##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q/A
 (Amendment No. 1)
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 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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##### Table of Contents



EXPLANATORY NOTE




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##### 



CATAPULT COMMUNICATIONS CORPORATION
 FORM
10-Q/A
 INDEX
  
 PagePart IFinancial InformationItem 1. Financial StatementsUnaudited
Condensed Consolidated Balance Sheets as of June 30, 2006 (as
restated)and September 30, 2005
    
    
    1Unaudited Condensed Consolidated Statements of Income for the three and nine months
ended June 30, 2006 and 2005
    
    
    2Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended
June 30, 2006 (as
restated) and 2005
    
    
    3Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    20Item 4. Controls and Procedures
    
    
    21Part IIOther Information
    
    
    21Item 1. Legal Proceedings
    
    
    21Item 1A. Risk Factors
    
    
    21Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    29Item 6. Exhibits
    
    
    29Signatures
    
    
    30EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32




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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 30,2006(As
RestatedSee Note 13)
    
    
    2005(In thousands)ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    24,886
    
    
    $
    18,952Short-term investments
    
    
    49,044
    
    
    
    49,855Accounts receivable, net
    
    
    8,354
    
    
    
    14,724Inventories, net
    
    
    4,504
    
    
    
    3,104Deferred income taxes
    
    
    614
    
    
    
    603Prepaid expenses
    
    
    1,466
    
    
    
    1,401Total current assets
    
    
    88,868
    
    
    
    88,639Property and equipment, net
    
    
    1,922
    
    
    
    1,693Goodwill
    
    
    49,394
    
    
    
    49,394Other intangibles, net
    
    
    3,284
    
    
    
    4,051Other assets
    
    
    6,690
    
    
    
    3,983Total assets
    
    $
    150,158
    
    
    $
    147,760LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    635
    
    
    $
    1,547Accrued liabilities
    
    
    3,507
    
    
    
    5,508Deferred revenue
    
    
    11,096
    
    
    
    7,697Total current liabilities
    
    
    15,238
    
    
    
    14,752Deferred revenue, long-term portion
    
    
    339
    
    
    
    485Total liabilities
    
    
    15,577
    
    
    
    15,237Stockholders Equity:Common stock
    
    
    15
    
    
    
    15Additional paid-in capital
    
    
    50,968
    
    
    
    48,944Deferred stock-based compensation
    
    
    
    
    
    
    (3
    )Accumulated other comprehensive income
    
    
    679
    
    
    
    587Retained earnings
    
    
    82,919
    
    
    
    82,980Total stockholders equity
    
    
    134,581
    
    
    
    132,523Total liabilities and stockholders equity
    
    $
    150,158
    
    
    $
    147,760
  1




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CATAPULT COMMUNICATIONS CORPORATION
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 Three months ended
    
    
    Nine months endedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(In thousands, except per share amounts)Revenues:Products
    
    $
    6,996
    
    
    $
    10,873
    
    
    $
    22,444
    
    
    $
    38,341Services
    
    
    3,793
    
    
    
    3,403
    
    
    
    11,110
    
    
    
    10,856Total revenues
    
    
    10,789
    
    
    
    14,276
    
    
    
    33,554
    
    
    
    49,197Cost of revenues:Products
    
    
    1,142
    
    
    
    1,236
    
    
    
    3,575
    
    
    
    3,907Services
    
    
    908
    
    
    
    923
    
    
    
    2,926
    
    
    
    2,596Amortization of purchased technology
    
    
    171
    
    
    
    171
    
    
    
    514
    
    
    
    514Total cost of revenues
    
    
    2,221
    
    
    
    2,330
    
    
    
    7,015
    
    
    
    7,017Gross profit
    
    
    8,568
    
    
    
    11,946
    
    
    
    26,539
    
    
    
    42,180Operating expenses:Research and development
    
    
    3,543
    
    
    
    3,224
    
    
    
    10,058
    
    
    
    9,406Sales and marketing
    
    
    4,423
    
    
    
    4,431
    
    
    
    13,205
    
    
    
    13,936General and administrative
    
    
    2,391
    
    
    
    1,946
    
    
    
    7,139
    
    
    
    5,878Total operating expenses
    
    
    10,357
    
    
    
    9,601
    
    
    
    30,402
    
    
    
    29,220Operating income (loss)
    
    
    (1,789
    )
    
    
    2,345
    
    
    
    (3,863
    )
    
    
    12,960Interest income
    
    
    751
    
    
    
    409
    
    
    
    1,991
    
    
    
    922Other income (expense), net
    
    
    3
    
    
    
    16
    
    
    
    56
    
    
    
    (121
    )Income (loss) before income taxes
    
    
    (1,035
    )
    
    
    2,770
    
    
    
    (1,816
    )
    
    
    13,761Provision for (benefit from) income taxes
    
    
    (2,091
    )
    
    
    387
    
    
    
    (2,226
    )
    
    
    2,135Net income
    
    $
    1,056
    
    
    $
    2,383
    
    
    $
    410
    
    
    $
    11,626Net income per share  basic
    
    $
    0.07
    
    
    $
    0.16
    
    
    $
    0.03
    
    
    $
    0.79Net income per share  diluted
    
    $
    0.07
    
    
    $
    0.16
    
    
    $
    0.03
    
    
    $
    0.77Shares used in per share calculation:Basic
    
    
    14,801
    
    
    
    14,712
    
    
    
    14,776
    
    
    
    14,662Diluted
    
    
    14,887
    
    
    
    14,971
    
    
    
    14,935
    
    
    
    15,087
  2




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CATAPULT COMMUNICATIONS CORPORATION
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Nine months endedJune 30,2006(As RestatedSee Note 13)
    
    
    2005(In thousands)Cash flows from operating activities:Net income, as reported
    
    $
    410
    
    
    $
    11,626Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization of property and equipment
    
    
    758
    
    
    
    1,350Amortization of deferred stock-based compensation
    
    
    3
    
    
    
    27Amortization of purchased technology
    
    
    514
    
    
    
    514Amortization of other acquisition related intangibles
    
    
    253
    
    
    
    252Stock based compensation expenses
    
    
    1,802
    
    
    
    Provision for doubtful accounts
    
    
    
    
    
    
    (24
    )Deferred income taxes
    
    
    (2,741
    )
    
    
    62Total tax benefits related to stock based compensation
    
    
    78
    
    
    
    Excess tax benefits from stock options exercised
    
    
    (35
    )
    
    
    Change in assets and liabilities:Accounts receivable
    
    
    6,369
    
    
    
    (3,785
    )Inventories
    
    
    (1,405
    )
    
    
    (200
    )Prepaid expenses
    
    
    (67
    )
    
    
    130Other assets
    
    
    27
    
    
    
    19Accounts payable
    
    
    (944
    )
    
    
    165Accrued liabilities
    
    
    (2,018
    )
    
    
    30Deferred revenue
    
    
    3,253
    
    
    
    2,910Net cash provided by operating activities
    
    
    6,257
    
    
    
    13,076Cash flows from investing activities:Sale and maturities of short-term investments
    
    
    73,272
    
    
    
    32,208Purchase of short-term investments
    
    
    (72,422
    )
    
    
    (46,428
    )Purchase of property and equipment
    
    
    (936
    )
    
    
    (681
    )Net cash used in investing activities
    
    
    (86
    )
    
    
    (14,901
    )Cash flows from financing activities:Proceeds from exercise of stock options
    
    
    604
    
    
    
    2,128Excess tax benefit from stock-based compensation
    
    
    35
    
    
    
    Repurchase of common stock
    
    
    (931
    )
    
    
    Net cash (used in) provided by financing activities
    
    
    (292
    )
    
    
    2,128Effect of exchange rate changes on cash and cash equivalents
    
    
    55
    
    
    
    40Net increase in cash and cash equivalents
    
    
    5,934
    
    
    
    343Cash and cash equivalents, beginning of period
    
    
    18,952
    
    
    
    20,108Cash and cash equivalents, end of period
    
    $
    24,886
    
    
    $
    20,451Non-cash
investing activity:Purchase of property and equipment
    
    $
    36
    
    
    $
    0Supplemental disclosure:Unrealized gain (loss) on investments
    
    $
    39
    
    
    $
    (21
    )Cash paid for income taxes
    
    1,040
    
    
    1,073
  3




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CATAPULT COMMUNICATIONS CORPORATION
 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1THE COMPANY AND BASIS OF PRESENTATION
   Short-Term
Investments
 Accounting for Certain
Investments in Debt and Equity Securities.
     NOTE 2RECENT ACCOUNTING PRONOUNCEMENTS
 Transition Election to Accounting for the Tax Effects of Share-Based Payment Awards. Share-Based Payment
 Classification of Options and Similar
Instruments Issued as Employee Compensation That Allow for Cash Settlement upon the Occurrence of a
Contingent Event. Share-Based Payment.
 Accounting for
Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109
 4




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NOTE 3  STOCK-BASED COMPENSATION
 Share-Based
Payment. Accounting
for Stock Issued to Employees Accounting for Stock-Based Compensation
 Periods prior to the adoption of SFAS 123(R)
  Three months ended
    
    
    Nine months endedJune 30,
    
    
    June 30,2005
    
    
    2005(In thousands, except per share amounts)Net income, as reported for basic and diluted earnings per share
    
    $
    2,383
    
    
    $
    11,626Add: Stock-based employee compensation expense included in reported
net income, net of related tax effects
    
    
    8
    
    
    
    23Deduct: Total stock-based employee compensation expense determined
under fair-value based method for all awards, net of related tax
effects
    
    
    (773
    )
    
    
    (2,063
    )Pro forma net income
    
    $
    1,618
    
    
    $
    9,586Net income per share:Basic net income per share as reported
    
    $
    0.16
    
    
    $
    0.79Basic net income per share pro forma
    
    $
    0.11
    
    
    $
    0.65Diluted net income per share as reported
    
    $
    0.16
    
    
    $
    0.77Diluted net income per share pro forma
    
    $
    0.11
    
    
    $
    0.64
 Adoption of SFAS 123(R)
  5




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Three months ended
    
    
    Nine months endedJune 30,
    
    
    June 30,2006
    
    
    2006(In thousands)Stock-Based Compensation Expense:Cost of sales 
products
    
    $
    32
    
    
    $
    73Cost of sales 
services
    
    
    64
    
    
    
    136Research and development
expense
    
    
    192
    
    
    
    442Selling and marketing
expense
    
    
    161
    
    
    
    437General and administrative
expense
    
    
    299
    
    
    
    714Total stock-based compensation
expense
    
    
    748
    
    
    
    1,802Tax effect on stock-based compensation
expenses
    
    
    (1,557
    )
    
    
    (1,904
    )Net effect on net
income
    
    $
    (809
    )
    
    $
    (102
    )Net effect on basic net income per
share
    
    $
    (0.05
    )
    
    $
    (0.01
    )Net effect on diluted net income per
share
    
    $
    (0.05
    )
    
    $
    (0.01
    )
 Valuation Assumptions
  Employee Stock Option Plans
    
    Employee Stock Purchase PlanThree months ended
    
    Nine months ended
    
    Three months ended
    
    Nine months endedJune 30,
    
    June 30,
    
    June 30,
    
    June 30,2006
    
    2005
    
    2006
    
    2005
    
    2006*
    
    2005
    
    2006*
    
    2005Expected life of option
    
    5.24 years
    
    2.73 years
    
    5.27 years
    
    2.70 years
    
    
    
    
    
    0.5 years
    
    
    
    
    
    0.5 yearsExpected volatility
    
    
    64.0
    %
    
    
    68.4
    %
    
    
    64.3
    %
    
    
    75.8
    %
    
    
    
    
    
    
    61.8
    %
    
    
    
    
    
    
    56.7
    %Dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %Risk-free interest rate
    
    
    4.99
    %
    
    
    3.70
    %
    
    
    4.93
    %
    
    
    3.53
    %
    
    
    
    
    
    
    2.96
    %
    
    
    
    
    
    
    2.80
    %
 
 *
    
    The company terminated its ESPP plan effective October 31, 2005. Expected life of option
 Expected Volatility
 Expected Dividend
 Risk-Free Interest Rate
 Stock Option Plans
  6




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WeightedNumber of
    
    
    Weighted
    
    
    Average
    
    
    AggregateOptions
    
    
    Average
    
    
    Remaining
    
    
    IntrinsicOutstanding
    
    
    Exercise Price
    
    
    Contractual Term
    
    
    Value(Years)
    
    
    (In thousands)Balance at September 30, 2005
    
    
    1,956,029
    
    
    $
    15.56Options granted
    
    
    541,662
    
    
    $
    12.94Options exercised
    
    
    (84,816
    )
    
    $
    4.78Options canceled, forfeited or expired
    
    
    (74,360
    )
    
    $
    20.97Balance, June 30, 2006
    
    
    2,338,515
    
    
    $
    15.17
    
    
    
    7.19
    
    
    $
    1,174Vested or expected to vest, June 30, 2006
    
    
    2,282,583
    
    
    $
    15.20
    
    
    
    7.14
    
    
    $
    1,171Exercisable, June 30, 2006
    
    
    1,505,929
    
    
    $
    16.41
    
    
    
    6.08
    
    
    $
    906
   Employee Stock Purchase Plan
  7




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NOTE 4  BASIC AND DILUTED NET INCOME PER SHARE
 Earnings
per Share
 Three months ended
    
    
    Nine months endedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(In thousands, except per share amounts)Net income, as
reported for basic and
diluted earnings per
share
    
     $
 1,056
    
    
     $
 2,383
    
    
     $
 410
    
    
     $
 11,626Weighted average
shares
outstanding
    
    
    14,801
    
    
    
    14,712
    
    
    
    14,776
    
    
    
    14,662Dilutive
options
    
    
    86
    
    
    
    259
    
    
    
    159
    
    
    
    425Weighted average
shares assuming
dilution
    
    
    14,887
    
    
    
    14,971
    
    
    
    14,935
    
    
    
    15,087Net income per
share:Basic
    
    $
    0.07
    
    
    $
    0.16
    
    
    $
    0.03
    
    
    $
    0.79Diluted
    
    $
    0.07
    
    
    $
    0.16
    
    
    $
    0.03
    
    
    $
    0.77
  Three months ended
    
    
    Nine months endedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(In thousands)Common stock options
    
    
    2,063
    
    
    
    869
    
    
    
    1,327
    
    
    
    309
 NOTE 5  INVENTORIES
  June 30,
    
    
    September 30,2006
    
    
    2005(In thousands)Raw
materials
    
    $
    3,389
    
    
    $
    2,600Work-in-process
    
    
    501
    
    
    
    231Finished goods
    
    
    614
    
    
    
    273$
    4,504
    
    
    $
    3,104
 NOTE 6  GOODWILL AND INTANGIBLE ASSETS
   8




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As of June 30, 2006
    
    
    As of September 30, 2005Gross
    
    
    
    
    
    
    Net
    
    
    Gross
    
    
    
    
    
    
    NetCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    Carrying
    
    
    Accumulated
    
    
    CarryingAmount
    
    
    Amortization
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    Amount(In thousands)Purchased technology
    
    $
    4,800
    
    
    $
    (2,628
    )
    
    $
    2,172
    
    
    $
    4,800
    
    
    $
    (2,115
    )
    
    $
    2,685Trade names
    
    
    1,000
    
    
    
    (548
    )
    
    
    452
    
    
    
    1,000
    
    
    
    (440
    )
    
    
    560Customer relationships
    
    
    1,000
    
    
    
    (548
    )
    
    
    452
    
    
    
    1,000
    
    
    
    (440
    )
    
    
    560Non-compete agreement
    
    
    400
    
    
    
    (192
    )
    
    
    208
    
    
    
    400
    
    
    
    (154
    )
    
    
    246System backlog
    
    
    400
    
    
    
    (400
    )
    
    
    
    
    
    
    400
    
    
    
    (400
    )
    
    
    Total
    
    $
    7,600
    
    
    $
    (4,316
    )
    
    $
    3,284
    
    
    $
    7,600
    
    
    $
    (3,549
    )
    
    $
    4,051
  EstimatedAmortizationFiscal Year
    
    Expense(In thousands)2006 (remaining 3 months)
    
    $
    2552007
    
    
    1,0222008
    
    
    1,021Thereafter
    
    
    986Total
    
    $
    3,284
 NOTE 7  WARRANTY ACCRUAL
  2006
    
    
    2005(In thousands)Balances at beginning of year
    
    $
    74
    
    
    $
    69Utilized
    
    
    (31
    )
    
    
    (55
    )Charged (reduction) to cost and expenses
    
    
    7
    
    
    
    45Balances at end of quarter
    
    $
    50
    
    
    $
    59
 NOTE 8  INCOME TAXES
  9




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NOTE 9  STOCKHOLDERS EQUITY
 Comprehensive Income
  Three months ended
    
    
    Nine months endedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(In thousands)Net income, as reported
    
    $
    1,056
    
    
    $
    2,383
    
    
    $
    410
    
    
    $
    11,626Currency translation adjustment
    
    
    151
    
    
    
    (109
    )
    
    
    54
    
    
    
    15Unrealized gains (losses) on investments
    
    
    (1
    )
    
    
    16
    
    
    
    39
    
    
    
    (21
    )Comprehensive income
    
    $
    1,206
    
    
    $
    2,290
    
    
    $
    503
    
    
    $
    11,620
 Repurchase of Common Stock
  NOTE 10  GEOGRAPHICAL INFORMATION
 Disclosures About Segments of an Enterprise and
Related Information
   North
    
    UK, Europe,
    
    
    
    
    
    Rest of
    
    ConsolidatedAmerica
    
    Other
    
    Japan
    
    World
    
    Total(In thousands)Nine months ended June 30, 2006Revenues from unaffiliated customers
    
    $
    10,260
    
    
    $
    10,139
    
    
    $
    7,433
    
    
    $
    5,722
    
    
    $
    33,554Nine months ended June 30, 2005Revenues from unaffiliated customers
    
    $
    14,477
    
    
    $
    15,253
    
    
    $
    13,796
    
    
    $
    5,671
    
    
    $
    49,197As of June 30,
2006Goodwill
    
    $
    22,896
    
    
    $
    26,498
    
    
    
    
    
    
    
    
    
    
    $
    49,394Long-lived assets
    
    
    896
    
    
    
    720
    
    
    $
    274
    
    
    
    32
    
    
    
    1,922As of September 30, 2005Goodwill
    
    $
    22,896
    
    
    $
    26,498
    
    
    
    
    
    
    
    
    
    
    $
    49,394Long-lived assets
    
    
    950
    
    
    
    479
    
    
    $
    264
    
    
    
    
    
    
    
    1,693
  10




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NOTE 11  CUSTOMER INFORMATION
  Percentage of Accounts Receivable as of
    
    Percentage of RevenuesThree months ended
    
    Nine months endedJune 30,
    
    September 30,
    
    June 30,
    
    June 30,2006
    
    2005
    
    2006
    
    2005
    
    2006
    
    2005Customer A
    
    
    11
    %
    
    
    <10
    %
    
    
    <10
    %
    
    
    <10
    %
    
    
    <10
    %
    
    
    <10
    %Customer B
    
    
    <10
    %
    
    
    14
    %
    
    
    <10
    %
    
    
    10
    %
    
    
    <10
    %
    
    
    14
    %Customer C
    
    
    <10
    %
    
    
    13
    %
    
    
    <10
    %
    
    
    <10
    %
    
    
    <10
    %
    
    
    <10
    %Customer D
    
    
    15
    %
    
    
    20
    %
    
    
    11
    %
    
    
    14
    %
    
    
    <10
    %
    
    
    10
    %Customer E
    
    
    18
    %
    
    
    <10
    %
    
    
    16
    %
    
    
    24
    %
    
    
    13
    %
    
    
    12
    %Customer F
    
    
    <10
    %
    
    
    <10
    %
    
    
    <10
    %
    
    
    <10
    %
    
    
    <10
    %
    
    
    10
    %
 NOTE 12  CONTINGENCIES
   Accounting for Contingencies
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NOTE 13RESTATEMENT-SHORT-TERM INVESTMENTS
   June 30, 2006
    
    
    June 30, 2006As
Previously
Reported
    
    

As
Restated(In thousands)Balance Sheet Components:Cash and cash equivalents
    
    $
    28,501
    
    
    $
    24,886Short-term investments
    
    $
    45,429
    
    
    $
    49,044
 Nine months ended
    
    
    Nine months endedJune 30, 2006
    
    
    June 30, 2006As
Previously Reported
    
    

As Restated(In thousands)Cash Flows Components:Sale and maturities of short-term investments
    
    $
    58,082
    
    
    $
    73,272Purchase of short-term investments
    
    $
    (59,517
    )
    
    $
    (72,422
    )Net cash used in investing activities
    
    $
    (2,371
    )
    
    $
    (86
    )Net increase in cash and cash equivalents
    
    $
    3,649
    
    
    $
    5,934Cash and cash equivalents, end of period
    
    $
    28,501
    
    
    $
    24,886
  
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 The following discussion and analysis should be read in conjunction with Selected Financial
Data and our Consolidated Financial Statements and Notes thereto included in our Annual Report on
Form 10-K for the year ended September 30, 2005, as filed with the Securities and Exchange
Commission on December 14, 2005.
 Forward-looking Statements
 This
Quarterly Report on Form 10-Q/A contains statements that are not historical facts but are
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and relate to such
matters as anticipated financial performance and involve known and unknown risks, uncertainties and
other factors that may cause our business or our industrys actual results, levels of activity,
performance or achievements to be materially different from those expressed or implied by any
forward-looking statements. Such statements include, in particular, statements about our plans,
strategies, prospects, changes and trends in our business and the markets in which we operate as
described in this Quarterly Report on Form 10-Q/A . In some cases, you can identify forward-looking
statements by terminology such as may, will, could, would, should, expect, plan,
anticipate, intend, believe, estimate, forecast, predict, propose, potential or
continue or the negative of those terms or other comparable terminology. These statements are
only predictions.
 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 you should carefully review the cautionary statements set
forth in this Quarterly Report on Form 10-Q/A , including those set forth under the caption Risk
Factors in Item 1A of Part II of this report and those set forth in our Annual Report on Form 10-K
for the year ended September 30, 2005, as filed on December 14, 2005. We caution the reader,
however, that these factors may not be exhaustive.
 We may from time to time make additional written and oral forward-looking statements,
including statements contained in our filings with the Securities and Exchange Commission and in
our reports to stockholders. We do not undertake to update any forward-looking statements that may
be made in this Form 10-Q/A or from time to time by us or on our behalf.
 Overview
 Our Business and Products
    
    
    IP Multimedia Subsystem (IMS);
    
    Third and Fourth Generation Cellular (3G and 4G), including UMTS and cdma2000;
 12




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##### Table of Contents




    
    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
   Summary of Our Financial Performance in the Third Quarter of Fiscal 2006
   
    
    In Japan, revenues decreased by 19% or $0.4 million from the third quarter of fiscal
2005, primarily due to reduced orders as a result of competition from test products
developed by two of our Japanese OEM customers, both for their own internal use and for
sale to our major Japanese telecom operator customers. We expect this competitive factor to
continue to impact our Japanese revenues at least into our next fiscal year. Revenues in
Japan were also impacted by a 6% decrease in the value of the yen, in which all our
revenues in Japan are denominated.
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##### Table of Contents




    
    In regions outside Japan, our revenues continued to be affected adversely by our
internal product development delays. In the third quarter, the cumulative total of orders
requiring additional product development on which no revenue could be recognized increased
by $0.2 million to $5.4 million at quarter end. We expect to begin recognizing revenue on
these orders in the fourth quarter of our current fiscal year. In addition, other customer
orders that we would have expected to receive in the absence of product development delays
were delayed or issued to other vendors. Because over half the value
of the delayed orders has been invoiced, the level of deferred income
on our balance sheet at quarter end is uncharacteristically high.
    
    Our overall gross profit margin decreased by four percentage points in comparison with
the third quarter of fiscal 2005 due primarily to increases in hardware component and
manufacturing overhead costs.
    
    In the third quarter of fiscal 2006, we recorded $0.7 million in pre-tax, non-cash,
stock-based compensation expense under SFAS 123(R), Share-Based
Payment,which we adopted
at the beginning of the current fiscal year.Because we elected to adopt this standard
under the modified prospective transition method, we did not restate prior periods to
include stock-based compensation expense. Refer to Stock-Based Compensation in the
Critical Accounting Policies and Estimates section below.
  Restatement
   Critical Accounting Policies and Estimates
  Stock-Based Compensation
 Share-Based Payment
 Results of Operations
  14




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Three months ended
    
    
    Nine months endedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Revenues:Products
    
    
    64.8
    %
    
    
    76.2
    %
    
    
    66.9
    %
    
    
    77.9
    %Services
    
    
    35.2
    
    
    
    23.8
    
    
    
    33.1
    
    
    
    22.1Total revenues
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Cost of revenues:Products
    
    
    10.6
    
    
    
    8.7
    
    
    
    10.7
    
    
    
    7.9Services
    
    
    8.4
    
    
    
    6.5
    
    
    
    8.7
    
    
    
    5.3Amortization of purchased technology
    
    
    1.6
    
    
    
    1.2
    
    
    
    1.5
    
    
    
    1.0Total cost of revenues
    
    
    20.6
    
    
    
    16.4
    
    
    
    20.9
    
    
    
    14.2Gross profit
    
    
    79.4
    
    
    
    83.6
    
    
    
    79.1
    
    
    
    85.8Operating expenses:Research and development
    
    
    32.8
    
    
    
    22.6
    
    
    
    30.0
    
    
    
    19.1Sales and marketing
    
    
    41.0
    
    
    
    31.0
    
    
    
    39.4
    
    
    
    28.3General and administrative
    
    
    22.2
    
    
    
    13.6
    
    
    
    21.3
    
    
    
    12.0Total operating expenses
    
    
    96.0
    
    
    
    67.2
    
    
    
    90.7
    
    
    
    59.4Operating income (loss)
    
    
    (16.6
    )
    
    
    16.4
    
    
    
    (11.5
    )
    
    
    26.4Interest income
    
    
    7.0
    
    
    
    2.9
    
    
    
    5.9
    
    
    
    1.9Other income (expense), net
    
    
    0.0
    
    
    
    0.1
    
    
    
    0.2
    
    
    
    (0.2
    )Income (loss) before income taxes
    
    
    (9.6
    )
    
    
    19.4
    
    
    
    (5.4
    )
    
    
    28.1Provision for (benefit from) income
taxes
    
    
    (19.4
    )
    
    
    2.7
    
    
    
    (6.6
    )
    
    
    4.3Net income
    
    
    9.8
    %
    
    
    16.7
    %
    
    
    1.2
    %
    
    
    23.8
    %Gross margin on products
    
    
    83.7
    %
    
    
    88.6
    %
    
    
    84.1
    %
    
    
    89.8
    %Gross margin on services
    
    
    76.1
    %
    
    
    72.9
    %
    
    
    73.7
    %
    
    
    76.1
    %
  Comparison of the Three-Month Periods Ended June 30, 2006 and 2005
 Revenues
   
    
    North American revenues decreased by 23% to $3.1 million from $4.0 million;
    
    European revenues decreased by 46% to $3.1 million from $5.7 million;
    
    Japanese revenues decreased by 19% to $1.8 million from $2.2 million including a $0.1
million decrease due to a 6% decrease in the value of the Japanese yen against the dollar;
and
    
    Rest of World revenues increased by 22% to $2.9 million from $2.4 million.
  15




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Cost of Revenues
     Research and Development
  
    
    an increase of 2%, or two employees, in the number of employees engaged in research and
development;
    
    an increase of $0.2 million in contractor expenses; and
    
    the inclusion of $0.2 million in non-cash stock option expenses in the more recent quarter.
   Sales and Marketing
   General and Administrative
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Interest income
  Provision for (benefit from) income taxes
  Comparison of the Nine-Month Periods Ended June 30, 2006 and 2005
 Revenues
   
    
    North American revenues decreased by 29% to $10.3 million from $14.5 million;
    
    European revenues decreased by 34% to $10.1 million from $15.3 million;
    
    Japanese revenues decreased by 46% to $7.4 million from $13.8 million; and
    
    Rest of World revenues remained substantially unchanged at $5.7 million.
   Cost of Revenues
  17




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Research and Development
  Sales and Marketing
  
    
    a decrease of $1.6 million in variable compensation due to below-target order levels;
    
    an exchange rate driven decrease of $0.4 million due to average decreases of 9% in the
Japanese yen, 5% in the British pound and 6% in the Euro against the dollar.
   General and Administrative
  18




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Interest income
  Provision for (benefit from) income taxes
  Liquidity and Capital Resources
      19




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Payments Due by PeriodLess Than
    
    
    1-3
    
    
    3-5
    
    
    More thanContractual Obligations
    
    Total
    
    
    1 Year
    
    
    Years
    
    
    Years
    
    
    5 Years(In millions)Operating leases
    
    $
    3.4
    
    
    $
    1.3
    
    
    $
    1.8
    
    
    $
    0.3
    
    
    
    Unconditional purchase obligations
    
    $
    0.2
    
    
    $
    0.2
    
    
    
    
    
    
    
    
    
    
    
    Total contractual cash obligations
    
    $
    3.6
    
    
    $
    1.5
    
    
    $
    1.8
    
    
    $
    0.3
    
    
    
    
  Recent Accounting Pronouncements
 
 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Foreign Exchange Risk and Derivative Financial Instruments
   20




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Interest Rate Risk
  
 Item 4. Controls and Procedures
 Evaluation of disclosure controls and procedures
  Changes in internal control over financial reporting
  
 Part II. Other Information
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  21




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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;
    
    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;
    
    delays in purchasing decisions or customer orders due to customer consolidation;
    
    the ability to hire sales and technical personnel;
    
    changes in the mix of products sold;
    
    variability in stock-based compensation expense and the associated impact on our
effective tax rate; and
    
    changes in the regulatory environment.
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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 could significantly reduce our revenues.
  23




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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.
  If we do not effectively manage our growth, our business and operating results could be adversely
affected.
  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.
  24




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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 consolidation or lack of growth in this industry could harm our
business.
   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;
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##### Table of Contents




    
    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; and
    
    impairment of relationships with employees and clients as a result of the integration
of new management personnel.
  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.
  We depend on a limited number of independent manufacturers, 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.
  26




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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.
  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.
  27




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##### Table of Contents



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.
  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.
  28




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##### Table of Contents



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.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  Repurchase of Common StockTotal Number of
    
    Maximum NumberShares Purchased as
    
    of Shares that MayTotal Number
    
    Average
    
    Part of Publicly
    
    Yet Be Purchasedof Shares
    
    Price Paid
    
    Announced Plans
    
    Under the PlansPurchased
    
    per Share
    
    or Programs
    
    or ProgramsApril 1, 2006  April 30, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    May 1, 2006  May 31, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    June 1, 2006  June 30, 2006
    
    
    98,700
    
    
    
    $ 9.39
    
    
    
    98,700
    
    
    
    1,643,900Total for the Quarter
    
    
    98,700
    
    
    
    $ 9.39
    
    
    
    98,700
    
    
    
    1,643,900
  
 Item 6. Exhibits.
 Exhibit
Number
    
    Description of Exhibit10.1
    
    Executive Officer Fiscal Year 2006 Variable Compensation Plan
 incorporated by reference to Exhibit 10.1 to our Current Report on
Form 8-K filed on January 30, 2006.10.2
    
    1998 Stock Plan (as amended through
January 24, 2006)  incorporated by reference to Exhibit
10.2 to our Current Report on Form 8-K filed on January 30,
2006.31.1
    
    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.
 29




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SIGNATURE
  CATAPULT COMMUNICATIONS CORPORATIONDate:
January 22, 2007
    
    
    
    By: /s/ Christopher A. StephensonChristopher A. StephensonVice President and Chief Financial Officer(Principal Financial Officer)
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Exhibit Index
 ExhibitNumber
    
    Description of Exhibit
 10.1
    
    Executive Officer Fiscal Year 2006 Variable Compensation Plan
 incorporated by reference to Exhibit 10.1 to our Current Report on
Form 8-K filed on January 30, 2006.10.2
    
    1998 Stock Plan (as amended through
January 24, 2006)  incorporated by reference to Exhibit
10.2 to our Current Report on Form 8-K filed on January 30,
2006.31.1
    
    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.