##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
 Commission file number 0-24701
 CATAPULT COMMUNICATIONS CORPORATION
  Nevada
    
    77-0086010(State or other jurisdiction of 
Incorporation or organization)
    
    (I.R.S. Employer
Identification Number)
 160 South Whisman Road
Mountain View, California 94041
 (650) 960-1025
  þ o
  o þ o
 o þ




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##### 



CATAPULT COMMUNICATIONS CORPORATION
 FORM 10-Q
 INDEX
 PagePart IFinancial InformationItem 1. Financial StatementsUnaudited Condensed Consolidated Balance Sheets as of June 30, 2007 and September 30, 2006
    
    
    1Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended June 30,
2007 and 2006
    
    
    2Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended June 30, 2007
and 2006
    
    
    3Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    11Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    18Item 4. Controls and Procedures
    
    
    19Part IIOther InformationItem 1. Legal Proceedings
    
    
    19Item 1A. Risk Factors
    
    
    19Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    27Item 4. Submission of Matters to a Vote of Security Holders
    
    
    27Item 6. Exhibits
    
    
    28Signature
    
    
    29EXHIBIT 3.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32
  ii




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##### Table of Contents



Part I. Financial Information
 
 Item 1. Financial Statements
 
 CATAPULT COMMUNICATIONS CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
 June 30,
    
    
    September 30,2007
    
    
    2006(In thousands, except shareand par value data)ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    24,015
    
    
    
    $
    22,462Short-term investments
    
    
    39,008
    
    
    
    
    47,672Accounts receivable, net of allowances of $16 and $15 as of
June 30, 2007 and September 30, 2006, respectively
    
    
    6,963
    
    
    
    
    9,696Inventories
    
    
    3,156
    
    
    
    
    3,484Deferred tax assets
    
    
    126
    
    
    
    
    91Prepaid expenses and other current assets
    
    
    1,854
    
    
    
    
    1,586Total current assets
    
    
    75,122
    
    
    
    
    84,991Property and equipment, net
    
    
    1,670
    
    
    
    
    1,912Goodwill
    
    
    49,394
    
    
    
    
    49,394Other intangibles, net
    
    
    161
    
    
    
    
    216Deferred tax assets, long-term
    
    
    993
    
    
    
    
    20Other assets
    
    
    2,075
    
    
    
    
    274Total assets
    
    $
    129,415
    
    
    
    $
    136,807LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    484
    
    
    
    $
    874Accrued liabilities
    
    
    3,656
    
    
    
    
    3,718Deferred revenue
    
    
    6,933
    
    
    
    
    7,703Total current liabilities
    
    
    11,073
    
    
    
    
    12,295Deferred revenue, long-term
    
    
    490
    
    
    
    
    256Deferred taxes and other liabilities, long-term
    
    
    3,908
    
    
    
    
    2,524Total liabilities
    
    
    15,471
    
    
    
    
    15,075Stockholders Equity:Common stock, $0.001 par value, 40,000,000
shares authorized; 13,644,357 and 14,438,206
issued and outstanding as of June 30, 2007 and
September 30, 2006, respectively
    
    
    14
    
    
    
    
    14Additional paid-in capital
    
    
    48,756
    
    
    
    
    50,450Accumulated other comprehensive income
    
    
    886
    
    
    
    
    687Retained earnings
    
    
    64,288
    
    
    
    
    70,581Total stockholders equity
    
    
    113,944
    
    
    
    
    121,732Total liabilities and stockholders equity
    
    $
    129,415
    
    
    
    $
    136,807
  1




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##### Table of Contents



CATAPULT COMMUNICATIONS CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 Three months ended
    
    
    Nine months endedJune
30,
    
    

June
30,2007
    
    

2006
    
    

2007
    
    

2006(In thousands, except per share amounts)Revenues:Products
    
    $
    4,839
    
    
    $
    6,996
    
    
    $
    17,464
    
    
    $
    22,444Services
    
    
    3,636
    
    
    
    3,793
    
    
    
    11,171
    
    
    
    11,110Total revenues
    
    
    8,475
    
    
    
    10,789
    
    
    
    28,635
    
    
    
    33,554Cost of revenues:Products
    
    
    1,400
    
    
    
    1,142
    
    
    
    3,818
    
    
    
    3,575Services
    
    
    765
    
    
    
    908
    
    
    
    2,367
    
    
    
    2,926Amortization of purchased technology
    
    
    13
    
    
    
    171
    
    
    
    37
    
    
    
    514Total cost of revenues
    
    
    2,178
    
    
    
    2,221
    
    
    
    6,222
    
    
    
    7,015Gross profit
    
    
    6,297
    
    
    
    8,568
    
    
    
    22,413
    
    
    
    26,539Operating expenses:Research and development
    
    
    3,463
    
    
    
    3,543
    
    
    
    9,748
    
    
    
    10,058Sales and marketing
    
    
    4,177
    
    
    
    4,423
    
    
    
    12,409
    
    
    
    13,205General and administrative
    
    
    2,281
    
    
    
    2,391
    
    
    
    6,759
    
    
    
    7,139Total operating expenses
    
    
    9,921
    
    
    
    10,357
    
    
    
    28,916
    
    
    
    30,402Operating loss
    
    
    (3,624
    )
    
    
    (1,789
    )
    
    
    (6,503
    )
    
    
    (3,863
    )Interest income
    
    
    825
    
    
    
    751
    
    
    
    2,472
    
    
    
    1,991Other income (expense), net (Note 13)
    
    
    (81
    )
    
    
    3
    
    
    
    1,747
    
    
    
    56Loss before income taxes
    
    
    (2,880
    )
    
    
    (1,035
    )
    
    
    (2,284
    )
    
    
    (1,816
    )Provision for (benefit from) income taxes
    
    
    (541
    )
    
    
    (2,091
    )
    
    
    435
    
    
    
    (2,226
    )Net income (loss)
    
    $
    (2,339
    )
    
    $
    1,056
    
    
    $
    (2,719
    )
    
    $
    410Net income (loss) per share  basic
    
    $
    (0.17
    )
    
    $
    0.07
    
    
    $
    (0.19
    )
    
    $
    0.03Net income (loss) per share  diluted
    
    $
    (0.17
    )
    
    $
    0.07
    
    
    $
    (0.19
    )
    
    $
    0.03Shares used in per share calculation:Basic
    
    
    13,739
    
    
    
    14,801
    
    
    
    13,938
    
    
    
    14,776Diluted
    
    
    13,739
    
    
    
    14,887
    
    
    
    13,938
    
    
    
    14,935
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CATAPULT COMMUNICATIONS CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Nine months endedJune 30,2007
    
    
    2006(In thousands)Cash flows from operating activities:Net income (loss) as reported
    
    $
    (2,719
    )
    
    $
    410Adjustments to reconcile net income (loss) to net cash
provided by operating activities:Depreciation and amortization of property and equipment
    
    
    672
    
    
    
    758Amortization of purchased technology
    
    
    37
    
    
    
    514Amortization of other acquisition related intangibles
    
    
    18
    
    
    
    253Amortization of deferred stock-based compensation
    
    
    
    
    
    
    3Provision for doubtful accounts
    
    
    1
    
    
    
    Deferred income taxes
    
    
    383
    
    
    
    (2,741
    )Stock based compensation expenses
    
    
    2,244
    
    
    
    1,802Excess tax benefits from stock options exercised
    
    
    
    
    
    
    (35
    )Tax benefits related to stock based compensation
    
    
    
    
    
    
    78Gain on disposal of fixed assets
    
    
    (25
    )
    
    
    Change in assets and liabilities:Accounts receivable
    
    
    2,739
    
    
    
    6,369Inventories
    
    
    321
    
    
    
    (1,405
    )Prepaid expenses and other current assets
    
    
    (265
    )
    
    
    (67
    )Other assets
    
    
    (1,804
    )
    
    
    27Accounts payable
    
    
    (399
    )
    
    
    (944
    )Accrued liabilities
    
    
    (84
    )
    
    
    (2,018
    )Deferred revenue
    
    
    (535
    )
    
    
    3,253Net cash provided by operating activities
    
    
    584
    
    
    
    6,257Cash flows from investing activities:Sale and maturities of short-term investments
    
    
    67,288
    
    
    
    73,272Purchase of short-term investments
    
    
    (58,630
    )
    
    
    (72,422
    )Purchase of property and equipment
    
    
    (436
    )
    
    
    (936
    )Proceeds from sale of property and equipment
    
    
    65
    
    
    
    Net cash
provided (used in) investing activities
    
    
    8,287
    
    
    
    (86
    )Cash flows from financing activities:Repurchase of common stock
    
    
    (7,643
    )
    
    
    (931
    )Proceeds from exercise of stock options
    
    
    130
    
    
    
    604Excess tax benefit from stock options exercised
    
    
    
    
    
    
    35Net cash used in financing activities
    
    
    (7,513
    )
    
    
    (292
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    195
    
    
    
    55Net increase in cash and cash equivalents
    
    
    1,553
    
    
    
    5,934Cash and cash equivalents, beginning of period
    
    
    22,462
    
    
    
    18,952Cash and cash equivalents, end of period
    
    $
    24,015
    
    
    $
    24,886Supplemental disclosure of cash flow information:Unrealized gain (loss) on investments
    
    $
    (7
    )
    
    $
    39Cash paid for income taxes
    
    
    305
    
    
    
    1,040Non-cash investing activities:Purchase of property and equipment on account
    
    $
    7
    
    
    $
    36
  3




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##### Table of Contents



CATAPULT COMMUNICATIONS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1THE COMPANY AND BASIS OF PRESENTATION
   Significant Accounting Policies
  NOTE 2RECENT ACCOUNTING PRONOUNCEMENTS
 Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No.
109
 Fair Value Measurements.
 Financial Statements  Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial Statements
 4




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The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment
of FASB Statement No. 115
 NOTE 3  STOCK-BASED COMPENSATION
 Share-Based Payment,
 Stock-based Compensation Expense
  Three months ended
    
    
    Nine months endedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(in thousands)Stock-Based Compensation Expense:Cost of sales  products
    
    $
    49
    
    
    $
    32
    
    
    $
    112
    
    
    $
    73Cost of sales  services
    
    
    67
    
    
    
    64
    
    
    
    185
    
    
    
    136Research and development expense
    
    
    222
    
    
    
    192
    
    
    
    546
    
    
    
    442Selling and marketing expense
    
    
    184
    
    
    
    161
    
    
    
    498
    
    
    
    437General and administrative expense
    
    
    351
    
    
    
    299
    
    
    
    903
    
    
    
    714Total stock-based compensation expense
    
    
    873
    
    
    
    748
    
    
    
    2,244
    
    
    
    1,802Tax effect on stock-based compensation expenses
    
    
    (5
    )
    
    
    (1,557
    )
    
    
    (14
    )
    
    
    (1,904
    )Net effect on net income
    
    $
    868
    
    
    $
    (809
    )
    
    $
    2,230
    
    
    $
    (102
    )Net effect on basic net income (loss) per share
    
    $
    0.06
    
    
    $
    (0.05
    )
    
    $
    0.16
    
    
    $
    (0.01
    )Net effect on diluted net income (loss) per share
    
    $
    0.06
    
    
    $
    (0.05
    )
    
    $
    0.16
    
    
    $
    (0.01
    )
 5




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##### Table of Contents



General Option Information
  WeightedWeighted
    
    
    AverageNumber of
    
    
    Average
    
    
    RemainingOptions
    
    
    Exercise
    
    
    Contractual
    
    
    AggregateOutstanding
    
    
    Price
    
    
    Term
    
    
    Intrinsic Value(years)
    
    
    (in thousands)Balance at October 1, 2006
    
    
    2,334,867
    
    
    $
    15.14
    
    
    
    6.95
    
    
    $
    569Granted
    
    
    725,899
    
    
    
    9.65Exercised
    
    
    (23,372
    )
    
    
    5.57Canceled, forfeited or expired
    
    
    (199,729
    )
    
    
    16.73Balance, June 30, 2007
    
    
    2,837,665
    
    
    $
    13.70
    
    
    
    7.00
    
    
    $
    1,003Vested or expected to vest, June 30, 2007
    
    
    2,706,000
    
    
    $
    13.82
    
    
    
    6.89
    
    
    $
    967Exercisable, June 30, 2007
    
    
    1,677,128
    
    
    $
    15.50
    
    
    
    5.41
    
    
    $
    827
   Three months ended
    
    Nine months endedJune 30,
    
    June 30,2007
    
    2006
    
    2007
    
    2006Weighted average exercise price
    
    $
    9.88
    
    
    $
    12.55
    
    
    $
    9.65
    
    
    $
    12.94Weighted average fair value
    
    $
    5.85
    
    
    $
    7.39
    
    
    $
    5.61
    
    
    $
    7.66
  Valuation Assumptions
  Employee Stock Option PlansThree months ended
    
    Nine months endedJune 30,
    
    June 30,2007
    
    2006
    
    2007
    
    2006Expected life of option
    
    5.41 years
    
    5.24 years
    
    5.23 years
    
    5.27 yearsExpected volatility
    
    
    64.0
    %
    
    
    64.0
    %
    
    
    63.5
    %
    
    
    64.3
    %Dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %Risk-free interest rate
    
    
    4.52
    %
    
    
    4.99
    %
    
    
    4.54
    %
    
    
    4.93
    %
 Expected life of option
 6




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Expected Volatility
 Expected Dividend
 Risk-Free Interest Rate
 NOTE 4  BASIC AND DILUTED NET INCOME (LOSS) PER SHARE
 Earnings per Share
 Three months ended
    
    
    Nine months endedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands, except per share amounts)Net income (loss), as reported for basic and diluted per share
    
    $
    (2,339
    )
    
    $
    1,056
    
    
    $
    (2,719
    )
    
    $
    410Weighted average shares outstanding
    
    
    13,739
    
    
    
    14,801
    
    
    
    13,938
    
    
    
    14,776Dilutive options
    
    
    
    
    
    
    86
    
    
    
    
    
    
    
    159Weighted average shares assuming dilution
    
    
    13,739
    
    
    
    14,887
    
    
    
    13,938
    
    
    
    14,935Net income (loss) per share:Basic
    
    $
    (0.17
    )
    
    $
    0.07
    
    
    $
    (0.19
    )
    
    $
    0.03Diluted
    
    $
    (0.17
    )
    
    $
    0.07
    
    
    $
    (0.19
    )
    
    $
    0.03
  Three months ended
    
    
    Nine months endedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands)Common stock options
    
    
    2,651
    
    
    
    2,184
    
    
    
    2,343
    
    
    
    1,959
 NOTE 5  INVENTORIES
  June 30,
    
    
    September 30,2007
    
    
    2006(In thousands)Inventories:Raw materials
    
    $
    2,862
    
    
    
    $2,860Work-in-process
    
    
    29
    
    
    
    241Finished goods
    
    
    265
    
    
    
    383$
    3,156
    
    
    
    $3,484
 NOTE 6  GOODWILL AND INTANGIBLE ASSETS
  7




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As of June 30, 2007
    
    
    As of September 30, 2006Gross
    
    
    
    
    
    
    Net
    
    
    Gross
    
    
    
    
    
    
    NetCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    Carrying
    
    
    Accumulated
    
    
    CarryingAmount
    
    
    Amortization
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    Amount(In thousands)Purchased technology
    
    $
    4,800
    
    
    $
    (4,694
    )
    
    $
    106
    
    
    $
    4,800
    
    
    $
    (4,658
    )
    
    $
    142Trade names
    
    
    1,000
    
    
    
    (978
    )
    
    
    22
    
    
    
    1,000
    
    
    
    (970
    )
    
    
    30Customer relationships
    
    
    1,000
    
    
    
    (978
    )
    
    
    22
    
    
    
    1,000
    
    
    
    (970
    )
    
    
    30Non-compete agreement
    
    
    400
    
    
    
    (389
    )
    
    
    11
    
    
    
    400
    
    
    
    (386
    )
    
    
    14System backlog
    
    
    400
    
    
    
    (400
    )
    
    
    
    
    
    
    400
    
    
    
    (400
    )
    
    
    Total
    
    $
    7,600
    
    
    $
    (7,439
    )
    
    $
    161
    
    
    $
    7,600
    
    
    $
    (7,384
    )
    
    $
    216
  EstimatedAmortizationExpenseFiscal Year
    
    (In thousands)2007 (remaining three months)
    
    $
    182008
    
    
    73Thereafter
    
    
    70Total
    
    $
    161
 NOTE 7  WARRANTY ACCRUAL
  2007
    
    
    2006(In thousands)Balances at beginning of period
    
    $
    
    
    
    $
    74Utilized
    
    
    
    
    
    
    (31
    )Charged (reduction) to cost and expenses
    
    
    
    
    
    
    7Balances at end of quarter
    
    $
    
    
    
    $
    50
 NOTE 8  INCOME TAXES
    8




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NOTE 9  STOCKHOLDERS EQUITY
 Comprehensive Income (loss)
  Three months ended
    
    
    Nine months endedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands)Net income (loss), as reported
    
    $
    (2,339
    )
    
    $
    1,056
    
    
    $
    (2,719
    )
    
    $
    410Currency translation adjustment
    
    
    29
    
    
    
    151
    
    
    
    206
    
    
    
    54Unrealized gains (losses) on investments
    
    
    (5
    )
    
    
    (1
    )
    
    
    (7
    )
    
    
    39Comprehensive income (loss)
    
    $
    (2,315
    )
    
    $
    1,206
    
    
    $
    (2,520
    )
    
    $
    503
 Stock Option Plans
  Employee Stock Purchase Plan
  Repurchase of Common Stock
  NOTE 10  GEOGRAPHICAL INFORMATION
  9




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##### Table of Contents



North
    
    UK, Europe &
    
    
    
    
    
    
    
    
    
    ConsolidatedAmerica
    
    Middle East
    
    Japan
    
    Other
    
    Total(In thousands)Nine months ended June 30, 2007Revenues from unaffiliated customers
    
    $
    8,177
    
    
    $
    9,197
    
    
    $
    6,816
    
    
    $
    4,445
    
    
    $
    28,635Nine months ended June 30, 2006Revenues from unaffiliated customers
    
    $
    10,260
    
    
    $
    10,139
    
    
    $
    7,433
    
    
    $
    5,722
    
    
    $
    33,554As of June 30, 2007Goodwill
    
    $
    22,896
    
    
    $
    26,498
    
    
    $
    
    
    
    $
    
    
    
    $
    49,394Long-lived assets
    
    
    975
    
    
    
    395
    
    
    
    210
    
    
    
    90
    
    
    
    1,670As of September 30, 2006Goodwill
    
    $
    22,896
    
    
    $
    26,498
    
    
    $
    
    
    
    $
    
    
    
    $
    49,394Long-lived assets
    
    
    1,153
    
    
    
    394
    
    
    
    244
    
    
    
    121
    
    
    
    1,912
   NOTE 11  CUSTOMER INFORMATION
  Percentage of Accounts Receivable as of
    
    Percentage of RevenuesThree months ended
    
    Nine months endedJune 30,
    
    September 30,
    
    June 30,
    
    June 30,2007
    
    2006
    
    2007
    
    2006
    
    2007
    
    2006Customer A
    
    
    
    
    
    
    10
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Customer B
    
    
    
    
    
    
    38
    %
    
    
    
    
    
    
    12
    %
    
    
    13
    %
    
    
    Customer C
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16
    %
    
    
    
    
    
    
    13
    %Customer D
    
    
    12
    %
    
    
    
    
    
    
    16
    %
    
    
    
    
    
    
    10
    %
    
    
    Customer E
    
    
    20
    %
    
    
    11
    %
    
    
    13
    %
    
    
    
    
    
    
    10
    %
    
    
    
 NOTE 12  CONTINGENCIES
  Accounting for Contingencies
 10




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##### Table of Contents



NOTE 13  LEGAL SETTLEMENT
  
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Forward-looking Statements
    Overview
 Our Business and Products
 ® ®
 11




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##### Table of Contents




    
    design and feature verification;
    
    conformance testing;
    
    interoperability testing;
    
    load and stress testing; and
    
    monitoring and analysis.
   
    
    Long-Term Evolution of wireless networks (LTE);
    
    WiMAX;
    
    IP Multimedia Subsystem (IMS);
    
    Third and Fourth Generation Cellular (3G and 4G), including UMTS and cdma2000;
    
    General Packet Radio Service (GPRS);
    
    Global Systems for Mobile Communications (GSM);
    
    Code Division Multiple Access (CDMA);
    
    IP Telephony (Voice over IP or VoIP);
    
    Asynchronous Transfer Mode (ATM); and
    
    Signaling System #7 (SS7).
   Conditions and Trends in Our Industry
   12




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##### Table of Contents



Summary of Our Financial Performance in the Third Quarter of Fiscal 2007
   Critical Accounting Policies and Estimates
  Results of Operations
  Three months ended
    
    
    Nine months endedJune 30,
    
    
    June 30,2007

    
    
    2006

    
    
    2007

    
    
    2006Revenues:Products
    
    
    57.1
    %
    
    
    64.8
    %
    
    
    61.0
    %
    
    
    66.9
    %Services
    
    
    42.9
    
    
    
    35.2
    
    
    
    39.0
    
    
    
    33.1Total revenues
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.00Cost of revenues:Products
    
    
    16.5
    
    
    
    10.6
    
    
    
    13.3
    
    
    
    10.7Services
    
    
    9.0
    
    
    
    8.4
    
    
    
    8.3
    
    
    
    8.7Amortization of purchased technology
    
    
    0.2
    
    
    
    1.6
    
    
    
    0.1
    
    
    
    1.5Total cost of revenues
    
    
    25.7
    
    
    
    20.6
    
    
    
    21.7
    
    
    
    20.9Gross profit
    
    
    74.3
    
    
    
    79.4
    
    
    
    78.3
    
    
    
    79.1Operating expenses:Research and development
    
    
    40.9
    
    
    
    32.8
    
    
    
    34.0
    
    
    
    30.0Sales and marketing
    
    
    49.3
    
    
    
    41.0
    
    
    
    43.3
    
    
    
    39.4General and administrative
    
    
    26.9
    
    
    
    22.2
    
    
    
    23.6
    
    
    
    21.3Total operating expenses
    
    
    117.1
    
    
    
    96.0
    
    
    
    100.9
    
    
    
    90.7Operating loss
    
    
    (42.8
    )
    
    
    (16.6
    )
    
    
    (22.7
    )
    
    
    (11.5
    )Interest income
    
    
    9.7
    
    
    
    7.0
    
    
    
    8.6
    
    
    
    5.9Other income, net
    
    
    (0.9
    )
    
    
    0.0
    
    
    
    6.1
    
    
    
    0.2Income (loss) before income taxes
    
    
    (34.0
    )
    
    
    (9.6
    )
    
    
    (8.0
    )
    
    
    (5.4
    )Provision for (benefit from) income taxes
    
    
    (6.4
    )
    
    
    (19.4
    )
    
    
    1.5
    
    
    
    (6.6
    )Net income (loss)
    
    
    (27.6
    )%
    
    
    9.8
    %
    
    
    (9.5
    )%
    
    
    1.2
    %Gross profit margin on products (1)
    
    
    71.1
    %
    
    
    83.7
    %
    
    
    78.1
    %
    
    
    84.1
    %Gross profit margin on services (1)
    
    
    79.0
    %
    
    
    76.1
    %
    
    
    78.8
    %
    
    
    73.7
    %
 
 (1)
    
    Gross profit margin on products and services excludes amortization of purchased
technology. 13




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##### Table of Contents



Comparison of the Three-Month Periods Ended June 30, 2007 and 2006
 Revenues
   
    
    North American revenues decreased by 5% to $2.9 million from $3.1 million;
    
    European revenues increased by 5% to $3.2 million from $3.1 million;
    
    Japanese revenues decreased by 40% to $1.1 million from $1.8 million; and
    
    Rest of World revenues decreased by 56% to $1.3 million from $2.9 million.
  Cost of Revenues
     Research and Development
  14




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##### Table of Contents



Sales and Marketing
  General and Administrative
  Interest income
  Other income (expense), net
  Benefit from income taxes
  Accounting for Income Taxes in
Interim Periods
 Comparison of the Nine-Month Periods Ended June 30, 2007 and 2006
 Revenues
   15




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
    
    North American revenues decreased by 20% to $8.2 million from $10.3 million;
    
    European revenues decreased by 9% to $9.2 million from $10.1 million;
    
    Japanese revenues decreased by 8% to $6.8 million from $7.4 million; and
    
    Rest of World revenues decreased by 22% to $4.4 million from $5.7 million.
  Cost of Revenues
     Research and Development
  Sales and Marketing
  General and Administrative
  16




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##### Table of Contents



Interest income
  Other income, net
  Provision for (benefit from) income taxes
  Impact of Inflation
  Liquidity and Capital Resources
       17




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##### Table of Contents



Payments Due by PeriodLess Than
    
    
    2-3
    
    
    4-5
    
    
    AfterContractual Obligations
    
    Total
    
    
    1 Year
    
    
    Years
    
    
    Years
    
    
    5 Years(In millions)Operating leases
    
    $
    2.7
    
    
    $
    1.4
    
    
    $
    1.2
    
    
    $
    0.1
    
    
    $
    Unconditional purchase obligations
    
    
    0.2
    
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    Total contractual cash obligations
    
    $
    2.9
    
    
    $
    1.6
    
    
    $
    1.2
    
    
    $
    0.1
    
    
    $
    
  Recent Accounting Pronouncements
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Foreign Exchange Risk and Derivative Financial Instruments
    Interest Rate Risk
  18




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##### Table of Contents



Item 4. Controls and Procedures
 Evaluation of disclosure controls and procedures.
   Changes in internal control over financial reporting.
  
    
    The Companys Chief Financial Officer performs a detailed quarterly review to confirm
that the Companys accounting for its cash, cash equivalents and short-term investments is
in accordance with the requirements of generally accepted accounting principles in the
United States.
   
 Part II. Other Information
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  19




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##### Table of Contents



Risks Related to Our Business
 Our quarterly operating results may fluctuate significantly, and this may result in volatility in
the market price of our common stock.
  
    
    the variable size and timing of individual purchases by our customers, including delays
in customer purchasing decisions or orders due to customer consolidation;
    
    absence of long-term customer purchase contracts;
    
    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;
    
    the relatively long sales cycles for our products;
    
    competitive conditions in our markets;
    
    exchange rate fluctuations;
    
    the timing of the introduction and market acceptance of new products or product
enhancements by us and by our customers, competitors and suppliers;
    
    costs associated with developing and introducing new products;
    
    product life cycles;
    
    changes in the level of operating expenses relative to revenues;
    
    product defects and other quality problems;
    
    customer order deferrals in anticipation of new products;
    
    supply interruptions;
    
    changes in global or regional economic conditions or in the telecommunications industry;
    
    asset impairment, valuation allowance and restructuring charges;
    
    changes in our tax rate;
    
    adverse results from current or future litigation;
    
    changes in the mix of products sold; and
    
    changes in the regulatory environment.
    20




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##### Table of Contents



Our ability to deliver products that meet customer demand is dependent on our ability to meet new
and changing requirements for telecommunications test systems and services.
   Ô Ô Ô
  Our success depends on the timely development and introduction of new products.
  Historically, our revenues have been dependent upon a few significant customers, the loss of one
or more of which as a result of competition or industry consolidation could significantly reduce
our revenues.
  Our business is dependent on our customers outsourcing their telecommunications testing needs, and
our business could be harmed if the market for outsourced testing solutions declines or fails to
grow.
  21




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##### Table of Contents



We face foreign business, political and economic risks because a significant portion of our sales
is to customers outside the United States.
  
    
    longer customer payment cycles;
    
    greater difficulty in accounts receivable collection;
    
    difficulties in staffing and managing foreign operations;
    
    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.
  We face intense competition in our markets from more established test solutions providers, and if
we are unable to compete successfully we may not be able to maintain or grow our business.
  Our success depends on the continued growth of the telecommunications industry and increased use
of our test solutions, and lack of growth in this industry could harm our business.
   22




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##### Table of Contents



Our business could be harmed if we were to lose the services of one or more members of our senior
management team, or if we are unable to attract and retain qualified personnel.
   We may not be able to achieve the anticipated benefits of any acquisitions we may make of other
companies, products or technologies.
  
    
    difficulties associated with assimilating the personnel and operations of acquired companies;
    
    potential disruption of our ongoing business;
    
    distraction of management and other resources;
    
    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;
    
    maintenance of uniform standards, controls, procedures and policies;
    
    impairment of goodwill or other long-lived assets acquired due to a failure to generate
the levels of cash flow anticipated at the acquisition date; and
    
    impairment of relationships with employees and clients as a result of the integration
of new management personnel.
  The inability to successfully defend claims from taxing authorities could adversely affect our
operating results and financial position.
  Many of our suppliers are sole source or single source suppliers, and our inability to obtain
adequate amounts of components from these suppliers could harm our business.
  23




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##### Table of Contents



We depend on a limited number of independent manufacturers to provide assembly services, which
reduces our ability to control our manufacturing process.
  The high level of complexity and integration of our products increases the risk of latent defects,
which could damage customer relationships and increase our costs.
  We face exposure to product liability claims, which if successful could harm our business.
  Our success is dependent on our ability to protect our intellectual property, and our failure to
protect our intellectual property could have a significant adverse impact on our business.
  24




---



##### Table of Contents



We could become subject to litigation regarding intellectual property, which could divert
management attention, be costly to defend and prevent us from using or selling the challenged
technology.
  Environmental laws and regulations subject us to a number of risks and could result in significant
liabilities and costs.
   Risks Related to Our Stock
 Our stock has been, and likely will continue to be, subject to substantial price and volume
fluctuations due to a number of factors, many of which will be beyond our control.
  
    
    quarterly variations in our operating results;
    
    changes in our revenue growth rates 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 us or our competitors;
    
    speculation in the press or analyst community; and
    
    general market conditions or market conditions specific to particular industries.
  25




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##### Table of Contents



If we are unable to determine and demonstrate that we maintain effective internal control over
financial reporting, this may cause investors to lose confidence in our reported financial
information and the price of our stock could drop significantly.
  Sales of substantial amounts of our common stock by our major stockholders and others could
adversely affect the market price of our common stock.
  Our principal stockholder could prevent or delay a change in control.
  Provisions in our charter documents and Nevada law could prevent or delay a change in the control
of our company and may reduce the market price of our common stock.
  26




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##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  Repurchases of Common StockTotal Number of
    
    
    Maximum NumberTotal
    
    
    
    
    
    
    Shares Purchased as
    
    
    of Shares that MayNumber
    
    
    Average
    
    
    Part of Publicly
    
    
    Yet Be Purchasedof Shares
    
    
    Price Paid
    
    
    Announced
    
    
    Under the PlansPurchased
    
    
    Per Share (1)
    
    
    Plans or Programs
    
    
    Or ProgramsApril 1,
2007  April 30, 2007
    
    
    135,000
    
    
    $
    10.53
    
    
    
    135,000
    
    
    
    1,707,198May 1, 2007  May 31, 2007
    
    
    150,000
    
    
    $
    10.23
    
    
    
    150,000
    
    
    
    1,557,198June 1,
2007  June 30, 2007
    
    
    20,770
    
    
    $
    9.90
    
    
    
    20,770
    
    
    
    1,536,428Total for the Quarter
    
    
    305,770
    
    
    $
    10.34
    
    
    
    305,770
    
    
    
    1,536,428
 
 (1)
    
    Average price paid per share includes brokerage commission  
 Item 4. Submission of Matters to a Vote of Security Holders
           27




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##### Table of Contents



Item 6. Exhibits
 3.1
    
    
    Bylaws of the Registrant, as amended April 24, 2007.31.1
    
    
    Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2
    
    
    Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32
    
    
    Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
 28




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##### Table of Contents



SIGNATURE
  CATAPULT COMMUNICATIONS CORPORATIONDate:  August 8, 2007
    By:
    /s/      Christopher A. StephensonChristopher A. StephensonVice President and Chief Financial Officer
(Principal Financial Officer) 29




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##### Table of Contents



Exhibit No.
    
    Description3.1
    
    
    Bylaws of the Registrant, as amended April 24, 2007.31.1
    
    
    Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2
    
    
    Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32
    
    
    Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.