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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Commission File Number: 0-24701

160 South Whisman Road, Mountain View, California 94041

Registrant’s telephone number, including area code: (650) 960-1025

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

      Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes þ          No o

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

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).     Yes o          No þ

      The aggregate market value of the voting stock held by non-affiliates of the Registrant (based upon the closing price of the Registrant’s common stock on March 31, 2003 of $6.35 per share) was approximately $40,133,327. Shares of common stock held by each executive officer and director of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

      As of November 14, 2003, 12,912,563 shares of the Registrant’s common stock, $0.001 par value, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

      Part III incorporates information by reference from the definitive proxy statement for the Annual Meeting of Stockholders scheduled to be held on January 13, 2004.

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FORWARD-LOOKING STATEMENTS

      THIS REPORT ON FORM 10-K CONTAINS STATEMENTS THAT ARE NOT HISTORICAL FACTS BUT ARE FORWARD-LOOKING STATEMENTS RELATING TO SUCH MATTERS AS ANTICIPATED FINANCIAL PERFORMANCE, BUSINESS PROSPECTS, TECHNOLOGICAL DEVELOPMENTS, NEW PRODUCTS, THE INTEGRATION OF THE BUSINESS ACQUIRED DURING THE PREVIOUS FISCAL YEAR AND SIMILAR MATTERS. SUCH STATEMENTS ARE GENERALLY IDENTIFIED BY THE USE OF FORWARD-LOOKING WORDS AND PHRASES, SUCH AS “INTENDED,” “EXPECTS,” “ANTICIPATES” AND “IS (OR ARE) EXPECTED (OR ANTICIPATED).” THESE FORWARD-LOOKING STATEMENTS INCLUDE BUT ARE NOT LIMITED TO THOSE IDENTIFIED IN THIS REPORT WITH AN ASTERISK (*) SYMBOL. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE DISCUSSED IN SUCH FORWARD-LOOKING STATEMENTS, AND STOCKHOLDERS OF CATAPULT SHOULD CAREFULLY REVIEW THE CAUTIONARY STATEMENTS SET FORTH IN THIS REPORT ON FORM 10-K, INCLUDING THOSE SET FORTH UNDER THE CAPTION “FACTORS THAT MAY AFFECT FUTURE RESULTS.”

      THE COMPANY MAY FROM TIME TO TIME MAKE ADDITIONAL WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS, INCLUDING STATEMENTS CONTAINED IN THE COMPANY’S FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION AND IN ITS REPORTS TO STOCKHOLDERS. THE COMPANY DOES NOT UNDERTAKE TO UPDATE ANY FORWARD-LOOKING STATEMENTS THAT MAY BE MADE FROM TIME TO TIME BY OR ON BEHALF OF THE COMPANY.

PART I

The Company

      Catapult Communications Corporation (“Catapult,” the “Company” or the “Registrant”) designs, develops, manufactures, markets and supports advanced software-based test systems offering integrated suites of testing applications for the global telecommunications industry. Catapult’s DCT, MGTS and LANCE products are digital communications test systems designed to enable equipment manufacturers and network operators to deliver complex digital telecommunications equipment and services more quickly and cost-effectively, while helping to ensure interoperability and reliability. The Company’s advanced software and hardware assist customers in the design, integration, installation and acceptance testing of a broad range of digital telecommunications equipment and services. The Company markets its products through both a direct sales force and distributors to industry leaders such as AT&T Wireless Services, Inc., Alcatel, Bellsouth Corporation, Cisco Systems, Inc., Fujitsu Limited, LM Ericsson, Evolium SAS, Lucent Technologies, Inc. (“Lucent”), Motorola, Inc. (“Motorola”), NEC Corporation (“NEC”), Nextel Communications, Inc., Nippon Telephone and Telegraph (“NTT”), Nokia Corporation, Nortel Networks Limited (“Nortel”), NTT DoCoMo, Inc. (“NTT DoCoMo”) and Siemens AG.

      The Company was incorporated in California in October 1985, reincorporated in Nevada in 1998, and has operations in the United States, Canada, the United Kingdom, Europe, Japan and Australia. The Company completed its initial public offering in 1999 and acquired the Network Diagnostics Business (“NDB”) from Tekelec in 2002.

      The Company is subject to the informational requirements of the Securities Exchange Act of 1934 (the Exchange Act) and hence files periodic reports, proxy statements and other information with the Securities and Exchange Commission (the SEC). Such reports, proxy statements and other information may be obtained by visiting the Public Reference Room of the SEC at 450 Fifth Street, NW, Washington, DC 20549 or by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site

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      Financial and other information can also be obtained at the Company’s web site, www.catapult.com, where the Company makes available, free of charge, copies of its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after filing such material electronically or otherwise furnishing it to the SEC.

The DCT, MGTS and LANCE Products

      The Company’s telecommunications test system product line consists of three products: the DCT system, originally introduced by the Company in 1985 and since extensively enhanced; the MGTS system, acquired in connection with the acquisition of NDB, and the LANCE system, introduced by the Company in fiscal 2003.

      The DCT, MGTS and LANCE products perform a variety of test functions, including feature verification, conformance testing, simulation, load and stress testing and monitoring. The Company maintains an extensive library of software modules that support a large number of industry standard protocols and variants thereon. The Company’s emphasis is on complex, high-level and emerging protocols, including Third Generation Cellular (3G), IP Telephony (Voice over IP or VoIP), General Packet Radio Service (GPRS), Asynchronous Transfer Mode (ATM), Signaling System #7 (SS7), Intelligent Network (IN), V5, Integrated Services Digital Network (ISDN), Global Systems for Mobile Communications (GSM), Interim Standard 41 (IS-41), Code Division Multiple Access (CDMA), X.25 and Frame Relay.⁽¹⁾ The Company’s extensive technical know-how and proprietary software development tools enable the Company to implement new protocols and protocol variants rapidly in response to customer needs. With their extensive libraries of software protocol modules, large selection of physical interfaces and versatile platforms, the DCT, MGTS and LANCE products are easily configured to support a wide variety of digital testing functions, thereby reducing a customer’s need for multiple test systems. In addition, the DCT and MGTS systems’ multi-protocol capabilities allow multiple testing operations to be performed simultaneously, helping the Company’s customers to accelerate their product development cycles.

      DCT and MGTS systems consist of advanced proprietary software and hardware running on third-party UNIX-based workstations; LANCE systems run on Linux-based personal computers. When acquiring a system, customers typically license one or more software modules and purchase hardware and ongoing software support. Customers may upgrade their systems by purchasing additional software protocol modules and hardware to meet future testing needs. Customers have the option to purchase a third-party workstation from the Company or to provide a workstation to the Company for configuration. Prices for DCT, MGTS and LANCE systems vary widely depending upon the overall system configuration, including the number and type of software protocol modules and the number of physical interfaces required by the customer. A DCT or MGTS system sale typically ranges in price from approximately $50,000 to over $250,000 and a LANCE system sale from approximately $40,000 to $100,000.

      The principal applications of the DCT, MGTS and LANCE products are feature verification, conformance testing, simulation, load and stress testing and monitoring.

      Feature Verification. DCT, MGTS and LANCE systems are used to perform feature verification by simulating one or more network devices and testing a wide variety of possible scenarios to verify that the device under test handles all features specified by the protocol. The user is able to initiate multiple simultaneous calls across one or many links, create correct call scenarios, send messages out of sequence to verify error response mechanisms and use the systems’ traffic channel facilities to verify a voice or data path.

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      Conformance Testing. DCT, MGTS and LANCE systems are used to verify that network devices conform to industry standards. Because industry standards for protocols are constantly changing, the Company regularly develops new protocol test modules and updates existing protocol test modules so that customers can validate the implementation of new features and the functionality of existing features against those standards.

      Simulation. DCT, MGTS and LANCE systems are used to simulate one or more network devices, emulating their actions and responses. By simulating various network devices, such as digital switches, wireless base stations, network access nodes and network databases, the Company’s products assist engineers to cost-effectively develop equipment that will be compatible with the networks within which they will be deployed. This helps ensure that equipment will interoperate reliably, thereby reducing costly failures after installation.

      Load and Stress Testing. DCT and MGTS systems are used to verify that a device under test can successfully handle its designed traffic capacity and that its performance will degrade gradually, rather than fail completely, when stressed beyond its specifications. The scalable architectures of the DCT and MGTS combined with the newly introduced m5000 platform described below significantly improve the Company’s ability to address its customers’ growing need to generate and maintain high traffic volumes for load testing.

      Monitoring. DCT, MGTS and LANCE systems are used in development laboratories to monitor network links and store network activity information for future analysis, typically without affecting network traffic. By collecting and analyzing traffic, DCT, MGTS and LANCE systems help ensure that the links have been brought into service and that the devices connected by the links are functioning properly. DCT, MGTS and LANCE systems can also provide notice of network device failure, set “traps” and “triggers,” count error messages and filter packets by address or selected field criteria. DCT, MGTS and LANCE systems can simultaneously monitor multiple links, each of which may be using different protocols.

      DCT, MGTS and LANCE test systems run under a UNIX^TM or Linux^TM operating system and consist of proprietary general test applications, specialized programming languages and tools, graphical user interfaces and extensive libraries of proprietary test modules for a large number of protocols and variants, enabling the systems to be configured for many different test applications. Test modules are developed in accordance with telecom industry standard specifications and may include protocol encoders and decoders, state machines, validation tests and conformance test suites.

      DCT, MGTS and LANCE systems include a number of productivity tools. With the DCT and LANCE systems, customers may choose to program their tests by using Catapult’s graphical user interface, CATTgen, or by writing their own code using the Company’s Digital Communication Programming Language, a fully featured, optimized communications language. DCT customers can also choose to integrate their own libraries of test subroutines written in industry standard programming languages such as C or C++. With the MGTS system, customers may implement their tests using Catapult’s Protocol Adaptable State Machine (“PASM”). PASM allows the user to construct custom tests in a non-programming graphical environment. The DCT and MGTS products also provide “Quick Start” applications to characterize system performance, aid in training new users and provide a starting point for developing test applications.

      DCT, MGTS and LANCE products employ modular hardware architectures that support a wide variety of proprietary physical interfaces connecting the systems to devices under test. DCT and MGTS products utilize SUN Microsystems workstations and peripherals; LANCE products use industry standard personal computers and peripherals.

      With the introduction of the m5000 platform described below, the DCT system can support up to 26 PowerPCI co-processor cards, up to 72 m5000-OC3/12 Computing Interface cards or a combination of PowerPCI and m5000-OC3/12 cards, which are installed in the workstation and up to four expansion chassis. The DCT2000 family of PowerPCI cards includes Primary Rate, E1/E2, ATM Optical/UTP, Ethernet, Serial, ISDN, Basic Rate and Japanese CII.

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      The MGTS system is based on a distributed-processor architecture with one central controller and up to 256 distributed link processors. The MGTS i3000 uses a high-speed bus architecture based on the PCI2 and CompactPCI3 bus standards and supports a family of Line Interface Cards that are installed in rack-mount bays. The MGTS family of Line Interface Cards includes E1/T1 HDLC, E1/T1 ATM, ATM SONET/SDH, Ethernet, DS1 (channelized and unchannelized), JT2 (for Japan), Serial, B-Channel, DSP board and Auxiliary Timing.

      The newly introduced m5000 hardware platform has increased the capabilities of the DCT and MGTS test systems to address the telecom industry’s need for higher load test performance. Designed especially for 3G/ATM load test applications, the new platform is a significant performance upgrade for both the DCT2000 and the MGTS i3000 digital communication test systems. Intended to be the first of a next generation family of high-performance products, the m5000 is based on industry standard CompactPCI specifications. A serial-mesh backplane architecture supports up to 18 interface cards and provides the advantages of scalability, data traffic management and computing resource flexibility. The m5000 platform currently supports a new Catapult-designed m5000-OC3/12 computing interface card that employs two IBM PowerPC RISC processors to provide high capacity computing power.

      The LANCE system provides a single user entry-level test system that supports one of the DCT2000 family of PowerPCI co-processor cards installed in the PC. All test applications developed on LANCE can also be run on the DCT2000.

Customers

      The Company’s worldwide customer base includes both telecommunications equipment manufacturers and network operators.

      Revenues from the Company’s top five customers represented approximately 68%, 64% and 50% of total revenues in fiscal 2001, 2002 and 2003 respectively. In fiscal 2003, sales to NTT DoCoMo, Nortel and NEC accounted for approximately 13%, 12%, and 10% of total revenues, respectively. In fiscal 2002, sales to Nortel, NEC and NTT DoCoMo accounted for approximately 24%, 14%, and 12% of total revenues, respectively. In fiscal 2001, sales to NEC, Nortel, Motorola and Lucent accounted for approximately 16%, 16%, 15% and 11% of total revenues, respectively. Separate engineering groups of the same customer at different locations generally make independent decisions to purchase the Company’s products. For example, several divisions of one major customer have independently installed DCT systems at multiple locations in the United States as well as in Ireland, the United Kingdom, Israel, India and China.

      The Company expects that it will continue to depend upon a relatively limited number of customers for substantially all of its revenues in future periods, although no customer is presently obligated either to purchase a specific amount of products or to provide the Company with binding forecasts of purchases for any period. The loss of a major customer or the reduction, delay or cancellation of orders from one or more of the Company’s significant customers could materially adversely affect the Company’s business, financial condition and results of operations.

Sales and Marketing

      The Company markets its products and services through its direct sales force, a majority of whom have technical degrees. As of September 30, 2003, the Company’s direct sales force consisted of 25 employees. This direct sales force is supported by applications engineering, administrative and marketing personnel. The sales and marketing staff is located in North America, Japan, and Europe. In addition, the Company sells its MGTS products through distributors in Europe, the Middle East and South America.

      The Company’s sales strategy is to focus on the functional groups related to the customer’s product development cycle, including research and development, network integration and final test. Sales to a new customer have often led to additional sales at other facilities of that customer, because often a customer performs development at multiple sites in order to adapt its telecommunications equipment to local requirements and standards. The Company intends to continue to leverage its existing customer base not only

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      The Company has implemented a number of marketing initiatives to support the sales of its products and services. These efforts are intended to inform customers of the capabilities and benefits of the Company’s advanced software-based test systems. Marketing programs include direct mail, on-site customer seminars, limited participation in industry trade shows, technology conferences and forums, and dissemination of information concerning products through the Company’s website.

      Customers generally purchase on an as-needed basis, and none of the Company’s customers has entered into agreements that require minimum purchases. The Company’s products generally are shipped within 15 to 30 days after orders are received. As a result, the Company generally does not have a significant backlog of orders, and revenues in any quarter are substantially dependent on orders booked and shipped in that quarter.

      A customer’s decision to purchase the Company’s products typically involves a significant technical evaluation, internal procedural delays associated with large capital expenditure approvals and testing, and with acceptance of new systems that affect key operations. For these and other reasons, the sales cycle associated with the Company’s products is typically lengthy and subject to a number of significant risks over which the Company has little or no control. Historically, the period between initial customer contact and purchase of the Company’s products has typically ranged from two to nine months, with sales to new customers (including new divisions within existing customers) at the upper end of this range. Because of the lengthy sales cycle and the relatively small number and large size of customers’ orders, if revenues forecast from a specific customer for a particular quarter are not realized in that quarter, the Company’s operating results for that quarter could be materially adversely affected.

International Sales

      International sales outside North America constituted approximately 69%, 80% and 62% of the Company’s total revenues in fiscal 2001, 2002 and 2003 respectively. The Company expects that international sales will continue to account for a significant portion of its revenues in future periods. The Company sells its products worldwide through its direct sales force and distribution channels. The Company has sales staff outside the United States located in offices in Japan, the United Kingdom, Germany, France, Finland and Canada, and plans to open new offices internationally from time to time.

      Information with respect to the Company’s revenues, income and identifiable long-lived assets by principal geographic area of operations is set forth in Note 14 of the Notes to Consolidated Financial Statements in Item 8 of this report.

Product Support

      Due to the complexity of its customers’ testing needs, the Company offers its customers support and training from highly skilled technical personnel. As of September 30, 2003, the Company had 52 applications engineers worldwide who provide full-time technical assistance and development support to the Company’s customers. The Company provides ongoing training, generally at the customer’s site, and technical assistance from all of its offices. Support is generally offered during normal business hours applicable to each office. The Company also offers product warranties for various lengths of time, depending on the product and the country of purchase or operation.

      The Company provides periodic software releases that contain new features, new protocol variants and other improvements. Each new software release is carefully designed not only to enhance performance and flexibility, but also to maximize compatibility with the Company’s earlier software releases, enabling the DCT, MGTS and LANCE systems to continue to be used as customer needs and applications evolve. As part of its ongoing software support, the Company may also develop protocol variants at the request of its customers.

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Product Development

      The Company’s development efforts are directed at improving the capability, performance and ease of use of the DCT, MGTS and LANCE systems. The Company intends to continue to devote a large portion of its engineering resources to the enhancement of its suite of software protocol modules in order to meet current and projected customer requirements. The Company also intends to continue to develop and enhance its proprietary internal tools and techniques for supporting new protocols in the DCT, MGTS and LANCE systems.

      The Company is continually seeking to make the DCT, MGTS and LANCE systems easier to use in order to expand its market to include a broader range of users. In order to run test scenarios, particularly on advanced telecommunications systems, users may need to create customized test scripts, a process that may require significant technical expertise. To assist this process, the Company plans to continue the expansion and refinement of its GUI and other script development tools. In addition, the Company will continue to support a number of test suites specified by telecommunications standards bodies, such as ITU-T (International), ETSI (European) and EIA-TIA (North American).

      Most of the Company’s hardware development program is directed towards designing protocol coprocessors and associated physical interfaces. The Company has initiated these projects to increase the performance and capabilities of the DCT, MGTS and LANCE systems and expand the range of devices to which these systems can be directly connected for testing purposes.

      Research and product development expenses were approximately $4.9 million, $7.5 million and $13.5 million in fiscal 2001, 2002 and 2003 respectively. In addition, in fiscal 2002 the Company recorded a $1.4 million in-process research and development expense in connection with the purchase of NDB. The Company’s policy is to evaluate software development projects for technological feasibility to determine if they meet capitalization requirements. To date, all software development costs have been expensed as research and development expenses as incurred. As of September 30, 2003, 76 of the Company’s engineers were engaged in or provided support to research and development.

Manufacturing

      The Company’s manufacturing operations consist of the procurement and inspection of components, final assembly, quality control tests and packaging. Workstations and PCs that host the Company’s products are either purchased by customers directly or purchased by the Company on behalf of its customers. Printed circuit boards, chassis and most of the other major components used in the Company’s products are sub-assembled to the Company’s specifications by independent contractors. The sub-assembled components are then delivered to the Company’s facilities for final assembly, quality control and testing against product specifications and product configuration, including installation of the Company’s software and proprietary hardware. The Company believes that its use of independent contractors for sub-assembly combined with in-house final assembly improves production planning, increases efficiency, reduces costs and improves quality.

      The Company has a computerized manufacturing inventory control system that is integrated with its financial accounting system. This manufacturing control system monitors purchasing, inventory control and production.

Competition

      The market for telecommunications test systems is characterized by intense competition. The Company believes that the principal competitive factors affecting its market include availability of a broad range of protocols and protocol variants, system performance, length of operating history and industry experience, product reliability, ease of use, quality of service and support, status as an independent vendor and price/performance. In addition, the Company believes that potential customers consider other factors, such as the number of protocols required and whether the test system vendor sells competing telecommunications products. The Company believes that it competes favorably with respect to these factors.

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      The Company believes its principal competitors are Artiza Networks (“Artiza”), Acterna Corporation (“Acterna”), Agilent Technologies, Inc. (“Agilent”), INET, Inc. (“INET”), Spirent plc (“Spirent”), NetHawk Oyj (“NetHawk”) and Tektronix, Inc. (“Tektronix”). Many of the Company’s existing and potential competitors are large domestic and international companies that have substantially greater financial, manufacturing, technological, marketing, sales, distribution and other resources, larger installed customer bases, greater name recognition and longer-standing customer relationships than the Company. Accordingly, such competitors or potential competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements or to devote greater resources to the development, promotion and sales of their products than the Company. The Company believes that the market for high-end testing systems is fragmented geographically. For example, INET and Tektronix are the Company’s primary competitors in North America, while its primary competitors in Europe are Tektronix, Acterna, Spirent and NetHawk. The Company’s primary competitor in Japan is Artiza. The Company also faces competition from several relatively small companies.

      The Company also competes with the internal test system groups of its customers and potential customers. Many of the Company’s existing and potential customers have the technical capability and financial resources to produce their own test systems and perform test services internally. These systems and services would be competitive with the test systems offered by the Company.

      The Company expects competition to increase in the future from existing competitors and from other companies that may enter this market with solutions that may be less costly or provide higher performance or offer more features than the Company’s solutions. Current and potential competitors have established or may establish cooperative relationships among themselves or with third parties to develop new test solutions for internal use or for sale to third parties in the Company’s markets. Accordingly, it is possible that new competitors may emerge and acquire significant market share. Increased competition may result in price reductions, reduced gross margins and loss of market share, any of which would have a material adverse effect on the Company’s business, financial condition, results of operations and cash flows.

Intellectual Property

      The Company relies on a combination of trademark, copyright and trade secret laws, as well as nondisclosure agreements and other contractual restrictions, to establish and protect its proprietary rights. The Company generally enters into nondisclosure and invention assignment agreements with its employees and consultants, and into nondisclosure agreements with its customers and suppliers. To date, the Company has generally not sought patent protection for its proprietary technology. The Company believes that, historically, because of the rapid pace of technological change in the telecommunications test system market, patent protection has been a less significant factor than the knowledge, ability and experience of the Company’s employees, the nature and frequency of product enhancement and the quality of the Company’s support services. However, there can be no assurance that patent protection will not become a more significant factor in the Company’s industry in the future. Likewise, there can be no assurance that the measures the Company undertakes will be adequate to protect its proprietary technology. To date, the Company has federally registered certain of its trademarks or copyrights. The Company’s practice is to affix copyright notices on software, hardware and product literature in order to assert copyright protection for these works. There can be no assurance that the lack of federal registration of all of the Company’s trademarks and copyrights would not have a material adverse effect on the Company’s intellectual property rights in the future. Additionally, the Company may be subject to further risks as it enters into transactions in countries where intellectual property laws are unavailable, do not provide adequate protection or are difficult to enforce.

      In connection with the acquisition of Tekelec’s Network Diagnostics Business, the Company and Tekelec entered into license agreements with respect to certain technology and intellectual property that was used by Tekelec in NDB’s business but was not transferred outright to the Company. Under these agreements, Tekelec granted to the Company and its Irish subsidiary perpetual, royalty-free, worldwide (except as to the United States for the subsidiary) licenses to exploit the subject technology and intellectual property. These licenses are exclusive to the Company and its subsidiary for eight years from the date of the acquisition for products used in protocol analysis or simulating, diagnosing, analyzing or testing communications networks, or

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      Despite the Company’s efforts to protect its proprietary rights, unauthorized parties may attempt to duplicate aspects of the Company’s products or to obtain and use information that the Company regards as proprietary. There can be no assurance that the steps taken by the Company to protect its proprietary technology will be adequate to prevent misappropriation of such technology or that they will preclude competitors from independently developing products with functionality or features similar to the Company’s products. The failure of the Company to protect its proprietary technology would have a material adverse effect on the Company’s business, financial condition and results of operations.

      While, to date, the Company has not been subject to claims of infringement or misappropriation of intellectual property of third parties, there can be no assurance that third parties will not assert infringement claims against the Company, that any such assertion of infringement will not result in litigation or that the Company would prevail in such litigation. Furthermore, any such claims, with or without merit, could result in substantial cost to the Company and diversion of its personnel, require the Company to develop new technology or require the Company to enter into royalty or licensing arrangements. Such royalty or licensing agreements, if required, may not be available on terms acceptable to the Company or at all. Because the Company does not rely on patents to protect its technology, the Company will not be able to offer a license for patented technology in connection with any settlement of patent infringement lawsuits. In the event of a successful claim of infringement or misappropriation against the Company and failure or inability of the Company to develop non-infringing technology or license the infringed, misappropriated or similar technology at a reasonable cost, the Company’s business, financial condition and results of operations would be materially adversely affected. In addition, the Company indemnifies its customers against claimed infringement of patents, trademarks, copyrights and other proprietary rights of third parties. Any requirement for the Company to indemnify a customer could have a material adverse effect on the Company’s business, financial condition and results of operations.

Employees

      As of September 30, 2003, the Company employed 222 full-time employees, including 76 in research and development, 52 in application engineering customer support, 48 in sales, 13 in marketing, 20 in administration and 13 in manufacturing. Of these employees, 153 were employed in North America, where the Company’s head office and NDB office are located, 35 were employed in the United Kingdom and Europe, 19 in Japan, and 15 in Australia. The Company is not subject to any collective bargaining agreement and has not experienced any work stoppages. The Company believes that its relations with its employees are good.

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Executive Officers of the Company

      The following table sets forth certain information, as of September 30, 2003, with respect to the executive officers of the Company:

      Dr. Richard A. Karp founded the Company in 1985 and has served as Chief Executive Officer and Chairman of the Board of the Company since inception. In May 2000, Dr. Karp relinquished his title as President to David Mayfield, the Company’s Chief Operating Officer. Dr. Karp holds a Ph.D. in computer science from Stanford University, an M.S. in mathematics from the University of Wisconsin and a B.S. in science from the California Institute of Technology.

      Mr. David Mayfield joined the Company in May 2000 as its President and Chief Operating Officer. Prior to joining the Company, Mr. Mayfield served as interim General Manager at Scitex Digital Video, a manufacturer of non-linear digital video editing systems. Prior to 1998, Mr. Mayfield was Executive Vice President and General Manager of the Philips DVS organization in Salt Lake City, UT, a manufacturer of digital video systems. Mr. Mayfield holds a B.S. in Electrical Engineering from California Polytechnic State University and has completed selected courses towards MSEE at the University of Santa Clara.

      Mr. Glenn Stewart joined the Company in 1992 as Vice President of Engineering and was promoted to the position of Chief Technology Officer in January 2003. Prior to joining the Company, he was Director of Engineering at Tektronix/LP Com, a manufacturer of telecommunications test products. Previously, he spent nine years at Bell Northern Research as a manager of development of telecommunications products and services. Mr. Stewart holds an M.Sc. and a B.Sc. in Computer Science from the University of Toronto.

      Mr. Chris Stephenson joined the Company in July 2000 in a full-time consulting capacity and assumed the role of Chief Financial Officer in February 2001 upon approval of the required work visa. From 1985 to April 2000, he was Chief Financial Officer of Telco Research Corporation Limited and its predecessor, TSB International Inc., both telecommunications management companies. He holds a B.A. and an M.A. from the University of Toronto.

      Mr. Sean Kelly joined the Company in July 2003 as Vice President of Sales. From 1980 to 2002, Mr. Kelly held progressively more senior product management, marketing and sales management positions with Hewlett-Packard Company, most recently that of General Manager — Worldwide Business Customer Sales — Industry Standard Servers, PCs, Printers. Mr. Kelly holds a B.S. in Mathematics from the U.S. Naval Academy.

      Mr. Adam Fowler joined the Company in August 2002 in connection with the Company’s acquisition of the Network Diagnostics Business from Tekelec and was promoted to the position of Vice President of Advanced Development in January 2003. From 1998 to 2002, Mr. Fowler held progressively more senior development management positions with Tekelec, most recently that of Assistant Vice President of Engineering with responsibility for the MGTS product line. Prior to 1998, he was employed by Nortel, Inc. for 14 years, where his last position was Senior Manager, Product Development and Verification. Mr. Fowler holds a B.S.E. in Electrical Engineering from Duke University.

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      Mr. Guy R. Simpson has served as Deputy Chairman of Catapult Communications Ltd. (“CCL”), the Company’s UK subsidiary, since October 1996 and was appointed Vice President of Applications Development of the Company in May 1998 and Vice President of Customer Support in October 2002. Mr. Simpson joined the Company in 1989 and has held a number of technical and management positions with the Company and CCL since that time. Prior to joining the Company, Mr. Simpson was employed for eight years by AT&T Bell Laboratories, where he held a variety of engineering and management positions in the area of advanced digital switching systems. Mr. Simpson holds a B.Sc. degree in Computer Science from Hatfield Polytechnic at the University of Hertfordshire, United Kingdom.

      Ms. Barbara J. Fairhurst joined the Company in June 1995 as Director of Operations. From 1994 to 1995, Ms. Fairhurst was Principal at BJF Consulting, a consulting firm, where she developed business plans and implemented operating systems. From 1990 to 1993, Ms. Fairhurst was Corporate Vice President at Intersource Technologies, Inc., a developer of lighting technology, where she was responsible for operations and manufacturing. Prior to that time, Ms. Fairhurst spent 10 years as President and Chief Operating Officer of Sequential Circuits, a manufacturer of electronic music equipment. Ms. Fairhurst holds a M.B.A. from the Santa Clara University and a B.A. from San Jose State University.

      Mr. Terry Eastham joined the Company in 1999 as the Company’s first Vice President of Marketing. Prior to joining the Company, he served as Chief Operating Officer for Sherwood Networks, a manufacturer of network computers and display terminals. Previously, he spent six years at Wyse Technology, a manufacturer of display terminals, as Vice President of Product Marketing and 17 years at Hewlett-Packard Company where he held a variety of marketing and sales development positions. Mr. Eastham holds both a M.B.A. degree and a M.S. in Physics degree from Washington University and a B.S. degree in Physics from Oklahoma State University.

      Ms. Kathy T. Omaye-Sosnow joined the Company in 1997. Ms. Omaye-Sosnow was promoted to the position of Vice President of Human Resources in November 2000. Prior to her promotion, Ms. Omaye-Sosnow served as the Company’s Director of Human Resources since June 1999. Prior to that, Ms. Omaye-Sosnow served as the Company’s Manager of Human Resources. Prior to joining the Company, she held a variety of human resources positions, most recently as Manager of Corporate Employment at McKesson HBOC Corporation, a pharmaceutical distributor and health management corporation. Ms. Omaye-Sosnow holds a B.S. degree in Human Resources from California State University, Sacramento.

      The Company’s executive offices, product development and primary support and production operations are located in Mountain View, California, where the Company occupies approximately 39,100 square feet pursuant to leases that expire in 2005. The annual rent for the property is approximately $390,000. In addition the Company leases approximately 31,000 square feet in Morrisville, North Carolina for product development and support operations, expiring in 2008. The annual rent for the property is approximately $260,000. The Company believes that these facilities will be adequate for its planned purposes.*

      In addition, the Company leases a total of approximately 30,000 square feet of professional services office space in the following 11 locations: Schaumburg, Illinois; Dallas, Texas; Ottawa, Canada; Chippenham, England; Gilching, Germany; Antony Cedex, France; Sollentuna, Sweden; Helsinki, Finland; Tokyo, Japan; Yokosuka Research Park, Japan; and Melbourne, Australia.

      A lawsuit was instituted in October 2002 against the Company and one of its subsidiaries, Catapult Communications International Limited, an Irish corporation, in the Antwerp Commercial Court, Antwerp, Belgium, by Tucana Telecom NV, a Belgian company (“Tucana”). Tucana had been a distributor of products for Tekelec, the company from which NDB was acquired in August 2002. The writ alleges that the defendants improperly terminated an exclusive distribution agreement with Tucana following the acquisition of NDB and seeks damages of 12,461,000 euros plus costs. A trial date on the matter has been scheduled for January 16, 2004. The Company strongly believes that it properly terminated any contract it had with Tucana and that

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      No matters were submitted to a vote of security holders during the fourth quarter of fiscal 2003.

PART II

      The Company’s common stock is quoted on the Nasdaq National Market System (“Nasdaq”) under the symbol “CATT.” The following table sets forth the range of high and low closing sales prices for each fiscal period indicated:

      The Company had approximately 51 stockholders of record as of November 14, 2003. The Company has not declared or paid any cash dividends on its common stock and presently intends to retain its future earnings, if any, to fund the development and growth of its business. Therefore, the Company does not anticipate paying cash dividends in the foreseeable future.

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GLOSSARY

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Item 6.     Selected Financial Data

      The following selected financial data is qualified by reference to and should be read in conjunction with the “Management Discussion and Analysis of Financial Condition and Results of Operations” section and the Consolidated Financial Statements and Notes thereto included elsewhere in this Report on Form 10-K.

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Results of Operations

      The following table sets forth, for the periods indicated, the percentage relationship of certain items from the Company’s consolidated statements of income to total revenues.

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Overview

      The Company’s revenues are derived from product sales, which include both licenses of the DCT, MGTS and LANCE system software and sales of DCT, MGTS and LANCE hardware, and from services, which include customer support under hardware and software support contracts as well as installation and training. Prices for the DCT, MGTS and LANCE systems vary widely depending upon overall system configuration, including the number and type of software protocol modules and the number of physical interfaces required by the customer. A DCT or MGTS system sale typically ranges in price from approximately $50,000 to over $250,000 and a LANCE system sale from approximately $40,000 to $100,000. In addition to the initial system purchase, customers also may upgrade their systems by purchasing additional software protocol modules and hardware. Customers have the option to purchase a third-party workstation or PC from the Company or provide a workstation or PC to the Company for configuration. Product sales are recognized upon shipment or, if installation services are purchased, when installation is complete, provided collection is probable.

      The Company offers product warranties for various lengths of time, depending on the product and country of purchase or operation. Customers may elect to purchase an annual software support contract which includes both ongoing technical support and any new software releases on a when-and-if available basis during the term of the support contract. These software releases may include updates for protocols already licensed by the customer. Revenues from software support contracts are recognized ratably over the contract period, which is generally one year. New customers often purchase onsite training, which is charged on a fixed-price basis and recognized when the training is complete.

Critical Accounting Policies

      The Company has identified the accounting policies below as critical to its business operations and the understanding of its results of operations. The impact and any associated risks related to these policies on its business operations is discussed throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations where such policies affect the Company’s reported and expected future financial results. For a detailed discussion on the application of these and other accounting policies, see Note 1 of the Notes to the Consolidated Financial Statements.

     Revenue Recognition

      Sales of the Company’s product arrangements normally include hardware and software. Certain of the Company’s sales may also include installation. The Company also offers training and maintenance services. The Company recognizes revenue on system sales upon shipment or when installation is complete, if installation services are purchased, provided persuasive evidence of an arrangement exists, the fee is fixed or determinable and collection of the resulting receivable is probable. Training and maintenance revenues are based on the Company’s established history of charging separate fees for training and maintenance. Revenues allocated to training are recognized at the time the training is complete. Revenues allocated to maintenance are recognized ratably over the term of the maintenance contract.

     Foreign Exchange Risk and Derivative Financial Instruments

      The Company’s foreign subsidiaries operate and sell the Company’s products in various global markets. As a result, the Company is exposed to changes in exchange rates on foreign currency denominated sales made to foreign subsidiaries. The Company utilizes foreign currency forward exchange contracts and options to hedge against future movements in foreign exchange rates that affect certain foreign currency denominated inter-company receivables. The Company attempts to match the forward contracts with the underlying receivables being hedged in terms of currency, amount and maturity. The Company does not use derivative financial instruments for speculative or trading purposes. The cost of options and any gains or losses on forward contracts are included in other income (expense).

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     Use of Estimates; Allowance for Doubtful Accounts

      The preparation of financial statements requires the Company to make estimates and assumptions that affect the reported amount of assets and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. The Company specifically analyzes accounts receivable, historical bad debt experience, customer concentration, customer credit-worthiness, current economic trends and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. The Company’s accounts receivable balance as of September 30, 2003 was $10.6 million, net of allowance for doubtful accounts of $0.3 million.

     Accounting for Income Taxes

      As part of the process of preparing consolidated financial statements, the Company is required to estimate income taxes in each of the jurisdictions in which it operates. This process involves estimating the Company’s actual current tax exposure together with assessing temporary differences resulting from differing treatment of items, such as deferred revenue, for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within its consolidated balance sheet. The Company then assesses the likelihood that its deferred tax assets will be recovered from future taxable income and to the extent it believes that recovery is not likely, establishes a valuation allowance. To the extent that the Company establishes or increases a valuation allowance in a period, the change is included as an expense within the tax provision in the consolidated statement of income.

     Goodwill and Long Lived Assets

      Effective October 1, 2002, the Company adopted the provisions of Statement of Financial Accounting Standard (“SFAS”) No. 142, “Goodwill and Other Intangible Assets,” which requires, among other things, the discontinuance of goodwill amortization and an annual impairment test. The Company performed its most recent annual impairment test on September 30, 2003, showing no impairment of goodwill, and will continue to perform this test annually using the methodology described in Note 1 of the Notes to Consolidated Financial Statements in Item 8 of this report.

      SFAS No. 142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives and reviewed for impairment in accordance with SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and For Long-Lived Assets to be Disposed of.” For assets to be held and used, including acquired intangibles, the Company initiates a review whenever events or changes in circumstances indicate that the carrying value of a long-lived asset may not be recoverable. Recoverability of an asset is measured by comparing its carrying value to the future undiscounted cash flows that the asset is expected to generate. Any impairment is measured by the amount by which the carrying value exceeds the projected discounted future operating cash flows. Assets to be disposed of and that the Company has committed to a plan to dispose of, whether through sale or abandonment, are reported at the lower of carrying value or fair value less costs to sell.

Fiscal Years Ended September 30, 2002 and 2003

      Revenues, cost of revenues and operating expenses for the year ended September 30, 2003 include a full 12 months of the results of the continuing operations of NDB. The corresponding figures for the year ended September 30, 2002 include one month of the results of the continuing operations of NDB from August 30, 2002, the date it was acquired by the Company, and exclude the results of the discontinued distribution and consulting businesses engaged in by Tekelec Limited in Japan as described in Note 5 of the Notes to the Consolidated Financial Statements.

     Revenues

      Total revenues increased by 13% from $40.0 million in fiscal 2002 to $45.2 million in fiscal 2003. Despite the additional MGTS revenues resulting from the NDB acquisition, product revenues increased by only approximately 4% from $34.0 million in fiscal 2002 to $35.3 million in fiscal 2003, due to prevailing market

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     Cost of Revenues

      Cost of product revenues increased by approximately 109% from $2.7 million in fiscal 2002 to $5.7 million in fiscal 2003. Gross margin on product revenues decreased from 92.1% in fiscal 2002 to 84.0% in fiscal 2003. Both the increase in cost of product revenues and the decrease in gross margin on product revenues reflected two factors: first, the higher cost of goods on the more hardware intensive MGTS product in comparison with the DCT product; and second, the additional manufacturing costs incurred on MGTS product during the six month period ended February 28, 2003 when this product was manufactured for the Company by Tekelec under a Transitional Services Agreement.

      Cost of services revenues increased by approximately 141% from $1.2 million in fiscal 2002 to $2.8 million in fiscal 2003 as a result of a corresponding increase in the costs of customer support personnel due to the NDB acquisition. Gross margin on services revenues decreased from 80.6% in fiscal 2002 to 71.4% in fiscal 2003 as the cost of providing services revenues, consisting primarily of compensation costs, grew more than the associated revenues. Gross margin on services revenues may also vary depending on the timing of system sales and support contract renewals.

      Amortization of purchased technology increased from $57,000 in fiscal 2002 to $686,000 in fiscal 2003 reflecting a full 12 months of amortization in the latter year in comparison with a single month in the former.

     Research and Development

      Research and development expenses increased by approximately 80% from $7.5 million in fiscal 2002 to $13.5 million in fiscal 2003 due to a corresponding increase in compensation and other costs associated with NDB research and development activities. As a percentage of total revenues, research and development expenses increased from 18.8% in fiscal 2002 to 29.9% in fiscal 2003. The Company expects the absolute annual level of research and development expenses to decrease by approximately 20% in fiscal 2004 as a result of reductions made during fiscal 2003 in the number of employees and contractors engaged in research and development activities.*

     Sales and Marketing

      Sales and marketing expenses increased by approximately 35% from $10.7 million in fiscal 2002 to $14.5 million in fiscal 2003 as a result of two factors: an increase of approximately $3.2 million in compensation and other associated costs due to an increase in the number of personnel engaged in sales and marketing activities as a result of the NDB acquisition, and an increase of approximately $550,000 in the cost of sales and marketing activities outside the United States due to an increase in the values of the foreign currencies in which this cost is incurred. As a percentage of total revenues, sales and marketing expenses increased from 26.8% of revenues in fiscal 2002 to 32.1% in fiscal 2003.

     General and Administrative

      General and administrative expenses increased by approximately 36% from $4.9 million in fiscal 2002 to $6.7 million in fiscal 2003. This increase was due to four factors: an increase of $850,000 in facilities costs due primarily to the NDB acquisition; an increase of $155,000 in compensation costs due to an increase in the number of personnel engaged in the performance of general and administrative activities; an increase of $470,000 in premiums for general liability, directors and officers and workers compensation insurance; and an increase of $336,000 in non-cash amortization of acquisition related intangibles. As a percentage of total revenues, general and administrative expenses increased from 12.2% to 14.8% over the same period. The Company expects the absolute annual level of general and administrative expenses to increase by up to approximately 5% in fiscal 2004 due to increased regulatory compliance costs.*

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     Restructuring Costs

      A restructuring charge of $730,000 was recorded in the fourth quarter of fiscal 2003 related to costs associated with the involuntary termination of 39 employees, including 25 in research and development, 10 in sales and marketing, 3 in the customer service component of services cost of goods and 1 in the manufacturing component of product cost of goods. The terminations represented 15% of the Company’s pre-termination workforce. No restructuring charge was recorded in fiscal 2002.

      In fiscal 2002, $1.4 million in purchased in-process research and development was charged to operating expenses. This amount represented two NDB research and development projects in process as of August 30, 2002, the date of the acquisition of NDB. The value of these projects was determined by an independent appraiser using established valuation techniques and was expensed because technological feasibility had not been established and no future alternative uses existed as of the date of acquisition. There was no expense recorded in fiscal 2003 for purchased in-process research and development.

      Interest income decreased from $1.5 million in fiscal 2002 to $786,000 in fiscal 2003 due to lower cash and short term investment balances resulting from the $42.5 million paid on closing of the NDB acquisition and lower prevailing rates of return, partially offset by amortization of $407,000 of the convertible note valuation premium in fiscal 2003 in comparison with $34,000 in fiscal 2002.

      Interest expense increased from $29,000 in fiscal 2002 to $350,000 in fiscal 2003 due to a corresponding increase in interest accrued on the convertible notes payable.

      Other income improved from an expense of $219,000 in fiscal 2002 to income of $1.2 million in fiscal 2003 due to two factors: foreign exchange gains recorded in fiscal 2003 in contrast with the foreign exchange losses in fiscal 2002 and the receipt in fiscal 2003 of a Japanese consumption tax refund in the amount of approximately $695,000.

      The Company recorded a benefit from income taxes of $2.1 million in fiscal 2003 as a result of three factors: the identification of approximately $830,000 in additional taxes recoverable from a previous period; a reduction of approximately $970,000 in the estimated tax payable at the end of the fiscal year as a result of the likely favorable outcome of a tax audit of the Company’s Japanese subsidiary; and the recognition of approximately $775,000 in future tax benefits of foreign tax credits created in the liquidation of the Japanese subsidiary acquired from Tekelec. As a result, the Company’s effective tax rate changed from a provision of 28% in fiscal 2002 to a benefit of 92% in fiscal 2003.

Fiscal Years Ended September 30, 2001 and 2002

      Revenues, cost of revenues and operating expenses for the year ended September 30, 2002 include the results of the continuing operations of NDB from August 30, 2002, the date it was acquired by the Company and exclude the results of the discontinued distribution and consulting businesses engaged in by Tekelec Limited in Japan as described in Note 5 of the Notes to the Consolidated Financial Statements.

      Total revenues increased by less than 1% from $39.9 million in fiscal 2001 to $40.0 million in fiscal 2002. Product revenues decreased by approximately 2% from $34.7 million in fiscal 2001 to $34.0 million in fiscal

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      Cost of product revenues decreased by approximately 29% from $3.8 million in fiscal 2001 to $2.7 million in fiscal 2002. Gross margin on product revenues increased from 89.1% in fiscal 2001 to 92.1% in fiscal 2002. This increase in gross profit margin occurred despite the inclusion of one month of revenues from the lower margin MGTS product in the latter year, and reflected lower cost of goods on the hardware component of the Company’s DCT2000 product.

      Cost of services revenues increased by approximately 98% from $591,000 in fiscal 2001 to $1.2 million in fiscal 2002 due to increases in the number of customer support personnel and the associated costs. Gross margin on services revenues decreased from 88.6% in fiscal 2001 to 80.6% in fiscal 2002 as the cost of providing services revenues, consisting primarily of compensation costs, grew more than the associated revenues. Gross margin on services revenues may also vary depending on the timing of system sales and support contract renewals.

      Amortization of purchased technology in the amount of $57,000 was recorded in fiscal 2003, reflecting one month of amortization of the NDB technology. No amortization of purchased technology was recorded in fiscal 2002.

      Research and development expenses increased by approximately 52% from $4.9 million in fiscal 2001 to $7.5 million in fiscal 2002 due primarily to higher compensation costs resulting from a significant increase in the number of personnel engaged in research and development. This increase in research and development personnel reflected both the addition of 15 employees throughout fiscal 2002 and the 53 personnel who joined with the acquisition of NDB one month prior to the end of fiscal 2002. As a percentage of total revenues, research and development expenses increased from 12.4% to 18.8% over the same.

      Sales and marketing expenses remained unchanged at $10.7 million from fiscal 2001 to fiscal 2002 as the addition of one month of expenses related to NDB sales and marketing expenses was offset by a 14% reduction in the number of non-NDB personnel engaged in sales and marketing as well and by a reduction in variable compensation expense. As a percentage of total revenues, sales and marketing expenses remained unchanged at 26.8% of revenues from fiscal 2001 to fiscal 2002.

      General and administrative expenses decreased by approximately 9% from $5.4 million in fiscal 2001 to $4.9 million in fiscal 2002. This decrease was due primarily to decreases in performance related bonuses, recruitment costs and legal fees. As a percentage of total revenues, general and administrative expenses decreased from 13.4% to 12.2% over the same period.

      In fiscal 2002, $1.4 million in purchased in-process research and development was charged to operating expenses. This amount represented two NDB research and development projects in process as of August 30, 2002, the date of the acquisition of NDB. The value of these projects was determined by an independent appraiser using established valuation techniques and was expensed because technological feasibility had not been established and no future alternative uses existed as of the date of acquisition.

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      Interest income decreased from $2.9 million in fiscal 2001 to $1.5 million in fiscal 2002 due to lower prevailing rates of return.

      Interest expense of $29,000 was recorded in fiscal 2002 reflecting interest accrued on the convertible notes payable. No interest expense was recorded in fiscal 2001.

      Other expense decreased from $585,000 in fiscal 2001 to $219,000 in fiscal 2002 due to reduced foreign exchange losses, including losses realized on forward contracts entered into which were denominated in currencies other than the US dollar, and to the absence in fiscal 2002 of a $0.2 million loss incurred in fiscal 2001 on a sale of a marketable security.

      The Company’s effective tax rate decreased from 34.5% in fiscal 2001 to 28.0% in fiscal 2002. This decrease reflects an increase in the percentage of pre-tax income derived from international operations by the Company’s Irish subsidiary, which is subject to a lower income tax rate than the U.S. parent company.

Liquidity and Capital Resources

      Historically, the Company has financed its operations primarily through cash generated from operations and from the proceeds of its initial public offering completed in early 1999. The proceeds to the Company from the offering, net of underwriter fees and other expenses, were approximately $19.2 million.

      The Company’s purchase of NDB was additionally financed through the issuance of two convertible notes in the aggregate principal amount of $17.3 million. The convertible notes were issued by the Company’s Irish subsidiary and are guaranteed by the Company. The notes are convertible at the option of the holder into an aggregate of 1,081,250 shares of the Company’s common stock (subject to adjustment for certain events) between August 30, 2003 and the maturity date of August 30, 2004. If not converted by the holder, the Company is entitled to pay the principal and accrued interest on one of the notes in the principal amount of $10.0 million in cash or, in whole or in part, by issuing its common stock at a value of 82.5% of the fair market value of the stock determined by a formula set forth in the note.

      The Company’s operating activities provided cash of $12.5 million, $12.4 million and $3.6 million in fiscal 2001, 2002 and 2003, respectively. In fiscal 2001, the major component of cash from operating activities was net income. In 2002, cash generated by net income was further increased by $1.2 million in changes in working capital components, including an increase in accrued liabilities in that amount, and by adjustments to net cash provided by operating activities of $2.0 million in non-cash charges for depreciation, amortization, purchased in process research and development and deferred income taxes. In 2003, cash generated by net income was reduced by changes in working capital components, the largest of which was a $4.9 million reduction in accrued liabilities.

      The Company’s primary source of operating cash flow is the collection of accounts receivable from its customers and the timing of payments to its vendors and service providers. The Company measures the effectiveness of its collections efforts by an analysis of average accounts receivable days outstanding (“days outstanding”). Collections of accounts receivable and related days outstanding will fluctuate in future periods due to the timing and amount of its future revenues, payment terms extended to its customers and the effectiveness of its collection efforts.

      Investing activities, consisting primarily of purchases and sales of short-term investments, additions to property and equipment and the acquisition of NDB, provided cash of $25.6 million in fiscal 2001 and used cash of $44.4 million and $3.4 million in fiscal 2002 and 2003, respectively.

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      Financing activities provided cash of $1.0 million and $723,000 in fiscal 2001 and 2002, respectively, from the exercise of stock options and the sale of shares under the employee stock purchase plan. Financing activities used cash of $1.2 million in fiscal 2003 as the value of common stock repurchased exceeded the value issued.

      As of September 30, 2003, the Company had working capital of $16.6 million, cash and cash equivalents of $11.8 million and short-term investments of $18.9 million. As of September 30, 2003, the Company had the following contractual obligations, in millions:

      The Company expects that capital expenditures will total approximately $1.0 million in fiscal 2004.*

      The Company believes that inflation has not had a material impact on its liquidity or cash requirements.

      The Company may require additional funds to support its working capital requirements or for other purposes. There can be no assurance that additional financing will be available or that if available, such financing will be obtainable on terms favorable to the Company or its stockholders. The Company believes that cash and cash equivalents, short-term investments and funds generated from operations will provide the Company with sufficient funds to finance its requirements for at least the next 12 months, including the repayment of the convertible notes payable in the event that they are not converted.*

Factors That May Affect Future Results

      The risk factors set forth below and elsewhere in this Report on Form 10-K are important factors that may affect future results and that could cause actual results to differ materially from those projected in forward-looking statements that may be made by the Company from time to time.

      The Company has experienced, and anticipates that it will continue to experience, significant fluctuations in quarterly revenues and operating results. The Company’s revenues and operating results are relatively difficult to forecast for a number of reasons, including (i) the variable size and timing of individual purchases by customers, (ii) seasonal factors that may affect capital spending by customers, such as the varying fiscal year ends of customers and the reduction in business during the summer months, particularly in Europe, (iii) the relatively long sales cycles for the Company’s products, (iv) the timing of hiring sales and technical personnel, (v) changes in timing and amount of sales incentive compensation, (vi) competitive conditions in the Company’s markets, (vii) exchange rate fluctuations, (viii) changes in the mix of products sold, (ix) the timing of the introduction and market acceptance of new products or product enhancements by the Company, its customers, competitors or suppliers, (x) costs associated with developing and introducing new products, (xi) product life cycles, (xii) changes in the level of operating expenses relative to revenues, (xiii) software defects and other product quality problems, (xiv) customer order deferrals in anticipation of new products, (xv) delays in purchasing decisions or customer orders due to customer consolidation, (xvi) supply interruptions, (xvii) changes in the regulatory environment and (xviii) changes in global or regional economic conditions or in the telecommunications industry.

      The Company’s revenues in any period generally have been, and are likely to continue to be, derived from relatively small numbers of sales and service transactions with relatively high average revenues per order. Therefore, the loss of any orders or delays in closing such transactions could have a more significant impact on the Company’s quarterly revenues and results of operations than on those of companies with relatively high

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      Due to the relatively fixed nature of most of the Company’s costs, including personnel and facilities costs, and because operating expenses are based on anticipated revenue, a decline in revenue from even a limited number of transactions, failure to achieve expected revenue in any fiscal quarter or unanticipated variations in the timing of recognition of specific revenues can cause significant variations in operating results from quarter to quarter and may in some future quarter result in losses or have a material adverse effect on the Company’s business, financial condition and results of operations. The Company believes, therefore, that period-to-period comparisons of its operating results should not be relied upon as an indication of future performance.

      For all of the foregoing factors, as well as other unanticipated factors, it is possible that in some future quarter, the Company’s results of operations could fail to meet the expectations of public market analysts or investors. In such event, or in the event that adverse conditions prevail or are perceived to prevail generally or with respect to the Company’s business, the price of the Company’s common stock will likely be materially adversely affected.

      The Company’s customer base is highly concentrated, and a relatively small number of companies have accounted for substantially all of the Company’s revenues to date. In the fiscal year ended September 30, 2003, the Company’s top five customers represented approximately 50% of total revenues. The Company expects that it will continue to depend upon a relatively limited number of customers for substantially all of its revenues in future periods, although no customer is presently obligated either to purchase a specific amount of products or to provide the Company with binding forecasts of purchases for any period. The loss of a major customer or the reduction, delay or cancellation of orders from one or more of the Company’s significant customers could materially adversely affect the Company’s business, financial condition and results of operations.

      As part of its business strategy, the Company acquired NDB on August 30, 2002 and may make further acquisitions of, or significant investments in, companies, products or technologies that it believes are complementary, although no such acquisitions or investments are currently pending. The NDB acquisition and any such future transactions would be accompanied by the risks commonly encountered in making acquisitions of companies, products and technologies. Such risks include, among others, the difficulties associated with assimilating the personnel and operations of acquired companies, the potential disruption of the Company’s ongoing business, the distraction of management and other resources, the integration of personnel and technology of an acquired Company, difficulties in evaluating the technology of a potential target, inability to motivate and retain new personnel, the maintenance of uniform standards, controls, procedures and policies and the impairment of relationships with employees and clients as a result of the integration of new management personnel. The Company has no experience in assimilating acquired companies or product lines into its operations. There can be no assurance that the Company will be successful in overcoming these risks or any other problems encountered in connection with the NDB acquisition or any such future acquisitions. Furthermore, future acquisitions by the Company could result in the issuance of dilutive equity securities, the incurrence of debt or contingent liabilities or amortization expenses related to goodwill and other intangible assets, any of which could have a material adverse effect on the Company’s business, financial condition and results of operation or on the market price of the Company’s common stock.

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      In recent years, the stock market in general and the market for technology stocks in particular, including the Company’s common stock, have experienced extreme price fluctuations. The market price of the Company’s common stock may be significantly affected by various factors such as quarterly variations in the Company’s operating results, changes in revenue growth rates for the Company as a whole or for specific geographic areas or products, changes in earning estimates by market analysts, the announcements of new products or product enhancements by the Company or its competitors, speculation in the press or analyst community and general market conditions or market conditions specific to particular industries. There can be no assurance that the market price of the Company’s common stock will not experience significant fluctuations in the future.

      International sales and operations are subject to inherent risks, including difficulties in staffing and managing foreign operations, longer customer payment cycles, greater difficulty in accounts receivable collection, changes in regulatory requirements or in economic or trade policy, costs related to localizing products for foreign countries, potentially weaker protection for intellectual property in certain foreign countries, the burden of complying with a wide variety of foreign laws and practices, tariffs and other trade barriers and potentially adverse tax consequences, including restrictions on repatriation of earnings. During the last three fiscal years, a significant portion of the Company’s sales has been to customers in Japan. If economic conditions in Japan remain weak, the Company’s business, financial condition and results of operations could be materially adversely affected. An inability to obtain necessary regulatory approvals in foreign markets on a timely basis could also have a material adverse effect on the Company’s business, financial condition and results of operations.

      Many of the Company’s international sales, including its sales in Japan, are denominated in local currencies. Although the Company currently engages in hedging transactions with respect to certain receivables resulting from certain inter-company sales, there can be no assurance that the Company will continue to do so or that its hedging activities will be successful. Fluctuations in foreign currency exchange rates may contribute to fluctuations in the Company’s operating results. For example, changes in foreign currency exchange rates could adversely affect the revenues, net income, earnings per share and cash flow of the Company’s operations in affected markets. Similarly, such fluctuations may cause the Company to raise prices, which could affect demand for the Company’s products and services. In addition, if exchange or price controls or other restrictions are imposed in countries in which the Company does business, the Company’s business, financial condition and results of operations would be materially adversely affected.

      The Company’s growth has placed, and is expected to continue to place, significant demands on its management, administrative and operational resources. To manage expansion effectively, the Company needs to continue to develop and improve its operational and financial systems, sales and marketing capabilities and expand, train, retain, manage and motivate its employee base. Some of the Company’s senior management have not previously managed a business of the Company’s size, and these individuals have limited experience managing a public company. There can be no assurance that the Company’s systems, procedures or controls will be adequate to support the Company’s operations or that the Company’s management will be able to successfully exploit future market opportunities or successfully manage the Company’s relationships with customers and other third parties. There can be no assurance that the Company will continue to grow or, if it does, that the Company will effectively manage such growth. Any failure to manage growth would have a material adverse effect on the Company’s business, financial condition and results of operations.

      The Company’s success will depend on continued growth in the market for telecommunications test systems and services and the continued commercial acceptance of the Company’s products as a solution to

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      The market for the Company’s products is highly competitive. Many of the Company’s competitors are better known and have substantially greater financial, technological, production and marketing resources than the Company. While the Company believes that the price/performance characteristics of its products are competitive, price competition in the markets for the Company’s products is intense. Any material reduction in the price of the Company’s products without corresponding decreases in manufacturing costs and increases in unit volume would negatively affect gross margins, which could in turn have a material adverse effect on the Company’s business, financial condition and results of operations. Increased competition for the Company’s products that results in lower product sales could also adversely impact the Company’s upgrade sales. The Company’s ability to maintain its competitive position will depend upon, among other factors, its success in anticipating industry trends, investing in product research and development, developing new products with improved price/performance characteristics and effectively managing the introduction of new products into targeted markets.

      The Company’s future success is dependent upon the continued growth of the telecommunications industry. The global telecommunications industry is evolving rapidly, and it is difficult to predict its potential growth rate or future trends in technology development. There can be no assurance that the deregulation, privatization and economic globalization of the worldwide telecommunications market that have resulted in increased competition and escalating demand for new technologies and services will continue in a manner favorable to the Company or its business strategies. In addition, there can be no assurance that the growth in demand for Internet services and the resulting need for high speed or enhanced telecommunications equipment will continue at its current rate or at all.

      The Company’s future success is dependent upon the increased utilization of its test solutions by network operators and telecommunications equipment manufacturers. Industry-wide network equipment and infrastructure development driving the demand for the Company’s products and services may be delayed or prevented by a variety of factors, including cost, regulatory obstacles or the lack of or reduction in consumer demand for advanced telecommunications products and services. There can be no assurance that telecommunications equipment manufacturers and network operators will develop new technology or enhance current technology or, if developed, that such new technology or enhancements will create demand for the Company’s products or services.

      The Company’s future growth and success depends to a significant extent upon the continuing services of its executive officers and other key employees. The Company does not have long-term employment agreements or non-competition agreements with any of its employees. Competition for qualified management and other high-level telecommunications industry personnel is intense, and there can be no assurance that the Company will be successful in attracting and retaining such personnel. The loss of services of any key employees would have a material adverse effect on the Company’s business, financial condition and results of operations. The Company maintains, and is the beneficiary of, a key person life insurance policy in the amount

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      The market for telecommunications test systems and services is subject to rapid technological change, evolving industry standards, rapid changes in customer requirements and frequent product and service introductions and enhancements. The Company’s future success will depend in part on its ability to anticipate and respond to these changes by enhancing its existing products and services and by developing and introducing, on a timely and cost-effective basis, new products, features and services that address the needs of its customer base. There can be no assurance that the Company will be successful in identifying, developing and marketing new products, product enhancements and related services that respond to technological change or evolving industry standards or that adequately meet new market demands. In addition, because of the rapid technological change characteristic of the telecommunications industry, the Company may be required to support legacy systems used by its customers, which may place additional demands on the Company’s personnel and other resources and may require the Company to maintain an inventory of otherwise obsolete components.

      The Company’s test systems currently operate only on the Sun UNIX and the Linux operating systems. The Company’s current and prospective customers may require other operating systems, such as Windows 2000 or Windows XP, to be used in their telecommunications test systems or may require the integration of other industry standards. There can be no assurance that the Company would be able to successfully adapt its products to such operating systems on a timely or cost-effective basis, if at all. The failure of the Company to respond to rapidly changing technologies and to develop and introduce new products and services in a timely manner would have a material adverse effect on the Company’s business, financial condition and results of operations.

      The Company’s success will depend in part on whether a large number of telecommunications equipment manufacturers and network operators purchase the Company’s products and services. Because the telecommunications market is rapidly evolving, it is difficult to predict the future success of products and services in this market. The customers in this market use products from a number of competing suppliers for various testing purposes, and there has not been broad adoption of the products of one company. There can be no assurance that the Company’s current or future products or services will achieve widespread acceptance among telecommunications equipment manufacturers, network operators or other potential customers or that solutions developed by competitors will not render the Company’s products obsolete or uncompetitive. In the event the telecommunications industry does not broadly adopt the Company’s products or services or does so less rapidly than expected by the Company, or in the event the Company’s products are rendered obsolete or uncompetitive by more advanced solutions, the Company’s business, financial condition and results of operations would be materially adversely affected.

      The Company purchases many key components, including certain microprocessors, workstations, bus interface and other chips, connectors and other hardware, from the sole supplier of a particular component. For other components, even though multiple vendors may exist, the Company may purchase components from only a single source. The Company does not have any long-term supply agreements with these vendors to ensure uninterrupted supply of these components. In the event of a reduction or interruption in the supply of a key component, a significant amount of time could be required to qualify alternative suppliers and receive an adequate flow of replacement components. Reconfiguration of the Company’s products to adapt to new components may also be required and could entail substantial time and expense. In addition, the process of manufacturing certain of these components is extremely complex, and the Company’s reliance on the suppliers of these components exposes the Company to potential production difficulties and quality variations, which could negatively affect cost and timely delivery of the Company’s products. The Company has from time to time in the past experienced supply problems as a result of the financial or operational difficulties of its suppliers, shortages and discontinuations resulting from component obsolescence. Although the Company, to

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      The Company relies on a limited number of independent manufacturers, some of which are small, privately held companies, to provide certain assembly services to the Company’s specifications. The Company does not have any long-term supply agreements with any third-party manufacturer. In the event of a reduction or interruption in assembly services to the Company, the Company’s business, financial condition and results of operations would be materially adversely affected until the Company was able to establish sufficient assembly services supply from alternative sources. There can be no assurance that alternative manufacturing sources will be able to meet the Company’s future requirements or that existing or alternative sources will continue to be available to the Company at favorable prices.

      Products as complex as those offered by the Company may contain undetected errors or “bugs,” particularly when first introduced or when new versions are released. There can be no assurance that errors will not be found in future releases of the Company’s software or that any such errors will not generate adverse publicity, impair the market acceptance of these products, create customer concerns or adversely affect operating results due to product returns, the costs of generating corrective releases or otherwise.

      The Company’s license agreements with its customers typically contain provisions designed to limit the Company’s exposure to potential product liability claims. However, it is possible that the limitation of liability provisions contained in the Company’s license agreements may not be effective under the laws of certain jurisdictions, particularly since the Company sells a majority of its products internationally. Although the Company has not experienced any product liability claims to date, the sale and support of products by the Company may entail the risk of such claims, and there can be no assurance that the Company will not be subject to such claims in the future. A successful product liability claim brought against the Company could have a material adverse effect upon the Company’s business, financial condition and results of operations. The Company does not maintain product liability insurance. There can be no assurance that the failure to maintain product liability insurance, in the event of the successful assertion against the Company of one or a series of large uninsured claims, would not have a material adverse effect on the Company’s business, financial condition and results of operations.

      To date, substantially all of the Company’s revenues have been attributable to sales of the DCT family of products and related services. With the acquisition of NDB late in fiscal 2002, the Company expanded its product line to include the similar MGTS products, and in fiscal 2003 it introduced the LANCE product. The Company currently expects the DCT and MGTS families of products and related services to account for the majority of its revenues for the foreseeable future.* As a result, factors adversely affecting the pricing of or demand for DCT, MGTS and LANCE products, such as competition or technological change, could have a material adverse effect on the Company’s business, financial condition and results of operations. The Company’s future financial performance will depend, in significant part, on the successful development, introduction and customer acceptance of new and enhanced versions of the DCT, MGTS and LANCE products. There can be no assurance that the Company will continue to be successful in developing and marketing the DCT and MGTS families of products and related services.

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      As of September 30, 2003, Dr. Richard A. Karp beneficially owned 5,736,010 shares or approximately 45% of the Company’s common stock outstanding on such date, which includes 2,084,547 shares beneficially owned as of such date by Ms. Nancy H. Karp. Dr. Karp has voting control through a voting trust, but not dispositive power, with respect to the shares beneficially owned by Ms. Karp. As a result, Dr. Karp may have the ability to effectively control matters requiring approval by the stockholders of the Company, including the election of directors. Such a concentration of ownership may have the effect of delaying or preventing a change in control of the Company.

      Sales of substantial numbers of shares of Common Stock by the Company’s major stockholders in the public market could adversely affect the market price for the Common Stock. As of September 30, 2003, Richard A. Karp, the Chief Executive Officer and Chairman of the Board of the Company, beneficially owned 5,736,010 shares of Common Stock, which included 2,084,547 shares beneficially owned as of such date by Ms. Nancy H. Karp. These shares are eligible for resale into the public market within the restrictions imposed by Rule 144 under the Securities Act of 1933. In addition, as a result of the acquisition of NDB from Tekelec in 2002 in which Tekelec received notes that are convertible into Common Stock, Tekelec has the right to acquire 1,081, 250 shares of Common Stock. Tekelec also has certain contractual rights to require the Company to register such shares with the Securities and Exchange Commission for resale into the public market.

      The Company’s success and its ability to compete effectively are dependent in part upon its proprietary technology. The Company relies on a combination of trademark, copyright and trade secret laws, as well as nondisclosure agreements and other contractual restrictions, to establish and protect its proprietary rights. To date, the Company has generally not sought patent protection for its proprietary technology. There can be no assurance that patent protection will not become a more significant factor in the Company’s industry in the future. Likewise, there can be no assurance that the measures the Company undertakes will be adequate to protect its proprietary technology. To date, the Company has federally registered certain of its trademarks or copyrights. The Company’s practice is to affix copyright notices on software, hardware and product literature in order to assert copyright protection for these works. There can be no assurance that the lack of federal registration of all of the Company’s trademarks and copyrights would not have a material adverse effect on the Company’s intellectual property rights in the future. Additionally, the Company may be subject to further risks as it enters into transactions in countries where intellectual property laws are unavailable, do not provide adequate protection or are difficult to enforce. Despite the Company’s efforts to protect its proprietary rights, unauthorized parties may attempt to duplicate aspects of the Company’s products or to obtain and use information that the Company regards as proprietary. There can be no assurance that the steps taken by the Company to protect its proprietary technology will be adequate to prevent misappropriation of such technology or that they will preclude competitors from independently developing products with functionality or features similar to the Company’s products. The failure of the Company to protect its proprietary technology would have a material adverse effect on the Company’s business, financial condition and results of operations.

      The telecommunications industry is characterized by a relatively high level of litigation based on allegations of infringement of proprietary rights. While to date, the Company has not been subject to claims of infringement or misappropriation of intellectual property by third parties, there can be no assurance that third parties will not assert infringement claims against the Company, that any such assertion of infringement will not result in litigation or that the Company would prevail in such litigation. Furthermore, any such claims, with or without merit, could result in substantial cost to the Company and diversion of its personnel, require the Company to develop new technology or require the Company to enter into royalty or licensing arrangements. Such royalty or licensing agreements, if required, may not be available on terms acceptable to

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      The Company’s future success will depend in part on its ability to anticipate and respond to changing industry standards and customer requirements by enhancing its existing products and services and by developing and introducing, on a timely and cost-effective basis, new products, features and services that address the needs of its customer base. There can be no assurance that the Company will be successful in identifying, developing and marketing new products, product enhancements and related services that respond to technological change or evolving industry standards or that adequately meet new market demands.

      Nevada law and the Company’s Articles of Incorporation and Bylaws contain provisions that could discourage a proxy contest or make more difficult the acquisition of a substantial block of the Company’s common stock. In addition, the Board of Directors is authorized to issue, without stockholder approval, up to 5,000,000 shares of preferred stock with voting, conversion and other rights and preferences that may be superior to those of the common stock and that could adversely affect the voting power or other rights of the holders of common stock. The issuance of preferred stock or rights to purchase preferred stock could be used to discourage an unsolicited acquisition proposal.

Foreign Exchange Risk and Derivative Financial Instruments

      The Company’s foreign subsidiaries operate and sell the Company’s products in various global markets. As a result, the Company is exposed to changes in interest rates and foreign currency exchange rates on foreign currency denominated sales made to foreign subsidiaries. The Company utilizes foreign currency forward exchange contracts and options to hedge against future movements in foreign exchange rates that affect certain foreign currency denominated inter-company receivables. The Company attempts to match the forward contracts with the underlying receivables being hedged in terms of currency, amount and maturity. The Company does not use derivative financial instruments for speculative or trading purposes. Because the impact of movements in currency exchange rates on forward contracts offsets the related impact on the exposures hedged, these financial instruments do not subject the Company to speculative risk that would otherwise result from changes in currency exchange rates. Realized gains and losses on forward exchange contracts offset foreign exchange transaction gains or losses from revaluation of foreign currency denominated inter-company receivable balances which otherwise would be charged to other income (expense). To date, the Company has not fully hedged all risk associated with its sales denominated in foreign currencies, and there can be no assurance that the Company’s hedging activities, if any, will be successful.

      At September 30, 2003, the Company had forward exchange contracts maturing in fiscal 2004 to sell approximately $140,000 in Japanese Yen designed to hedge against future movements in foreign exchange rates. The fair market value of these contracts and options at September 30, 2003 was not material.

      The Company has evaluated the potential near-term losses in future earnings, fair values and cash flows from reasonably possible near-term currency fluctuations and believes that any such losses would not be material.*

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Interest Rate Risk

      The Company’s exposure to market risk for changes in interest rates relates primarily to its short-term investment portfolio. As of September 30, 2003, short-term investments consisted of available-for-sale securities, including those classified as cash equivalents, of $23.8 million (see “Note 8. Balance Sheet Components” in the Notes to Consolidated Financial Statements). These fixed income marketable securities included corporate bonds and government securities, all of which are of high investment grade. They are subject to interest rate risk and will decline in value if the market interest rates increase. If the market interest rates were to increase immediately and uniformly by 10% from levels as of September 30, 2003, the decline in the fair value of the portfolio would not be material to the Company’s financial position.

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CATAPULT COMMUNICATIONS CORPORATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders of

      In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Catapult Communications Corporation and its subsidiaries at September 30, 2002 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2003, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

	/s/ PRICEWATERHOUSECOOPERS LLP

San Jose, California

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CATAPULT COMMUNICATIONS CORPORATION

CONSOLIDATED BALANCE SHEETS