without limitation, all intellectual property (subject
only to Permitted Encumbrances); (k) Lender shall have received warrants to
purchase 10,000 shares of capital stock of Borrower,

12
<PAGE>

on such terms as Lender shall require, (l) for the three months ended December
31, 1999, Borrower shall achieve net sales of no less than $6,000,000 and a net
loss of no greater than $1,000,000, as determined by Lender, based on Borrower's
internally prepared interim income statements, and (m) no material adverse
change in Borrower's business, operation, health, profits, or prospects or in
the condition of the Collateral shall have occurred from the date of the most
recent financial statements submitted to Lender or the most recent field
examinations conducted by Lender.

6.16 ENVIRONMENTAL CONDITION. None of Borrower's properties or assets has
ever been designated or identified in any manner pursuant to any environmental
protection statute as a hazardous waste or hazardous substance disposal site, or
a candidate for closure pursuant to any environmental protection statute. No
lien arising under any environmental protection statute has attached to any
revenues or to any real or personal property owned by Borrower. Borrower has not
received a summons, citation, notice, or directive from the Environmental
Protection Agency or any other federal or state governmental agency or any
action or omission by Borrower resulting in the releasing, or otherwise exposing
of hazardous waste or hazardous substances into the environment. Borrower is and
will continue to be in compliance (in all material respects) with all statutes,
regulations, ordinances and other legal requirements pertaining to the
production, storage, handling, treatment, release, transportation or disposal of
any hazardous waste or hazardous substance. The representations made in this
Section 6.16 to the extent relating to events or circumstances occurring prior
to Borrower's occupancy and/or ownership of its properties or assets shall be
limited to Borrower's actual knowledge.

6.17 STATE OF INCORPORATION. If Borrower is a corporation, it is duly
organized, existing and in good standing under the laws of the state set forth
in Section 10.5(h).

6.18 LETTER OF CREDIT RIGHTS. Borrower covenants that, at Lender's request,
upon the occurrence of any of the events described in Section 7.1 (without
regard to any cure periods provided for herein) Borrower shall take all action
and execute any documents reasonably necessary or requested by Lender to assign
to Lender all of Borrower's right, title and interest in and to any of
Borrower's letter of credit rights whereby Borrower is named as a beneficiary of
or otherwise has a right to receive proceeds from letters of credit issued from
time to time in support of obligations owed to Borrower.

SECTION 7. EVENTS OF DEFAULT AND REMEDIES

7.1 EVENTS OF DEFAULT. All Obligations shall be immediately due and
payable, without notice or demand, and any provisions of this Agreement as to
future loans and credit accommodations by Lender shall terminate automatically,
upon the termination or non-renewal of this Agreement or, at Lender's option,
upon or at any time after the occurrence or existence of any one or more of the
following "EVENTS OF DEFAULT":

(a) Borrower fails to pay when due any of the Obligations or fails to
perform any of the terms of this Agreement or any other existing or future
financing, security or other agreement between Borrower and Lender or any
affiliate of Lender, provided that to the extent an Event of Default is curable
in Lender's reasonable judgment Borrower shall have two Business Days to cure
any monetary default and ten Business Days to cure any non-monetary default.
Without

13
<PAGE>

limiting the foregoing, the parties agree that any Event of Default resulting
from the fraudulent acts of Borrower is not curable;

(b) Any representation, warranty or statement of fact made by Borrower to
Lender in this Agreement or any other agreement, schedule, confirmatory
assignment or otherwise, or to any affiliate of Lender, shall prove inaccurate
or misleading in any material respect;

(c) Any guarantor revokes, terminates or fails to perform any of the
material terms of any guaranty, endorsement or other agreement of such party in
favor of Lender or any affiliate of Lender;

(d) Any judgment or judgments aggregating in excess of the amount set forth
in Section 10.5(i) or any injunction or attachment is obtained against Borrower
or any guarantor, which remains unstayed for a period of ten (10) days or is
enforced;

(e) Borrower or any guarantor dies or ceases to exist or the usual business
of Borrower or any guarantor ceases or is suspended;

(f) Any change in the chief financial officer or controlling ownership of
Borrower;

(g) Borrower or any guarantor becomes insolvent, makes an assignment for
the benefit of creditors, makes or sends notice of a bulk transfer or calls a
general meeting of its creditors or principal creditors;

(h) Any petition or application for any relief under the bankruptcy laws of
the United States now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at law or
in equity) is filed by or against Borrower or any guarantor;

(i) The indictment or threatened indictment of Borrower or any guarantor
under any criminal statute, or commencement or threatened commencement of
criminal or civil proceedings against Borrower or any guarantor, pursuant to
which statute or proceedings the penalties or remedies sought or available
include forfeiture of any of the property of Borrower or such guarantor which
Lender reasonably believes may have a material adverse effect on the Collateral
or Borrower's business;

(j) Lender in its sole discretion declares an Event of Default upon (a)
Borrower being in default under any material agreement, document or instrument
to which Borrower is a party or by which Borrower or any of its property is
bound and (b) Lender's receipt of notice as described in Section 6.8 or Lender
otherwise becoming aware of any default or event of default occurring on the
part of Borrower under any material agreement, document or instrument to which
Borrower is a party or by which Borrower or any of its property is bound;

(k) In Lender's reasonable judgment, any material adverse change occurs in
the nature or conduct of Borrower's business; or

(l) If for any reason the Obligations of Borrower hereunder are no longer
guaranteed pursuant to the Export-Import Bank Working Capital Guarantee Program.

14
<PAGE>

7.2 REMEDIES. Upon the occurrence of an Event of Default (including the
expiration of any cure period specifically set forth in Section 7.1) and at any
time thereafter, Lender shall have all the default rights and remedies provided
in this Agreement, any other agreements between Borrower and Lender, the Uniform
Commercial Code and other applicable law, all of which rights and remedies may
be exercised without notice to Borrower, all such notices being hereby waived,
except such notice as is expressly provided for hereunder or is not waivable
under applicable law. All rights and remedies of Lender are cumulative and not
exclusive and are enforceable, in Lender's discretion, alternatively,
successively, or concurrently on any one or more occasions and in any order
Lender may determine. Without limiting the foregoing, Lender may (a) accelerate
the payment of all Obligations and demand immediate payment thereof to Lender,
(b) with or without judicial process or the aid or assistance of others, enter
upon any premises on or in which any of the Collateral may be located and take
possession of the Collateral or complete processing, manufacturing and repair of
all or any portion of the Collateral, (c) require Borrower, at Borrower's
expense, to assemble and make available to Lender any part or all of the
Collateral at any place and time designated by Lender, (d) collect, foreclose,
receive, appropriate, setoff and realize upon any and all Collateral, (e) sell,
lease, transfer, assign, deliver or otherwise dispose of any and all Collateral
(including, without limitation, entering into contracts with respect thereto, by
public or private sales at any exchange, broker's board, any office of Lender or
elsewhere) at such prices or terms as Lender may deem reasonable, for cash, upon
credit or for future delivery, with the Lender having the right to purchase the
whole or any part of the Collateral at any such public sale, all of the
foregoing being free from any right or equity of redemption of Borrower, which
right or equity of redemption is hereby expressly waived and released by
Borrower. If any of the Collateral is sold or leased by Lender upon credit terms
or for future delivery, the Obligations shall not be reduced as a result thereof
until payment therefor is finally collected by Lender. If notice of disposition
of Collateral is required by law, five (5) days prior notice by Lender to
Borrower designating the time and place of any public sale or the time after
which any private sale or other intended disposition of Collateral is to be
made, shall be deemed to be reasonable notice thereof and Borrower waives any
other notice. In the event Lender institutes an action to recover any Collateral
or seeks recovery of any Collateral by way of prejudgment remedy, Borrower
waives the posting of any bond which might otherwise be required.

7.3 APPLICATION OF PROCEEDS. Lender may apply the cash proceeds of
Collateral other than accounts actually received by Lender from any sale, lease,
foreclosure or other disposition of the Collateral to payment of any of the
Obligations, in whole or in part and in such order as Lender may elect, whether
or not then due. Borrower shall remain liable to Lender for the payment of any
deficiency together with interest at the highest rate provided for herein and
all costs and expenses of collection or enforcement, including reasonable
attorneys' fees and legal expenses.

7.4 LENDER'S CURE OF THIRD PARTY AGREEMENT DEFAULT. Lender may, at its
option, cure any default by Borrower under any agreement with a third party or
pay or bond on appeal any judgment entered against Borrower, discharge taxes,
liens, security interests or other encumbrances at any time levied on or
existing with respect to the Collateral and pay any amount, incur any expense or
perform any act which, in Lender's sole judgment, is necessary or appropriate to
preserve, protect, insure, maintain, or realize upon the Collateral. Lender may
charge Borrower's loan account for any amounts so expended, such amounts to be
repayable by

15
<PAGE>

Borrower on demand. Lender shall be under no obligation to effect such cure,
payment, bonding or discharge, and shall not, by doing so, be deemed to have
assumed any obligation or liability of Borrower.

SECTION 8. JURY TRIAL WAIVER; CERTAIN OTHER WAIVERS AND CONSENTS

8.1 JURY TRIAL WAIVER. BORROWER AND LENDER EACH WAIVE ALL RIGHTS TO TRIAL
BY JURY IN ANY ACTION OR PROCEEDING INSTITUTED BY EITHER OF THEM AGAINST THE
OTHER WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS AGREEMENT, THE OBLIGATIONS,
THE COLLATERAL, ANY ALLEGED TORTIOUS CONDUCT BY BORROWER OR LENDER, OR, IN ANY
WAY, DIRECTLY OR INDIRECTLY, ARISES OUT OF OR RELATES TO THE RELATIONSHIP
BETWEEN BORROWER AND LENDER. IN NO EVENT WILL LENDER BE LIABLE FOR LOST PROFITS
OR OTHER SPECIAL OR CONSEQUENTIAL DAMAGES.

8.2 COUNTERCLAIMS. Borrower waives all rights to interpose any claims,
deductions, setoffs or counterclaims of any kind, nature or description in any
action or proceeding instituted by Lender with respect to this Agreement, the
Obligations, the Collateral or any matter arising therefrom or relating thereto,
except compulsory counterclaims.

8.3 JURISDICTION. Borrower hereby irrevocably submits and consents to the
nonexclusive jurisdiction of the State and Federal Courts located in the State
in which the office of Lender designated in Section 10.5(a) is located and any
other State where any Collateral is located with respect to any action or
proceeding arising out of this Agreement, the Obligations, the Collateral or any
matter arising therefrom or relating thereto. In any such action or proceeding,
Borrower waives personal service of the summons and complaint or other process
and papers therein and agrees that the service thereof may be made by mail
directed to Borrower at its chief executive office set forth herein or other
address thereof of which Lender has received notice as provided herein, service
to be deemed complete five (5) days after mailing, or as permitted under the
rules of either of said Courts. Any such action or proceeding commenced by
Borrower against Lender will be litigated only in a Federal Court located in the
district, or a State Court in the State and County, in which the office of
Lender designated in Section 10.5(a) is located and Borrower waives any
objection based on forum non conveniens and any objection to venue in connection
therewith.

8.4 NO WAIVER BY LENDER. Lender shall not, by any act, delay, omission or
otherwise be deemed to have expressly or impliedly waived any of its rights or
remedies unless such waiver shall be in writing and signed by an authorized
officer of Lender. A waiver by Lender of any right or remedy on any one occasion
shall not be construed as a bar to or waiver of any such right or remedy which
Lender would otherwise have on any future occasion, whether similar in kind or
otherwise.

SECTION 9. TERM OF AGREEMENT; MISCELLANEOUS

9.1 TERM. This Agreement shall only become effective upon execution and
delivery by Borrower and Lender and shall continue in full force and effect for
a term set forth in Section 10.6 from the date hereof and shall be deemed
automatically renewed, based upon all of

16
<PAGE>

the terms and provisions of this Agreement, for successive terms of equal
duration thereafter unless terminated as of the end of the initial or any
renewal term (each a "TERM") by either party giving the other written notice at
least sixty (60) days' prior to the end of the then current Term.

9.2 EARLY TERMINATION. Borrower may also terminate this Agreement by giving
Lender at least thirty (30) days prior written notice and payment in full of all
of the Obligations as provided herein, including the Early Termination Fee.
Thirty days after receipt of such early termination notice, Lender need not make
any further loans or accommodations. In view of the impracticality and extreme
difficulty of ascertaining actual damages and by mutual agreement of the parties
as to a reasonable calculation of Lender's lost profits, the Early Termination
fee shall be the percentage of the Maximum Credit set forth in SECTION 10.3(h).
Lender shall also have the right to terminate this Agreement at any time upon or
after the occurrence of an Event of Default. If Lender terminates this Agreement
upon or after the occurrence of an Event of Default, Borrower shall pay Lender
forthwith, in full, payment in all Obligations, but excluding the Early
Termination Fee and any Facility Fee not yet charged.

9.3 TERMINATION INDEMNITY DEPOSIT. Upon termination of this Agreement by
Borrower, as permitted herein, in addition to payment of all Obligations which
are not contingent, Borrower shall deposit such amount of cash collateral as
Lender determines is necessary to secure Lender from loss, cost, damage or
expense, including reasonable attorneys' fees, in connection with any open
Accommodations or remittance items or other payments provisionally credited to
the Obligations and/or to which Lender has not yet received final and
indefeasible payment.

9.4 NOTICES. Except as otherwise provided, all notices, requests and
demands hereunder shall be (a) made to Lender at its address set forth in
Section 10.5(a) and to Borrower at its chief executive office set forth in
Section 10.5(d), or to such other address as either party may designate by
written notice to the other in accordance with this provision, and (b) deemed to
have been given or made: if by hand, immediately upon delivery; if by telex,
telegram or telecopy (fax), immediately upon receipt; if by overnight delivery
service, one day after dispatch; and if by first class or certified mail, three
(3) days after mailing.

9.5 SEVERABILITY. If any provision of this Agreement is held to be invalid
or unenforceable, such provision shall not affect this Agreement as a whole, but
this Agreement shall be construed as though it did not contain the particular
provision held to be invalid or unenforceable.

9.6 ENTIRE AGREEMENT; AMENDMENTS; ASSIGNMENTS. This Agreement contains the
entire agreement of the parties as to the subject matter hereof, all prior
commitments, proposals and negotiations concerning the subject matter hereof
being merged herein. Neither this Agreement nor any provision hereof shall be
amended, modified or discharged orally or by course of conduct, but only by a
written agreement signed by an authorized officer of Lender. This Agreement
shall be binding upon and inure to the benefit of each of the parties hereto and
their respective successors and assigns, except that any obligation of Lender
under this Agreement shall not be assignable nor inure to the successors and
assigns of Borrower.

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<PAGE>

9.7 DISCHARGE OF BORROWER. No termination of this Agreement shall relieve
or discharge Borrower of its Obligations, grants of Collateral, duties and
covenants hereunder or otherwise until such time as all Obligations to Lender
have been indefeasibly paid and satisfied in full, including, without
limitation, the continuation and survival in full force and effect of all
security interests and liens of Lender in and upon all then existing and
thereafter-arising or acquired Collateral and all warranties and waivers of
Borrower.

9.8 USAGE. All terms used herein which are defined in the Uniform
Commercial Code shall have the meanings given therein unless otherwise defined
in this Agreement and all references to the singular or plural herein shall also
mean the plural or singular, respectively.

9.9 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State in which the office of Lender set forth in
Section 10.5(a) below is located.

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<PAGE>

<TABLE>

SECTION 10. ADDITIONAL DEFINITIONS AND TERMS
<S> <C> <C> <C>

10.1 (a) Maximum Credit: $3,300,000

(b) Gross Availability 90% provided that the Dilution Percentage does
Eligible Accounts Percentage: not exceed 5%. The Dilution Percentage is the
sum of Borrower's credits, allowances, discounts,
write-offs, contra-accounts and offsets and deductions which
reduce the value of accounts receivable divided by gross
invoices. The Dilution Percentage shall be calculated on a
rolling 90 day average. If the Dilution Percentage exceeds
5% then the Eligible Accounts Percentage shall be reduced by
such excess Dilution Percentage.

Eligible Inventory Percentage: 70%

(d) Maximum days after Invoice 60 days past original due date, not to
Date for Eligible Accounts: exceed 150 days after invoice date.

(e) Minimum Borrowing: $1,500,000 less any Reserves created on
or after one Business Day after the date
hereof except a Reserve created as a
result of an increase in the Dilution
Percentage.

(f) Revolving Load Sublimit $2,800,000

(g) Accommodations under EXIM facility $750,000
(sublimit of Revolving Loans)

(h) Accomodations under non-EXIM $500,000
facility

10.2 Intentionally Omitted.

10.3 Interest, Fees & Charges:

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<PAGE>

(a) Interest Rate: Prime Rate plus 1.0% per annum(1)
(b) Clearance: 3 Business Days
(c) Closing Fee: 1.25% of Maximum Credit
(d) Facility Fee: 1.0% of Maximum Credit(2)
(e) Accommodation Fee 2% over a 360 day year plus bank charges
(f) Intentionally Omitted
(g) Field Examination per diem charge per then prevailing rate (currently $750,
examiner subject to change). Aggregate Field
Examination per diem charges
(including out-of-pocket expenses) shall
not exceed $10,000 in any year in which
no Event of Default occurred or was
continuing

(h) Early Termination Fee:
First year:
Second year or thereafter: 1.0% of the Maximum Credit(3)
0.50% of the Maximum Credit

10.4 Financial Covenants: $1,000,000

10.5 (a) Lender's Office: 300 South Grand Avenue
3rd Floor
Los Angeles, California 90071

(b) Lender's Bank: Bank of America NT&SA, 1850
Gateway Blvd., Concord, California
94520

- -------------------------------
(1)The interest rate will be reduced to the Prime Rate plus 0.50% per annum
after the first annivesary herof if Borrower at any time reports positive net
income (determined in accordance with GAAP) for two consecutive quarters as
reported in Borrower's Form 10Q submitted to the Securities and Exchange
Commission and no Event of Default is then continuing.

(2)The Facility fee will be reduced to (i) 0.25% of the Maximum Credit if
Borrower reports positive net income (determined in accordance with GAAP) on its
Forms 10Q submitted to the Securities and Exchange Commission for the two
consecutive fiscal quarters immediately preceding the relevant anniversary date,
or (ii) 0.50% of the Maximum Credit if Borrower reports positive net income
(determined in accordance with GAAP) on its Form 10Q submitted to the Securities
and Exchange Commission for the fiscal quarter immediately preceding the
relevant anniversary date.

(3)Reduced to 0.5% of the Maximum Credit if this Agreement is terminated and the
Obligations are paid in full in cash with the proceeds of and substantially
concurrent with a sale of 100% of the stock or assets of Borrower to an
unaffiliated person or entity in an arms length transaction.

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<PAGE>

(d) Borrower's Chief Executive Office: One Mauchly
Irvine, California 92618

(e) Locations of Eligible Inventory One Mauchly
Collateral: Irvine, California 92618

(f) Borrower's Other Offices and 3500 Garry Street
Locations of Collateral: Santa Ana, California 92704

(g) Borrower's Trade Names for STM
Invoicing:

(h) Borrower's State of Incorporation: Delaware

(i) Judgment Amount: $400,000

10.6 Term: Two (2) Years
</TABLE>

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<PAGE>

IN WITNESS WHEREOF, Borrower and Lender have duly executed this Agreement
this ____ day of March, 2000.

LENDER BORROWER:

THE CIT GROUP/BUSINESS CREDIT, INC. STM WIRELESS, INC.

By:_________________________ By:_____________________

Title:______________________ Title:__________________

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<PAGE>
SCHEDULE A

PERMITTED LIENS

1. Liens indicated by the following financing statements:

<TABLE>

JURISDICTION SECURED PARTY FILING DATE FILING NO.

<S> <C> <C> <C>
CALIFORNIA The CIT Group/Equipment Finance (via 4/24/96 9611560758
assignment)
CALIFORNIA The CIT Group/Equipment Finance (via 8/12/96 9622560847
assignment)
CALIFORNIA GreatAmerica Leasing Corporation (via 10/7/96 9628460041
assignment)
CALIFORNIA Mcgrath RentCorp 12/27/96 9636561225
CALIFORNIA GE Capital Computer Leasing Corporation 1/29/97 9703060229
CALIFORNIA Deutsche Financial Services Holding 5/1/97 9712260068
Corporation (via assignment)
CALIFORNIA Hewlett-Packard Company Finance & 8/5/97 9722360701
Remarketing Division
CALIFORNIA Bankers Leasing Association 2/23/98 9805760354
CALIFORNIA Bankers Leasing Association 5/26/98 9814760476
CALIFORNIA Newcourt Financial USA, Inc. 2/3/99 9904160648
CALIFORNIA Zapara Family Trust U/D/T dated 10/12/99 9929160232
March 4, 1982
CALIFORNIA Mita Copystar America, Inc. 12/9/99 9934860459
GEORGIA/ Fulton Amtrade International Bank of Georgia 7/14/99 06099013716
County, GA
Orange County, CA Zapara Family Trust U/D/T dated 10/05/99 19990708073
March 4, 1982
</TABLE>

<PAGE>
EXHIBIT 10.32

LOAN AGREEMENT

THIS LOAN AGREEMENT ("Agreement"), is entered into as of September ___,
1999 (the "Effective Date"), by and between STM Wireless, Inc., a Delaware
corporation ("Borrower"), and Thomas M. Zapara and Violet J. Zapara, Trustees of
the Zapara Family Trust U/D/T Dated March 4, 1982 ("Lender").

RECITALS

A. Borrower owns fee simple title to that certain real property located in
the City of Irvine, County of Orange, State of California, as more particularly
described in Exhibit "A" attached hereto and incorporated herein by this
reference (the "Real Property"), and the building and other improvements located
on the Real Property, having an address of One Mauchly, Irvine, California,
together with all fixtures thereon or thereto (collectively, the
"Improvements"). The Real Property and Improvements are referred to collectively
herein as the "Property."

B. Borrower has applied to Lender for a loan in the amount of Seven Million
Dollars ($7,000,000.00) (the "Loan Amount"), upon the terms and subject to the
conditions set forth herein.

NOW, THEREFORE, in consideration of the covenants and conditions herein
contained, the parties agree as follows:

AGREEMENT

1. THE LOAN.

Subject to the terms and conditions of this Agreement, Lender agrees to
lend to Borrower and Borrower agrees to borrow from Lender the Loan Amount (the
"Loan").

1.1 EVIDENCE OF INDEBTEDNESS UNDER THE LOAN. Amounts outstanding under
the Loan shall be evidenced by a promissory note (the "Note") to be secured,
among other things, by a Deed of Trust with Assignment of Rents to be recorded
against the Property (the "Deed of Trust"). In the event of any inconsistency
between the Note or the Deed of Trust and this Agreement, the provisions of this
Agreement shall prevail.

1.2 INTEREST RATE.

1
<PAGE>

1.2.1 INTEREST RATE. Interest at the rate of seven percent (7%) per
annum (the "Interest Rate") shall accrue on the outstanding and unpaid balance
of the Loan Amount commencing on the date of distribution of the Loan Amount
until repaid. This Agreement, the Note, the Deed of Trust, and the other
"Security Documents" (as that term is defined below) are collectively referred
to herein as the "Loan Documents."

1.2.2 RATE AFTER DEFAULT. Upon the occurrence of an Event of
Default, Lender may increase the interest rate five percentage points (5%) (the
"Default Interest Rate"), and include any unpaid interest as of the date of
default as part of the sum due and subject to the Default Interest Rate. The
application of the Default Interest Rate shall not be interpreted or deemed to
extend any cure period set forth in this Agreement or otherwise to limit any of
Lender's remedies under this Agreement or any of the other Loan Documents.

1.2.3 ORDER OF APPLICATION. Any payments received by Lender will be
applied as set forth in the Note.

1.3 PREPAYMENT OF PRINCIPAL. Borrower shall have the right to prepay the
Loan, in whole or in part, at any time, without premium or penalty, provided
that Borrower must pay, together with any prepayment, all accrued but unpaid
interest upon the principal so prepaid.

1.4 SECURITY. Payment of the Note shall be secured by the following
(collectively, the "Security Documents"):

1.4.1 The Deed of Trust, to be executed and acknowledged by
Borrower;

1.4.2 A Security Agreement ("Security Agreement") of even date
herewith, to be executed by Borrower;

1.4.3 A Financing Statement (Form UCC-1), to be executed by
Borrower; and

1.4.4 Such other Security Documents that Lender may reasonably
request to perfect Lender's security interests in and to the Property.

1.5 PAYMENTS AND TERM. The Loan and interest thereon shall be due and
payable in monthly installments of Forty-Six Thousand Five Hundred Seventy-One
Dollars Seventeen Cents ($46,571.17) per month, commencing on December 1, 1999,
and continuing on the first day of each and every month thereafter until
November 1, 2014 (the "Maturity Date"), on which Maturity Date all principal and
interest then remaining unpaid under the Note shall be due and payable in full.
Interest for the partial month in which the Loan is made shall be due and
payable as of the date the Loan is made.

2
<PAGE>

Monthly installments of principal and interest are calculated on a thirty (30)
year amortization schedule at the Interest Rate. All amounts payable by Borrower
on or with respect to the Loan or pursuant to the terms of any other Loan
Documents, shall be paid in lawful money of the United States of America to
Lender, in same day funds, not later than 1:00 p.m. (California time) on the
date due.

2. INSURANCE.

2.1 TITLE INSURANCE. Concurrently with the recording of the Deed of
Trust, Borrower shall, at Borrower's sole cost and expense, deliver or cause to
be delivered to Lender an ALTA Lender's Title Insurance Policy issued by
Fidelity National Title Company (the "Title Company") with liability limits
equal to the Loan Amount and with coverage and in form satisfactory to Lender
(the "Title Policy"). The Title Policy shall insure Lender's interest under the
Deed of Trust as a valid first lien on the Property, together with such
endorsements to the Title Insurance Policy as Lender may require, and thereafter
Borrower shall, at Borrower's own cost and expense, do all things necessary to
maintain the Deed of Trust as a valid first lien on the Property.

2.2 PROPERTY AND LIABILITY INSURANCE. At all times throughout the Loan
term Borrower shall, at its sole cost and expense, maintain or cause any tenant
on the Property to maintain insurance, and shall pay, as the same becomes due
and payable, all premiums in respect thereof, including, but not necessarily
limited to:

2.2.1 PROPERTY. Insurance against loss or damage by fire, lightning,
earthquake (as may be required hereinbelow) and other perils, on an all risk
basis, such coverage to be in an amount not less than the full replacement value
of the building and other improvements on the Property.

2.2.2 LIABILITY. Insurance protecting the Borrower and the Lender
against loss or losses from liability imposed by law or assumed in any written
contract and arising from personal injury including bodily injury or death,
having a limit of liability of not less than One Million Dollars ($1,000,000.00)
(combined single limit for personal injury, including bodily injury or death,
and property damage), and One Million Dollars ($1,000,000.00) aggregate for
personal injury, including bodily injury or death, and property damage, and an
umbrella excess liability policy in an amount not less than Two Million Dollars
($2,000,000.00), protecting Borrower and Lender against any loss or liability or
damage for personal injury, including bodily injury or death, or property
damage.

(a) Such liability policies must provide comprehensive general
liability insurance with coverages for Property and Operations, Products
and Completed Operations, Blanket Contractual Liability, Personal Injury
Liability, Broad Form Property Damage (including completed operations),
Explosion Hazard, Collapse Hazard and Underground property Damage
Hazard.

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<PAGE>

(b) In addition, Borrower shall maintain in full force and
effect business auto liability insurance, including all non-owed and
hired autos, with a limit of liability of not less than One Million
Dollars ($1,000,000.00) (combined single limit for personal injury
including bodily injury or death, and property damage).

(c) All such policies described in this Section 2.2.2 must be
written on an occurrence basis so as to provide blanket contractual
liability, broad form property damage coverage, and coverage for
products and completed operations. Liability insurance under this
Section may be provided under a blanket policy which specifically refers
to the Property.

2.2.3 ADDITIONAL INSURANCE. Borrower shall provide such other
policies of insurance as Lender may reasonably request in writing.

2.2.4 OTHER. All required insurance shall be produced and maintained
in financially sound and generally recognized responsible insurance companies
selected by Borrower and subject to the reasonable approval of Lender (provided
that such companies shall comply with the requirements of this Section 2.2.4).
Such companies shall be authorized to write such insurance in the State of
California The company issuing the policies shall be rated "A:VII" or better by
A.M. Best Co., in Best's Key Guide, or such other rating as may be acceptable to
Lender. All property policies evidencing the required insurance shall name
Lender as first mortgagee, and all liability policies evidencing the required
insurance shall name Lender as additional insured. All policies shall provide
for payment to Lender of the net proceeds of insurance resulting from any claim
for loss or damage thereunder (except in the case of liability insurance, in
which case the net proceeds shall be paid directly to the aggrieved party),
shall not be cancelable as to the interests of Lender due to the acts of
Borrower, and shall provide for at least ten (10) days prior written notice to
Lender of cancellation thereof for failure to pay premiums or charges due, and
at least thirty (30) days prior written notice of the cancellation or material
modification (including reduction in coverage) for any other reason thereof to
Lender.

2.2.5 EVIDENCE. All policies of insurance or certificates of
insurance evidencing that such insurance is in full force and effect shall be
delivered to the Lender on or before the close of the Loan (together with proof
of the payment of the premiums thereof). At least ten (10) days prior to notice
to Lender of cancellation thereof for failure to pay premiums or charges due,
and at least thirty (30) days prior to the expiration or cancellation of each
such policy for any other reason, Borrower shall furnish Lender evidence that
such policy has been renewed or replaced in the form of a certificate reflecting
that there is in full force and effect, with a term covering the next succeeding
calendar year, insurance of the types and in the amounts required.

4
<PAGE>

3. REPRESENTATIONS AND WARRANTIES.

3.1 CONSIDERATION. As an inducement to Lender to execute this Agreement
and to disburse the Loan, Borrower represents and warrants to Lender that the
following statements set forth in this Section 3 are true, correct and complete
as of the date of the recordation of the Deed of Trust against the Property.

3.2 ORGANIZATION, POWERS AND GOOD STANDING.

3.2.1 ORGANIZATION AND POWERS. Borrower is a Delaware corporation,
duly organized and validly existing under the laws of the State of Delaware and
authorized to do business and doing business in the State of California.
Borrower has all requisite power and authority, rights and franchises to carry
on Borrower's businesses as now conducted and as proposed to be conducted, and
to enter into and perform this Agreement and the other Loan Documents executed
by Borrower. The address of the Borrower's chief executive office and principal
place of business is as set forth below in Section 6.2.

3.2.2 GOOD STANDING. Borrower has made all filings and is in good
standing in the State Delaware and in the State of California and in each other
jurisdiction in which the nature of the business Borrower transacts makes such
filings necessary or where the failure to make such filings could have a
materially adverse effect on the business, operations, assets or condition
(financial or otherwise) of Borrower.

3.3 AUTHORIZATION OF LOAN DOCUMENTS.

3.3.1 AUTHORIZATION. All Loan Documents to be executed by Borrower
are within Borrower's powers and have been duly authorized by all necessary
corporate action.

3.3.2 NO CONFLICT. The execution, delivery and performance of the
Loan Documents by Borrower will not violate (i) Borrower's articles of
organization and other formation documents, (ii) any legal requirements
affecting Borrower, or (iii) any agreement to which Borrower is bound or to
which Borrower is a party.

3.3.3 BINDING OBLIGATIONS. This Agreement and the other Loan
Documents create legally valid and binding obligations of Borrower, enforceable
against Borrower in accordance with their respective terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights generally and by general
principles of equity.

5
<PAGE>

3.4 NO MATERIAL DEFAULTS. There exists no material violation of or
material default by Borrower and, to the best knowledge of Borrower, no event
has occurred which, upon the giving of notice or the passage of time, or both,
would constitute a material default with respect to:

(a) The terms of any instrument evidencing or securing any
indebtedness secured by the Property;

(b) Any license, permit, statute, ordinance, law, judgment, order,
writ, injunction, decree, rule or regulation of any governmental authority,
or any determination or award of any arbitrator to which Borrower or the
Property may be bound; or

(c) Any mortgage, instrument, agreement or document by which
Borroweror any of Borrower's properties, is bound (i) which involves any
Loan Document, (ii) which involves the Property and is not adequately
covered by insurance, (iii) that might materially and adversely affect the
ability of Borrower to perform Borrower's obligations under any of the Loan
Documents or any other material instrument, agreement or document to which
Borrower is a party, or (iv) which might adversely affect the priority of
the liens created by this Agreement or any of the Loan Documents.

3.5 ENVIRONMENTAL MATTERS.

(a) Borrower has not, and shall not engage in, or authorize, any
activities on the Property or bring onto or create on, or permit to be
brought onto or created on, the Property, any hazardous, toxic or
infectious materials, wastes or substances (collectively, "Substances"), or
any storage tanks or similar receptacles of any size or shape above or
below ground (collectively, "Tanks"), the possession, use or installation
of which requires a permit from any federal, state or local governmental
agency or body ("Agency") having jurisdiction over such Tanks or Substances
or which is not in compliance with any current or future federal, state or
local law, statute, rule, regulation, order, decision, or ordinance
pertaining to Tanks or Substances ("Standards"), unless any such permit has
been obtained, applicable zoning allows for such use, and any such activity
is conducted strictly in compliance with any and all Standards.

(b) Borrower shall indemnify and hold Lender and Lender's respective
successors and assigns harmless from and against any and all claims,
liabilities, losses, damages, costs and expenses, including, but not
limited to, reasonable attorneys' fees, court costs and litigation
expenses, investigators' fees, fines, penalties and remediation and/or
abatement costs regarding any Substance or Tank, which Lender may incur or
sustain by reason of or in connection with any breach of Borrower's
covenants and representations and agreements under paragraph 3.5(a) above.
The obligation of Borrower under

6
<PAGE>

this paragraph 3.5(a) is a separate obligation of Borrower separate from
the Note and shall survive the repayment of the Note and reconveyance of
the Deed of Trust, foreclosure, or conveyance of the Deed of Trust,
foreclosure, or conveyance of the Property by deed in lieu of foreclosure.

Lender's right to enter the Property pursuant to this Agreement and
the Deed of Trust shall include the right to conduct inspections for any
Substance or any Tank. If any such inspection indicates the existence of
any Substance or Tank in violation of any Standard, then, in addition to
all the rights and remedies of Lender or Trustee under this Agreement and
the Deed of Trust, Borrower shall pay for the costs of such inspection and
for remediation and/or abatement and this Agreement and the Deed of Trust
expressly secures payment of those costs and obligations.

3.6 LITIGATION; ADVERSE FACTS. There is no action, suit, investigation,
proceeding or arbitration (whether or not purportedly on behalf of Borrower), at
law or in equity or before or by any foreign or domestic court or other
governmental entity ("Legal Action"), pending or, to the best knowledge of
Borrower, threatened against or affecting Borrower or any of Borrower's
respective assets which could reasonably be expected to result in any material
adverse change in the business, operations, assets (including the Property) or
condition (financial or otherwise) of Borrower or would materially and adversely
affect Borrower's ability to perform Borrower's obligations under the Loan
Documents. There is no basis known to Borrower for any such action, suit or
proceeding. Borrower is not:

(a) In violation of any applicable law, which violation materially
and adversely affects or may materially and adversely affect the business,
operations, assets (including the Property) or condition (financial or
otherwise) of Borrower; or

(b) Subject to, or in default with respect to, any other legal
requirement that would have a material adverse effect on the business,
operations, assets (including the Property) or condition (financial or
otherwise) of Borrower.

There is no Legal Action pending, or to the knowledge of Borrower threatened
against or affecting Borrower questioning the validity or the enforceability of
this Agreement or any of the other Loan Documents.

3.7 TITLE TO PROPERTIES; LIENS. Borrower is the sole owner of, and has
good and marketable title to, the fee interest in the Property, free from any
adverse lien, security interest or encumbrance of any kind whatsoever, excepting
only:

(a) Liens and encumbrances shown on the Title Report;

7
<PAGE>

(b) Liens and security interests in favor of Lender; and

3.8 DISCLOSURE. There is no fact known to Borrower that materially and
adversely affects the business, operations, assets or condition (financial or
otherwise) of Borrower that has not been disclosed in this Agreement or in other
documents, certificates and written statements furnished to Lender in connection
herewith.

3.9 PAYMENT OF TAXES. All tax returns and reports of Borrower required
to be filed have been timely filed, and all taxes, assessments, fees and other
governmental charges upon Borrower and upon Borrower's assets, income and
franchises which are due and payable have been paid when due and payable.
Borrower knows of no proposed tax assessment against Borrower that would be
material to the condition (financial or otherwise) of Borrower, and Borrower has
not contracted with any government entity in connection with such taxes.

3.10 COMPLIANCE WITH LAWS. The Property, and the uses to which the
Property is and will be put by Borrower, comply fully with all applicable laws
and restrictive covenants, including, without limitation, all requirements of
the California Department of Real Estate and all requirements under the
Interstate Land Sales Disclosure Act.

3.11 FINANCIAL CONDITION. All financial data previously delivered to
Lender in connection with the Loan and/or relating to Borrower are true, correct
and complete in all respects. Such financial data fairly presents the financial
position of the Borrower as of the date thereof. No material adverse change has
occurred in such financial position and, except for this Loan, no borrowings
have been made by Borrower since the date thereof which are secured by, or might
give rise to, a lien or claim against the Property, the proceeds of this Loan,
or other assets of Borrower.

3.12 OTHER LOAN DOCUMENTS. Each of the representations and warranties of
Borrower contained in any of the other Loan Documents is true and correct in all
respects. All of such representations and warranties are incorporated herein for
the benefit of Lender.

4. COVENANTS OF BORROWER.

4.1 CONSIDERATION. As an inducement to Lender to execute this Agreement
and to make the Loan, Borrower hereby covenants as set forth in this Section 4,
which covenants shall remain in effect so long as either the Note shall remain
unpaid or any obligation of Borrower under any of the other Loan Documents
remains outstanding or unperformed.

8
<PAGE>

4.2 COMPLIANCE WITH LAWS. Borrower will comply and, to the extent
Borrower is able, will require others to comply with all laws and requirements
of all governmental authorities having jurisdiction over the Property, and will
furnish Lender with reports of any official searches for violation of any
requirements established by such governmental authorities. Borrower will comply
and, to the extent Borrower is able, will require others to comply with
applicable covenants, conditions and restrictions, and all restrictive covenants
and all obligations created by private contracts and leases which affect
ownership, construction, equipping, fixturing, use or operation of the Property.

4.3 RECORDS. Borrower shall keep and maintain full and accurate accounts
and records of Borrower's operations with respect to the Loan according to sound
accounting practices for Borrower's type of business, and permit Lender or
Lender's representatives to inspect and copy the same upon reasonable notice to
Borrower and during normal business hours upon any date prior to the expiration
of thirty (30) days after repayment in full of the Loan.

4.4 ASSESSMENTS. Borrower shall pay or discharge all lawful claims,
including taxes, assessments and governmental charges or levies imposed upon
Borrower or Borrower's income or profits or upon any property (including the
Property) belonging to Borrower, prior to the date upon which penalties attach
thereto, and shall submit evidence satisfactory to Lender confirming the payment
of all taxes, assessments and charges against the Property, provided that
Borrower may in good faith contest any such claims by appropriate administrative
or judicial proceedings as long as:

(a) Borrower has, in Lender's judgment, a reasonable basis for such
contest;

(b) Borrower pays, prior to the date any interest or penalties will
attach thereto, any portion of any such claims that Borrower does not
contest;

(c) Borrower's contest will not result in or pose any risk of the
seizure, sale or imposition of a lien upon the Property or any portion
thereof;

(d) Borrower delivers to Lender such bond or other security as
Lender may require in connection with such contest;

(e) Borrower at all times prosecutes such contest with due
diligence; and

(f) Borrower pays, prior to the date any interest or penalties will
attach thereto, the amount of the disputed claim that is determined to be
due and owing by Borrower.

9
<PAGE>

In the event that Borrower does not make any payment required to be made
pursuant to subsection 4.4(f) above, Lender may draw or realize upon any bond or
other security delivered to Lender in connection with the contest by Borrower,
in order to make such payment.

4.5 EXPENSES. Without limiting the generality of the foregoing, Borrower
shall pay:

(a) All taxes and recording expenses, including stamp taxes, if any,
relating to the Deed of Trust and any other documents and instruments
securing the Loan;

(b) The fees and expenses of Lender's counsel relating to Lender's
consultation with such counsel in connection with the Loan, the
negotiation, documentation and closing of the Loan and the Loan Documents;
and

(c) The other fees, costs and expenses incurred by Lender in
connection with the Loan, including but not limited to internal
documentation and review, cost review, appraisal, appraisal review,
environmental and inspections.

4.6 TRADE NAMES. Borrower shall immediately notify Lender in writing of
any change in the legal, trade or fictitious business names used by Borrower and
shall, upon Lender's request, execute any additional financing statements and
other certificates necessary to reflect the change in trade names or fictitious
business names.

4.7 MAINTENANCE OF EXISTENCE. Borrower shall maintain and preserve
Borrower's existence and all rights and franchises material to Borrower's
business.

5. EVENTS OF DEFAULT AND REMEDIES.

5.1 EVENTS OF DEFAULT. The occurrence of any one (1) or more of the
following shall constitute an Event of Default under this Agreement:

5.1.1 Failure by Borrower to pay any monetary amount when due under
any Loan Document and the expiration of ten (10) days after written notice of
such failure by Lender to Borrower.

5.1.2 Failure by Borrower to perform any obligation not involving
the payment of money, or to comply with any other term or condition applicable
to Borrower under any Loan Document, and the expiration of thirty (30) days
after written notice of such failure by Lender to Borrower; provided, however,

10
<PAGE>

that if such failure cannot be remedied by the payment of money and cannot be
remedied within such 30-day period and Borrower promptly takes and diligently
pursues action to remedy such failure, Borrower shall have an additional period
of time, not to exceed ninety (90) days, within which Borrower may remedy such
failure.

5.1.3 Any representation or warranty by Borrower in any Loan
Document is materially false, incorrect, or misleading as of the date made.

5.1.4 Borrower (i) is unable or admits in writing Borrower's
inability to pay Borrower's monetary obligations as they become due, (ii) makes
a general assignment for the benefit of creditors, or (iii) applies for,
consents to or acquiesces in the appointment of a trustee, receiver or other
custodian for Borrower or Borrower's property or any part thereof, or in the
absence of such application, consent or acquiescence, a trustee, receiver or
other custodian is appointed for Borrower, or the property of Borrower or any
part thereof, and such appointment is not discharged within sixty (60) days.

5.1.5 Commencement of any case under the Bankruptcy Code, Title 11
of the United States Code or commencement of any other bankruptcy arrangement,
reorganization, receivership, custodianship or similar proceeding under any
federal, state or foreign law by or against Borrower.

5.1.6 Any material litigation or proceeding is commenced before any
governmental authority against or affecting Borrower, or the property of
Borrower or any part thereof, and such litigation or proceeding is not defended
diligently and in good faith by Borrower.

5.1.7 Commencement of any action or proceeding which seeks as one of
its remedies the dissolution of Borrower.

5.1.8 All or any part of the property of Borrower is attached,
levied upon or otherwise seized by legal process, and such attachment, levy or
seizure is not quashed, stayed or released within sixty (60) days of the date
thereof.

5.1.9 The occurrence of any prohibited transfer under the Deed of
Trust, unless prior to such transfer the holder of the Note has delivered to
Borrower the written consent of such holder to such transfer.

5.1.10 The occurrence of any Event of Default, as such term is
defined in any other Loan Document.

5.2 REMEDIES. Notwithstanding any provision to the contrary herein or
any of the other Loan Documents, during the continuance of any Event of Default
under this Agreement, or during the continuance of an Event of Default under any
of the other Loan Documents, if the Event of Default shall not be cured within
the

11
<PAGE>

applicable notice and cure periods, then Lender shall, at Lender's option, have
the remedies provided in the Loan Document breached by Borrower, including,
without limitation, the option to declare all outstanding indebtedness to be
immediately due and payable without presentment, demand, protest or notice of
any kind, and Lender may exercise all rights and remedies available to Lender
under any or all of the Loan Documents. All sums expended by Lender for such
purposes shall be deemed to have been disbursed to and borrowed by Borrower and
shall be secured by the Deed of Trust on the Property.

6. MISCELLANEOUS.

6.1 ASSIGNMENT.

6.1.1 Borrower shall not assign this Agreement or any interest
Borrower may have in the monies due hereunder, without the prior written consent
of Lender, which consent may be granted or withheld in Lender's sole and
absolute discretion.

6.1.2 Lender may at any time assign this Agreement, the Note, the
Deed of Trust and other Loan Documents, and upon such assignment Lender shall
have no further obligation or liability of any nature in connection herewith.
Upon such assignment, the provisions of this Agreement shall continue to apply
to the Loan and such assignee shall be substituted in the place and stead of
Lender hereunder with all rights, obligations and remedies of Lender herein
provided, including without limitation the right to so further assign this
Agreement, the Note, the Deed of Trust and other Loan Documents.

6.2 NOTICES. All notices, requests, demands and consents to be made
hereunder to the parties hereto shall be in writing and shall be delivered by
hand or sent by registered mail or certified mail, postage prepaid, return
receipt requested, through the United States Postal Service to the addresses
shown below or such other address which the parties may provide to one another
in accordance herewith. Such notices, requests, demands and consents, if sent by
mail, shall be deemed given two (2) business days after deposit in the United
States mail, and if delivered by hand, shall be deemed given when delivered.

If to Borrower: STM Wireless, Inc.
One Mauchly
Irvine, CA 92618-2305
Attn: Chief Financial Officer

If to Lender: Thomas M. Zapara and
Violet J. Zapara, Trustees
of The Zapara Family Trust
98 South La Senda

12
<PAGE>

South Laguna CA 92677
Attn: William S. Gray

With a copy to: Voss, Cook & Thel LLP
840 Newport Center Drive, Suite 700
Newport Beach, CA 92660
Attn: Bruce V. Cook, Esq.

6.3 INCONSISTENCIES WITH THE LOAN DOCUMENTS. In the event of any
inconsistencies between the terms of this Agreement and any terms of any of the
Loan Documents, the terms of this Agreement shall govern and prevail.

6.4 NO WAIVER. No disbursement of the Loan shall constitute a waiver of
any conditions to Lender's obligation to make further disbursements nor, in the
event Borrower is unable to satisfy any such conditions, shall any such waiver
have the effect of precluding Lender from thereafter declaring such inability to
constitute an Event of Default under this Agreement.

6.5 LENDER APPROVAL OF INSTRUMENTS AND PARTIES. All proceedings taken in
accordance with transactions provided for herein, and all surveys, appraisals
and documents required or contemplated by this Agreement and the persons
responsible for the execution and preparation thereof, shall be satisfactory to
and subject to approval by Lender. Lender's counsel shall be provided with
copies of all documents which they may reasonably request in connection with
this Agreement.

6.6 PAYMENT OF EXPENSES. Borrower shall pay all taxes and assessments
and all expenses, charges, costs and fees provided for in this Agreement or
relating to the Loan, including, without limitation, any fees incurred for
recording or filing any of the Loan Documents, title insurance premiums and
charges, tax service contract fees, fees of any consultants, Lender's processing
and closing fees, fees and expenses of Lender's counsel, printing, photostatting
and duplicating expenses and air freight charges. The obligations on the part of
Borrower under this Section 6.6 shall survive the closing of the Loan and the
repayment thereof.

6.7 TITLES AND HEADINGS. The titles and headings of sections of this
Agreement are intended for convenience only and shall not in any way affect the
meaning or construction of any provision of this Agreement.

6.8 CHANGE, DISCHARGE, TERMINATION OR WAIVER. No provision of this
Agreement may be changed, discharged, terminated or waived except in writing
signed by the party against whom enforcement of the change, discharge,
termination or waiver is sought. No failure on the part of Lender to exercise
and no delay by Lender in exercising any right or remedy under the Loan
Documents or under the law shall operate as a waiver thereof.

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<PAGE>

6.9 CHOICE OF LAW. This Agreement and the transaction contemplated
hereunder shall be governed by and construed in accordance with the laws of the
State of California, without giving effect to conflict of laws principles.

6.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts each of which shall be deemed an original, but all such
counterparts together shall constitute but one agreement.

6.11 TIME IS OF THE ESSENCE. Time is of the essence of this Agreement.

6.12 ATTORNEYS' FEES. Borrower shall promptly pay to Lender from
Borrower's own funds or from the proceeds of the Loan, upon demand, with
interest thereon from the date of demand at the Default Interest Rate,
attorneys' fees and all reasonable costs and other expenses paid or incurred by
Lender in enforcing or exercising Lender's rights or remedies created by,
connected with or provided for in this Agreement or any of the other Loan
Documents, and payment thereof shall be secured by the Deed of Trust. If at any
time Borrower fails, refuses or neglects to do any of the things herein provided
to be done by Borrower, Lender shall have the right, but not the obligation, to
do the same but at the expense and for the account of Borrower. The amount of
any moneys so expended or obligations so incurred by Lender, together with
interest thereon at the Default Interest Rate, shall be repaid to Lender
forthwith upon written demand therefor and payment thereof shall be secured by
the Deed of Trust.

IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
day and year first above written.

"BORROWER"

STM WIRELESS, INC.,
a Delaware corporation

By:
--------------------------------------
Its:
--------------------------------------

[Signatures Continued on Following Page]

"LENDER"

-----------------------------------------

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<PAGE>

THOMAS M. ZAPARA, Co-Trustee of the
Zapara Family Trust
U/D/T Dated March 4, 1982

-----------------------------------------
VIOLET J. ZAPARA, Co-Trustee of the
Zapara Family Trust
U/D/T Dated
March 4, 1982

Zapara/STM Wireless/Docs/Loan Agreement3

15
<PAGE>

EXHIBIT "A"

PROPERTY DESCRIPTION

EXHIBIT "A"

<PAGE>

EXHIBIT 21

STM WIRELESS, INC. SUBSIDIARIES

The subsidiaries of the Company are:

PERCENTAGE OWNERSHIP

-------------------------

STM do Brasil................................ 100.0%
Avenida das Americas, 3333
Sala 801
22631-003 Rio de Janeiro, Brazil

STM de Mexico, S. A de C.V. ................. 100.0%
Monte Pelvoux No. 130-3ER. Piso
Lomas de Chapultpepec
11000 Mexico, D.F.

STM Wireless Systems, Ltd.................... 100.0%
50/9 Viphavadee-Rangsit 38
Viphavadee-Rangsit Road
Ladyao Chatuchak
Bangkok, 10900 Thailand

STM Sales Corp. .............................. 100.0%
134 West Soledad Avenue
Suite 401
Agana, Guam 96910

Telecom Multimedia Systems, Inc. ............. 100.0%
One Mauchly
Irvine, California 92618

<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT AUDITORS

The Board of Directors
STM Wireless, Inc.:

We consent to incorporation by reference in the registration statements
(Nos. 33-50806, 33-995570, 33-99572 and 333-94227) on Form S-8 and registration
statements (Nos. 33-70650, 33-73962, 33-99568, 333-50485, 333-85707 and
333-92723) on Form S-3 of STM Wireless, Inc. of our report dated March 2, 2000,
relating to the consolidated balance sheets of STM Wireless, Inc. and
subsidiaries as of December 31, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1999, and the related
schedule, which report appears in the December 31, 1999 annual report on Form
10-K of STM Wireless, Inc.

KPMG LLP

Orange County, California

March 29, 2000

<ARTICLE> 5

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