##### Table of Contents



FORM 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Mark One)

|  |  |                                                                                         
|- |  | ----------------------------------------------------------------------------------------
|x |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE
ACT OF 1934

For the quarterly period ended March 31, 2003

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

(Exact name of Registrant as specified in its charter)


|                                                                      |  |                                                   
|--------------------------------------------------------------------- |  | --------------------------------------------------
|Nevada
(State or other jurisdiction of
incorporation or organization) |  | 77-0086010
(I.R.S. Employer
Identification Number)

160 South Whisman Road
Mountain View, California 94041

(650) 960-1025

(Address, including zip code, and telephone number, including
area code, of principal executive offices)

Indicate by check mark whether the registrant (1) has filed all reports 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  x   No

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

As of May 2, 2003, there were 12,868,531 shares of the Registrants Common
Stock, $0.001 par value, outstanding.





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TABLE OF CONTENTS



|                              |                                                                                               |                                                      |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|Part I. Financial Information
|                              | Item 1. Financial Statements                                                                 
|                              |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS               
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF INCOME         
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                              |                                                                                               | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|                              | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                              | Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|                              | Item 4. Controls and Procedures                                                              
|Part II. Other Information   
|                              | Item 4. Submission of Matters to a Vote of Security Holders                                  
|                              | Item 5. Other Information                                                                    
|                              | Item 6. Exhibits and Reports on Form 8-K.                                                    
|EXHIBIT 10.15                
|EXHIBIT 99.1                 



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CATAPULT COMMUNICATIONS CORPORATION
FORM 10-Q

INDEX

|                                                                                                       |  |     
|------------------------------------------------------------------------------------------------------ |  | ----
|                                                                                                       |  | Page
|                                                                                                       |  |     
|Part IFinancial Information                                                                           |  |     
|Item 1. Financial Statements (unaudited)                                                               |  |     
|Condensed Consolidated Balance Sheets at March 31, 2003 and September 30, 2002                         |  | 3   
|Condensed Consolidated Statements of Income for the three and six months ended
March 31, 2003 and 2002 |  | 4   
|Condensed Consolidated Statements of Cash Flows for the six months ended
March 31, 2003 and 2002       |  | 5   
|Notes to Condensed Consolidated Financial Statements                                                   |  | 6   
|Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations          |  | 13  
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                                     |  | 23  
|Item 4. Controls and Procedures                                                                        |  | 24  
|Part IIOther Information                                                                              |  |     
|Item 4. Submission of Matters to a Vote of Security Holders                                            |  | 25  
|Item 5. Other Information                                                                              |  | 25  
|Item 6. Exhibits and Reports on Form 8-K                                                               |  | 26  
|Signatures                                                                                             |  | 26  

2



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Part I. Financial Information

Item 1. Financial Statements

CATAPULT COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)
(unaudited)


|                                     |                                           |  |                                            |        |           |         |               |        |   |         | 
|------------------------------------ | ----------------------------------------- |  | ------------------------------------------ | ------ | --------- | ------- | ------------- | ------ | - | ------- | 
|                                     |                                           |  |                                            |        | March 31, |         | September 30,
|                                     |                                           |  |                                            |        | 2003      |         | 2002         
|                                     |                                           |  |                                            |        |           |         |              
|ASSETS                               |                                           |  |                                            |        |           |         |               |       
|Current Assets:                      |                                           |  |                                            |        |           |         |               |       
|                                     | Cash and cash equivalents                 |  | $                                          | 14,299 |           |         | $             | 12,575 |  
|                                     | Short-term investments                    |  |                                            | 17,453 |           |         |               | 22,790 |  
|                                     | Accounts receivable, net                  |  |                                            | 10,612 |           |         |               | 11,009 |  
|                                     | Inventories                               |  |                                            | 3,472  |           |         |               | 3,869  |  
|                                     | Deferred income taxes                     |  |                                            | 882    |           |         |               | 1,214  |  
|                                     | Prepaid expenses and other current assets |  |                                            | 1,874  |           |         |               | 1,563  |  
|                                     | Assets of discontinued operations         |  |                                            |       |           |         |               | 2,636  |  
|                                     |                                           |  |                                            |        |           |         |               |        |  
|                                     |                                           |  | Total current assets                       |        |           | 48,592  |               |        |   | 55,656  | 
|Property and equipment, net          |                                           |  | 4,078                                      |        |           |         | 3,874         |       
|Goodwill                             |                                           |  | 49,833                                     |        |           |         | 49,833        |       
|Other intangibles, net               |                                           |  | 6,604                                      |        |           |         | 7,315         |       
|Other assets                         |                                           |  | 1,206                                      |        |           |         | 1,172         |       
|                                     |                                           |  |                                            |        |           |         |               |        |  
|                                     |                                           |  | Total assets                               |        | $         | 110,313 |               |        | $ | 117,850 | 
|                                     |                                           |  |                                            |        |           |         |               |        |  
|LIABILITIES AND STOCKHOLDERS EQUITY |                                           |  |                                            |        |           |         |               |       
|Current Liabilities:                 |                                           |  |                                            |        |           |         |               |       
|                                     | Accounts payable                          |  | $                                          | 1,271  |           |         | $             | 2,594  |  
|                                     | Accrued liabilities                       |  |                                            | 13,051 |           |         |               | 18,829 |  
|                                     | Deferred revenue                          |  |                                            | 4,727  |           |         |               | 4,492  |  
|                                     | Liabilities of discontinued operations    |  |                                            |       |           |         |               | 889    |  
|                                     |                                           |  |                                            |        |           |         |               |        |  
|                                     |                                           |  | Total current liabilities                  |        |           | 19,049  |               |        |   | 26,804  | 
|Convertible notes payable            |                                           |  | 17,877                                     |        |           |         | 18,081        |       
|                                     |                                           |  |                                            |        |           |         |               |        |  
|                                     |                                           |  | Total liabilities                          |        |           | 36,926  |               |        |   | 44,885  | 
|                                     |                                           |  |                                            |        |           |         |               |        |  
|Stockholders Equity:                |                                           |  |                                            |        |           |         |               |       
|                                     | Common stock                              |  |                                            | 13     |           |         |               | 13     |  
|                                     | Additional paid-in capital                |  |                                            | 20,748 |           |         |               | 22,625 |  
|                                     | Deferred stock-based compensation         |  |                                            | (93    | )         |         |               | (111   | )
|                                     | Treasury stock                            |  |                                            |       |           |         |               | (300   | )
|                                     | Accumulated other comprehensive income    |  |                                            | 384    |           |         |               | 182    |  
|                                     | Retained earnings                         |  |                                            | 52,335 |           |         |               | 50,556 |  
|                                     |                                           |  |                                            |        |           |         |               |        |  
|                                     |                                           |  | Total stockholders equity                 |        |           | 73,387  |               |        |   | 72,965  | 
|                                     |                                           |  |                                            |        |           |         |               |        |  
|                                     |                                           |  | Total liabilities and stockholders equity |        | $         | 110,313 |               |        | $ | 117,850 | 
|                                     |                                           |  |                                            |        |           |         |               |        |  

The accompanying notes are an
integral part of these condensed consolidated financial statements.

3



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CATAPULT COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)
(unaudited)


|                                      |  |                            |                          |   |               |        |              |   |        |        |        |   |        |        |        |   |        |        | 
|------------------------------------- |  | -------------------------- | ------------------------ | - | ------------- | ------ | ------------ | - | ------ | ------ | ------ | - | ------ | ------ | ------ | - | ------ | ------ | 
|                                      |  |                            |                          |   | For the three |        | For the six 
|                                      |  |                            |                          |   | months ended  |        | months ended
|                                      |  |                            |                          |   | March 31,     |        | March 31,   
|                                      |  |                            |                          |   | 2003          |        | 2002         |   | 2003   |        | 2002  
|                                      |  |                            |                          |   |               |        |              |   |        |        |       
|Revenues:                             |  |                            |                          |   |               |        |              |   |        |        |        |   |        |        |        |  
|                                      |  | Products                   |                          | $ | 11,513        |        |              | $ | 10,573 |        |        | $ | 19,498 |        |        | $ | 20,099 |       
|                                      |  | Services                   |                          |   | 2,523         |        |              |   | 1,554  |        |        |   | 4,923  |        |        |   | 2,911  |       
|                                      |  |                            |                          |   |               |        |              |   |        |        |        |   |        |        |        |   |        |       
|                                      |  |                            | Total revenues           |   |               | 14,036 |              |   |        | 12,127 |        |   |        | 24,421 |        |   |        | 23,010 | 
|                                      |  |                            |                          |   |               |        |              |   |        |        |        |   |        |        |        |   |        |       
|Cost of revenues:                     |  |                            |                          |   |               |        |              |   |        |        |        |   |        |        |        |  
|                                      |  | Products                   |                          |   | 1,792         |        |              |   | 803    |        |        |   | 3,169  |        |        |   | 1,417  |       
|                                      |  | Services                   |                          |   | 761           |        |              |   | 275    |        |        |   | 1,458  |        |        |   | 538    |       
|                                      |  |                            |                          |   |               |        |              |   |        |        |        |   |        |        |        |   |        |       
|                                      |  |                            | Total cost of revenues   |   |               | 2,553  |              |   |        | 1,078  |        |   |        | 4,627  |        |   |        | 1,955  | 
|                                      |  |                            |                          |   |               |        |              |   |        |        |        |   |        |        |        |   |        |       
|Gross profit                          |  |                            | 11,483                   |   |               |        | 11,049       |   |        |        | 19,794 |   |        |        | 21,055 |  
|                                      |  |                            |                          |   |               |        |              |   |        |        |        |   |        |        |        |   |        |       
|Operating expenses:                   |  |                            |                          |   |               |        |              |   |        |        |        |   |        |        |        |  
|                                      |  | Research and development   |                          |   | 3,695         |        |              |   | 1,807  |        |        |   | 7,063  |        |        |   | 3,445  |       
|                                      |  | Sales and marketing        |                          |   | 3,808         |        |              |   | 2,696  |        |        |   | 7,330  |        |        |   | 5,470  |       
|                                      |  | General and administrative |                          |   | 1,722         |        |              |   | 1,636  |        |        |   | 3,906  |        |        |   | 2,815  |       
|                                      |  |                            |                          |   |               |        |              |   |        |        |        |   |        |        |        |   |        |       
|                                      |  |                            | Total operating expenses |   |               | 9,225  |              |   |        | 6,139  |        |   |        | 18,299 |        |   |        | 11,730 | 
|                                      |  |                            |                          |   |               |        |              |   |        |        |        |   |        |        |        |   |        |       
|Operating income                      |  |                            | 2,258                    |   |               |        | 4,910        |   |        |        | 1,495  |   |        |        | 9,325  |  
|Interest income, net                  |  |                            | 212                      |   |               |        | 323          |   |        |        | 411    |   |        |        | 756    |  
|Other income (expense), net           |  |                            | (153                     | ) |               |        | (56          | ) |        |        | 565    |   |        |        | (234   | )
|                                      |  |                            |                          |   |               |        |              |   |        |        |        |   |        |        |        |   |        |       
|Income before income taxes            |  |                            | 2,317                    |   |               |        | 5,177        |   |        |        | 2,471  |   |        |        | 9,847  |  
|Provision for income taxes            |  |                            | 649                      |   |               |        | 1,450        |   |        |        | 692    |   |        |        | 2,758  |  
|                                      |  |                            |                          |   |               |        |              |   |        |        |        |   |        |        |        |   |        |       
|Net income                            |  | $                          | 1,668                    |   |               | $      | 3,727        |   |        | $      | 1,779  |   |        | $      | 7,089  |  
|                                      |  |                            |                          |   |               |        |              |   |        |        |        |   |        |        |        |   |        |       
|Net income per share:                 |  |                            |                          |   |               |        |              |   |        |        |        |   |        |        |        |  
|                                      |  | Basic                      |                          | $ | 0.13          |        |              | $ | 0.29   |        |        | $ | 0.14   |        |        | $ | 0.54   |       
|                                      |  |                            |                          |   |               |        |              |   |        |        |        |   |        |        |        |   |        |       
|                                      |  | Diluted                    |                          | $ | 0.13          |        |              | $ | 0.28   |        |        | $ | 0.13   |        |        | $ | 0.53   |       
|                                      |  |                            |                          |   |               |        |              |   |        |        |        |   |        |        |        |   |        |       
|Shares used in per share calculation: |  |                            |                          |   |               |        |              |   |        |        |        |   |        |        |        |  
|                                      |  | Basic                      |                          |   | 12,984        |        |              |   | 13,044 |        |        |   | 13,068 |        |        |   | 13,026 |       
|                                      |  | Diluted                    |                          |   | 13,112        |        |              |   | 13,393 |        |        |   | 13,203 |        |        |   | 13,373 |       

The accompanying notes are an
integral part of these condensed consolidated financial statements.

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CATAPULT COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

|                                                              |                                                                                             |                                        |        |                                                     |        |                  |         |       |         |   |         |  
|------------------------------------------------------------- | ------------------------------------------------------------------------------------------- | -------------------------------------- | ------ | --------------------------------------------------- | ------ | ---------------- | ------- | ----- | ------- | - | ------- | -
|                                                              |                                                                                             |                                        |        |                                                     |        | Six months ended
|                                                              |                                                                                             |                                        |        |                                                     |        | March 31,       
|                                                              |                                                                                             |                                        |        |                                                     |        | 2003             |         | 2002 
|                                                              |                                                                                             |                                        |        |                                                     |        |                  |         |      
|Cash flows from operating activities:                         |                                                                                             |                                        |        |                                                     |        |                  |         |      
|                                                              | Net income                                                                                  |                                        | $      | 1,779                                               |        |                  | $       | 7,089 |        
|                                                              | Adjustments to reconcile net income to net cash provided by (used
in) operating activities: |                                        |        |                                                     |        |                  |         |       |        
|                                                              |                                                                                             |                                        |        | Depreciation and amortization                       |        |                  | 817     |       |         |   | 380     |  
|                                                              |                                                                                             |                                        |        | Amortization of deferred stock-based compensation   |        |                  | 18      |       |         |   | 15      |  
|                                                              |                                                                                             |                                        |        | Loss on sale of short-term investments              |        |                  |        |       |         |   | 4       |  
|                                                              |                                                                                             |                                        |        | Amortization of acquisition related intangibles     |        |                  | 711     |       |         |   |        |  
|                                                              |                                                                                             |                                        |        | Deferred income taxes                               |        |                  | 332     |       |         |   |        |  
|                                                              |                                                                                             |                                        |        | Amortization of premium on note payable             |        |                  | (204    | )     |         |   |        |  
|                                                              |                                                                                             |                                        |        | Change in current assets and liabilities:           |        |                  |         |       |         |   |         |  
|                                                              |                                                                                             |                                        |        | Accounts receivable                                 |        |                  | 397     |       |         |   | (3,041  | )
|                                                              |                                                                                             |                                        |        | Inventories                                         |        |                  | 397     |       |         |   | 92      |  
|                                                              |                                                                                             |                                        |        | Prepaid expenses and other current assets           |        |                  | (311    | )     |         |   | (536    | )
|                                                              |                                                                                             |                                        |        | Assets of discontinued operations                   |        |                  | 2,636   |       |         |   |        |  
|                                                              |                                                                                             |                                        |        | Other assets                                        |        |                  | (34     | )     |         |   | 39      |  
|                                                              |                                                                                             |                                        |        | Accounts payable                                    |        |                  | (1,323  | )     |         |   | (212    | )
|                                                              |                                                                                             |                                        |        | Accrued liabilities                                 |        |                  | (5,778  | )     |         |   | 2,598   |  
|                                                              |                                                                                             |                                        |        | Deferred revenue                                    |        |                  | 235     |       |         |   | 400     |  
|                                                              |                                                                                             |                                        |        | Liabilities of discontinued operations              |        |                  | (889    | )     |         |   |        |  
|                                                              |                                                                                             |                                        |        |                                                     |        |                  |         |      
|                                                              |                                                                                             |                                        |        | Net cash provided by (used in) operating activities |        |                  | (1,217  | )     |         |   | 6,828   |  
|                                                              |                                                                                             |                                        |        |                                                     |        |                  |         |      
|Cash flows from investing activities:                         |                                                                                             |                                        |        |                                                     |        |                  |         |      
|                                                              |                                                                                             | Sales (purchases) of investments, net  |        |                                                     | 5,335  |                  |         |       | (26,664 | )
|                                                              |                                                                                             | Purchases of property and equipment    |        |                                                     | (1,021 | )                |         |       | (226    | )
|                                                              |                                                                                             |                                        |        |                                                     |        |                  |         |      
|                                                              |                                                                                             |                                        |        | Net cash provided by (used in) investing activities |        |                  | 4,314   |       |         |   | (26,890 | )
|                                                              |                                                                                             |                                        |        |                                                     |        |                  |         |      
|Cash flows from financing activities:                         |                                                                                             |                                        |        |                                                     |        |                  |         |      
|                                                              |                                                                                             | Repurchase of common stock             |        |                                                     | (1,761 | )                |         |       |        |  
|                                                              |                                                                                             | Proceeds from issuance of common stock |        |                                                     | 184    |                  |         |       | 531     |  
|                                                              |                                                                                             |                                        |        |                                                     |        |                  |         |      
|                                                              |                                                                                             |                                        |        | Net cash provided by (used in) financing activities |        |                  | (1,577  | )     |         |   | 531     |  
|                                                              |                                                                                             |                                        |        |                                                     |        |                  |         |      
|Effect of exchange rate changes on cash and cash equivalents. |                                                                                             |                                        | 204    |                                                     |        |                  | (91     | )    
|                                                              |                                                                                             |                                        |        |                                                     |        |                  |         |       |        
|Increase (decrease) in cash and cash equivalents              |                                                                                             |                                        | 1,724  |                                                     |        |                  | (19,622 | )    
|Cash and cash equivalents, beginning of period                |                                                                                             |                                        | 12,575 |                                                     |        |                  | 44,202  |      
|                                                              |                                                                                             |                                        |        |                                                     |        |                  |         |       |        
|Cash and cash equivalents, end of period                      |                                                                                             | $                                      | 14,299 |                                                     |        | $                | 24,580  |      
|                                                              |                                                                                             |                                        |        |                                                     |        |                  |         |      

The accompanying notes are an integral part of these condensed consolidated
financial statements.

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CATAPULT COMMUNICATIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1THE COMPANY AND BASIS OF PRESENTATION

Catapult Communications Corporation (the Company) designs, develops,
manufactures, markets and supports an advanced software-based test system
offering an integrated suite of testing applications for the global
telecommunications industry. The Companys advanced test systems assist its
customers in the design, integration, installation and acceptance testing of a
broad range of digital telecommunications equipment and services. The Company
was founded in 1986 and has been incorporated in Nevada since June 19, 1998.
The Company has operations in the United States, Canada, the United Kingdom and
Europe, Australia and Japan. The Company conducts its business within one
industry segment.

On August 30, 2002, the Company purchased certain assets and assumed
certain liabilities of the Network Diagnostics Business (NDB) of Tekelec. The
assets acquired included the shares of Tekelecs Japanese subsidiary, Tekelec
Limited. The total purchase price of $69.4 million consisted of a cash payment
of $42.5 million, two 2% convertible subordinated notes in the aggregate
principal amount of $17.3 million maturing on August 30, 2004, an independent
valuation premium of $0.8 million ascribed to the convertible notes payable,
transaction costs of $4.3 million and a net working capital adjustment in the
estimated amount of $4.5 million pursuant to the terms of the Asset Purchase
Agreement payable following the completion of a closing date balance sheet
audit. The amount of this adjustment has not yet been agreed to or paid and the
amounts included in these condensed consolidated financial statements relating
to the purchase price and the assets and liabilities acquired are preliminary
estimates subject to the net working capital adjustment.

The accompanying unaudited interim financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
the financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been condensed or
omitted pursuant to such rules and regulations. These condensed financial
statements should be read in conjunction with the audited financial statements
and notes thereto included in the Companys Annual Report on Form 10-K for the
year ended September 30, 2002, and filed with the Securities and Exchange
Commission. The unaudited financial statements as of March 31, 2003, and for
the three and six months ended March 31, 2003 and 2002, reflect, in the opinion
of management, all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the financial information set forth
herein. The results of operations for the interim periods are not necessarily
indicative of the results to be expected for any subsequent interim period or
for an entire year. The September 30, 2002 balance sheet was derived from
audited financial statements, but does not include all disclosures required by
accounting principles generally accepted in the United States of America.

NOTE 2  SIGNIFICANT ACCOUNTING POLICIES

The Company has identified the 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 are
discussed throughout Managements Discussion and Analysis of Financial
Condition and Results of Operations where such policies affect the Companys
reported and expected financial results. For a detailed discussion on the
application of these and other accounting policies, see Note 1 in the Notes to
the Consolidated Financial Statements in the Companys Annual Report on Form
10-K.

6



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##### Table of Contents



Revenue Recognition

Sales of the Companys product arrangements normally include hardware and
software. Certain of the Companys sales may also include installation
services. The Company also offers training and maintenance services. The
Company recognizes revenue on system sales upon shipment or when installed, if
installation services are purchased, provided collection is reasonably assured.
Training and maintenance revenues are based on the Companys established
history of separate sales of 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 Currency Translations

Certain of the Companys foreign subsidiaries use their respective local
currencies as their functional currencies because the majority of their
revenues, expenses, assets and liabilities are denominated in those local
currencies. In consolidation, assets and liabilities are translated at
period-end currency exchange rates and revenue and expense items are translated
at average currency exchange rates prevailing during the period. Gains and
losses from foreign currency translation are recorded in accumulated other
comprehensive income, which is a component of stockholders equity. Only gains
and losses resulting from foreign currency transactions are included in the
consolidated statement of income.

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 mitigate the risk of future movements in foreign exchange rates
that affect certain foreign currency denominated inter-company receivables. The
Company attempts to match the forward contracts with specific underlying
receivables in terms of currency, amount and maturity. The Company does not use
derivative financial instruments for speculative or trading purposes.

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.

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 must then assess 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, it must establish a valuation allowance. To the extent
it establishes a valuation allowance or increases this allowance in a period,
it must include an expense within the tax provision in the statement of
operations.

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Recent Accounting Pronouncements

In July 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 146, Accounting for
Costs Associated with Exit or Disposal Activities. This Statement addresses
financial accounting and reporting for costs associated with exit or disposal
activities and nullifies EITF Issue No. 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring). This Statement requires that a
liability for costs associated with an exit or disposal activity be recognized
and measured initially at fair value only when the liability is incurred. The
provisions of this Statement are effective for exit or disposal activities that
are initiated after December 31, 2002. The Company adopted SFAS No. 146 in the
first quarter of 2003 and its adoption did not have a material effect on the
Companys financial position or results of operations.

In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45),
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. FIN 45 requires that a
liability be recorded in the guarantors balance sheet upon issuance of a
guarantee. In addition, FIN 45 requires disclosures about the guarantees that
an entity has issued, including a reconciliation of changes in the entitys
product warranty liabilities. The initial recognition and initial measurement
provisions of FIN 45 are applicable on a prospective basis to guarantees issued
or modified after December 31, 2002, irrespective of the guarantors fiscal
year-end. The disclosure requirements of FIN 45 are effective for financial
statements of interim or annual periods ending after December 15, 2002. The
adoption of this standard did not have a material effect on the Companys
financial position or results of operations.

The following table represents the activity in Warranty Accrual for the
six months ended March 31, 2003 (in thousands):

|                              |                                                  |   |     |     |  
|----------------------------- | ------------------------------------------------ | - | --- | --- | -
|Balance at September 30, 2002 |                                                  | $ | 600 |    
|                              | Settlements made during the period               |   |     | (88 | )
|                              | Accruals for warranties issued during the period |   |     | 88  |  
|                              |                                                  |   |     |    
|Balance at March 31, 2003     |                                                  | $ | 600 |    
|                              |                                                  |   |     |    

In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation, Transition and Disclosure. SFAS No. 148 provides
alternative methods of transition for a voluntary change to the fair value
based method of accounting for stock-based employee compensation. SFAS No. 148
also requires that disclosures of the pro forma effect of using the fair value
method of accounting for stock-based employee compensation be displayed more
prominently and in a tabular format. Additionally, SFAS No. 148 requires
disclosure of the pro forma effect in interim financial statements. The
transition and annual disclosure requirements of SFAS No. 148 are effective for
fiscal years ending after December 15, 2002. The interim disclosure
requirements are effective for interim periods commencing after December 15,
2002.

The following table illustrates the effect on net income and net income
per share if the Company applied the fair value recognition provisions of SFAS
No. 148 to stock-based employee compensation:

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|                                                                                                                                            |                      |   |                    |      |                  |   |       |      |      |   |       |      |  |   |       |      | 
|------------------------------------------------------------------------------------------------------------------------------------------- | -------------------- | - | ------------------ | ---- | ---------------- | - | ----- | ---- | ---- | - | ----- | ---- |  | - | ----- | ---- | 
|                                                                                                                                            |                      |   | Three months ended |      | Six months ended
|                                                                                                                                            |                      |   | March 31,          |      | March 31,       
|                                                                                                                                            |                      |   | 2003               |      | 2002             |   | 2003  |      | 2002
|                                                                                                                                            |                      |   |                    |      |                  |   |       |      |     
|Net income, as reported                                                                                                                     |                      | $ | 1,668              |      |                  | $ | 3,727 |      |      | $ | 1,779 |      |  | $ | 7,089 |     
|Add: Stock-based
employee compensation
expense included in
reported net income,
net of related tax
effects                                  |                      |   | 5                  |      |                  |   | 6     |      |      |   | 10    |      |  |   | 10    |     
|Deduct: Total
stock-based employee
compensation expense
determined under
fair-value-based
method for all awards,
net of related tax
effects |                      |   | (452               | )    |                  |   | (407  | )    |      |   | (934  | )    |  |   | (790  | )   
|                                                                                                                                            |                      |   |                    |      |                  |   |       |      |      |   |       |      |  |   |       |     
|Pro forma net income                                                                                                                        |                      | $ | 1,221              |      |                  | $ | 3,326 |      |      | $ | 855   |      |  | $ | 6,309 |     
|                                                                                                                                            |                      |   |                    |      |                  |   |       |      |      |   |       |      |  |   |       |     
|Earnings per share:                                                                                                                         |                      |   |                    |      |                  |   |       |      |      |   |       |      |  |   |       |     
|                                                                                                                                            | Basic, as reported   |   | $                  | 0.13 |                  |   | $     | 0.29 |      |   | $     | 0.14 |  |   | $     | 0.54 | 
|                                                                                                                                            |                      |   |                    |      |                  |   |       |      |      |   |       |      |  |   |       |     
|                                                                                                                                            | Basic, pro forma     |   | $                  | 0.09 |                  |   | $     | 0.25 |      |   | $     | 0.07 |  |   | $     | 0.48 | 
|                                                                                                                                            |                      |   |                    |      |                  |   |       |      |      |   |       |      |  |   |       |     
|                                                                                                                                            | Diluted, as reported |   | $                  | 0.13 |                  |   | $     | 0.28 |      |   | $     | 0.13 |  |   | $     | 0.53 | 
|                                                                                                                                            |                      |   |                    |      |                  |   |       |      |      |   |       |      |  |   |       |     
|                                                                                                                                            | Diluted, pro forma   |   | $                  | 0.09 |                  |   | $     | 0.25 |      |   | $     | 0.06 |  |   | $     | 0.47 | 
|                                                                                                                                            |                      |   |                    |      |                  |   |       |      |      |   |       |      |  |   |       |     

NOTE 3BASIC AND DILUTED EARNINGS PER SHARE

Basic earnings per share are computed using the weighted average number of
common shares outstanding during the period. Diluted earnings per share include
the effect of dilutive potential common shares (options) issued during the
period using the treasury stock method.

|                                                                                          |  |                                       |        |                  |  |      |        |      |  |   |        |  |  |   |        | 
|----------------------------------------------------------------------------------------- |  | ------------------------------------- | ------ | ---------------- |  | ---- | ------ | ---- |  | - | ------ |  |  | - | ------ | 
|                                                                                          |  | Three months ended                    |        | Six
months ended
|                                                                                          |  | March 31,                             |        | March 31,       
|                                                                                          |  | 2003                                  |        | 2002             |  | 2003 |        | 2002
|                                                                                          |  |                                       |        |                  |  |      |        |     
|                                                                                          |  | (in thousands, except per share data)
|Net income                                                                                |  | $                                     | 1,668  |                  |  | $    | 3,727  |      |  | $ | 1,779  |  |  | $ | 7,089  | 
|                                                                                          |  |                                       |        |                  |  |      |        |      |  |   |        |  |  |   |        | 
|Weighted average shares outstanding                                                       |  |                                       | 12,984 |                  |  |      | 13,044 |      |  |   | 13,068 |  |  |   | 13,026 | 
|Dilutive options                                                                          |  |                                       | 128    |                  |  |      | 349    |      |  |   | 135    |  |  |   | 347    | 
|                                                                                          |  |                                       |        |                  |  |      |        |      |  |   |        |  |  |   |        | 
|Weighted average shares assuming dilution                                                 |  |                                       | 13,112 |                  |  |      | 13,393 |      |  |   | 13,203 |  |  |   | 13,373 | 
|                                                                                          |  |                                       |        |                  |  |      |        |      |  |   |        |  |  |   |        | 
|Earnings per share:                                                                       |  |                                       |        |                  |  |      |        |      |  |   |        |  |  |   |        | 
|Basic                                                                                     |  | $                                     | 0.13   |                  |  | $    | 0.29   |      |  | $ | 0.14   |  |  | $ | 0.54   | 
|                                                                                          |  |                                       |        |                  |  |      |        |      |  |   |        |  |  |   |        | 
|Diluted                                                                                   |  | $                                     | 0.13   |                  |  | $    | 0.28   |      |  | $ | 0.13   |  |  | $ | 0.53   | 
|                                                                                          |  |                                       |        |                  |  |      |        |      |  |   |        |  |  |   |        | 
|Anti-dilutive common equivalent shares
excluded in calculating diluted earnings
per share |  |                                       | 1,332  |                  |  |      | 32     |      |  |   | 1,253  |  |  |   | 38     | 
|                                                                                          |  |                                       |        |                  |  |      |        |      |  |   |        |  |  |   |        | 

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NOTE 4  GOODWILL AND OTHER INTANGIBLE ASSETS

In July 2001, the FASB issued SFAS No. 141, Business Combinations, and
SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 provides
specific criteria for determining which intangible assets acquired in a
business combination should be reported separately from goodwill. SFAS No. 142
addresses financial accounting and reporting for acquired goodwill and other
intangible assets and supersedes APB No. 17, Intangible Assets. SFAS No. 142
changes the accounting for goodwill from an amortization method to an
impairment-only approach. This pronouncement 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.

The Company adopted the provisions of SFAS No.142 effective October 1,
2002. As of October 1, 2002, approximately $49.8 million of goodwill will no
longer be amortized but will be tested annually for impairment in accordance
with the requirements of SFAS No. 142. The Company performed its annual
impairment test on October 1, 2002, showing no impairment of goodwill. As such,
there was no write-down of the goodwill balance. Between October 1, 2002 and
March 31, 2003, there were no changes to the Company s goodwill balance of
$49.8 million.

As required by SFAS No. 142, the results for the prior years quarter have
not been restated. Had SFAS No. 142 been adopted on October 1, 2001, the
Company would have reported no difference in its reported net income and net
income per share for the six months ended March 31, 2002.

Intangible assets subject to amortization consist of technology and
non-compete agreements that are being amortized over a period of seven to eight
years. The components of intangible assets, excluding goodwill, are as follows
(in thousands):

|                     |  |                      |       |                          |  |              |     |          |  |              |       |              |  |   |       |  |  |   |     |  |  |   |       | 
|-------------------- |  | -------------------- | ----- | ------------------------ |  | ------------ | --- | -------- |  | ------------ | ----- | ------------ |  | - | ----- |  |  | - | --- |  |  | - | ----- | 
|                     |  | As of March 31, 2003 |       | As of September 30, 2002
|                     |  | Gross                |       |                          |  |              |     | Gross    |  |              |       |             
|                     |  | Carrying             |       | Accumulated              |  | Net Carrying |     | Carrying |  | Accumulated  |       | Net Carrying
|                     |  | Amount               |       | Amortization             |  | Amount       |     | Amount   |  | Amortization |       | Amount      
|                     |  |                      |       |                          |  |              |     |          |  |              |       |             
|Purchased Technology |  | $                    | 4,800 |                          |  | $            | 400 |          |  | $            | 4,400 |              |  | $ | 4,800 |  |  | $ | 57  |  |  | $ | 4,743 | 
|Other Intangibles    |  |                      | 2,800 |                          |  |              | 596 |          |  |              | 2,204 |              |  |   | 2,800 |  |  |   | 228 |  |  |   | 2,572 | 
|                     |  |                      |       |                          |  |              |     |          |  |              |       |              |  |   |       |  |  |   |     |  |  |   |       | 
|Total                |  | $                    | 7,600 |                          |  | $            | 996 |          |  | $            | 6,604 |              |  | $ | 7,600 |  |  | $ | 285 |  |  | $ | 7,315 | 
|                     |  |                      |       |                          |  |              |     |          |  |              |       |              |  |   |       |  |  |   |     |  |  |   |       | 

The estimated future amortization expense of purchased intangible assets
as of March 31, 2003 was as follows:

|            |  |               |     | 
|----------- |  | ------------- | --- | 
|            |  | Amount       
|Fiscal Year |  | (in millions)
|            |  |              
|2003        |  | $             | 0.5 | 
|2004        |  |               | 1.0 | 
|2005        |  |               | 1.0 | 
|2006        |  |               | 1.0 | 
|2007        |  |               | 1.0 | 
|Thereafter  |  |               | 2.1 | 
|            |  |               |     | 
|Total       |  | $             | 6.6 | 
|            |  |               |     | 

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NOTE 5 - DISCONTINUED OPERATIONS

Effective September 30, 2002, the Company discontinued the distribution
and consulting businesses engaged in by Tekelec Limited in Japan. As at March
31, 2003, the assets of the discontinued operations have been realized and the
liabilities paid. The pre-tax loss attributable to
discontinued operations was incurred and recognized in September 2002.

NOTE 6 - RESTRUCTURING OF ACQUIRED BUSINESS

Prior to the effective date of the acquisition, the Company developed a
formal plan to restructure NDB by reducing the staff complement of the acquired
business by 66 employees, or approximately 39%, and by closing the Tokyo office
of Tekelec Limited due to redundancy with the Companys previously established
Tokyo office. A summary of the movements in the restructuring accrual is as
follows (in millions):

|                              |  |                    |     |                |  |                |     |  |  |   |     | 
|----------------------------- |  | ------------------ | --- | -------------- |  | -------------- | --- |  |  | - | --- | 
|                              |  | Accrual as at      |     | Paid through   |  | Balance at    
|Restructuring costs           |  | September 30, 2002 |     | March 31, 2003 |  | March 31, 2003
|                              |  |                    |     |                |  |               
|Redundancy compensation costs |  | $                  | 1.2 |                |  | $              | 1.1 |  |  | $ | 0.1 | 
|Occupancy costs               |  |                    | 0.3 |                |  |                | 0.3 |  |  |   | 0.0 | 
|Professional costs            |  |                    | 0.2 |                |  |                | 0.1 |  |  |   | 0.1 | 
|                              |  |                    |     |                |  |                |     |  |  |   |     | 
|Totals                        |  | $                  | 1.7 |                |  | $              | 1.5 |  |  | $ | 0.2 | 
|                              |  |                    |     |                |  |                |     |  |  |   |     | 

Payment of the balance as of March 31, 2003 is expected to be completed by June
30, 2003.

NOTE 7 COMPREHENSIVE INCOME

The components of comprehensive income, net of tax, are as follows:

|                                |  |                    |       |                  |  |      |       |      |  |   |       |   |  |   |       |  
|------------------------------- |  | ------------------ | ----- | ---------------- |  | ---- | ----- | ---- |  | - | ----- | - |  | - | ----- | -
|                                |  | Three months ended |       | Six months ended
|                                |  | March 31,          |       | March 31,       
|                                |  | 2003               |       | 2002             |  | 2003 |       | 2002
|                                |  |                    |       |                  |  |      |       |     
|Net income                      |  | $                  | 1,668 |                  |  | $    | 3,727 |      |  | $ | 1,779 |   |  | $ | 7,089 |  
|Currency translation adjustment |  |                    | (54   | )                |  |      | 2     |      |  |   | 204   |   |  |   | (91   | )
|Unrealized loss on investment   |  |                    | (21   | )                |  |      | (129  | )    |  |   | (2    | ) |  |   | (167  | )
|                                |  |                    |       |                  |  |      |       |      |  |   |       |   |  |   |       |  
|Comprehensive income            |  | $                  | 1,593 |                  |  | $    | 3,600 |      |  | $ | 1,981 |   |  | $ | 6,831 |  
|                                |  |                    |       |                  |  |      |       |      |  |   |       |   |  |   |       |  

NOTE 8INVENTORIES

|                |  |                |       |               |  |   |       | 
|--------------- |  | -------------- | ----- | ------------- |  | - | ----- | 
|                |  | March 31,      |       | September 30,
|                |  | 2003           |       | 2002         
|                |  |                |       |              
|                |  | (In thousands)
|Raw materials   |  | $              | 2,449 |               |  | $ | 3,371 | 
|Work-in-process |  |                | 238   |               |  |   | 21    | 
|Finished goods  |  |                | 785   |               |  |   | 477   | 
|                |  |                |       |               |  |   |       | 
|                |  | $              | 3,472 |               |  | $ | 3,869 | 
|                |  |                |       |               |  |   |       | 

NOTE 9  CONVERTIBLE NOTES PAYABLE

In connection with the acquisition of NDB described in Note 1, the
Companys Irish subsidiary issued two convertible notes to Tekelec in the
principal amounts of $10.0 million and $7.3 million, respectively. These notes
have been guaranteed by the Company, bear interest at 2% and are due and
payable on or before

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August 30, 2004. The notes are convertible at the option
of the holder into 1,081,250 shares of the Companys common stock (subject to
adjustment for certain events) between August 30, 2003 and the maturity date.
The Company also granted Tekelec certain rights to require the Company to
register with the Securities and Exchange Commission for resale by Tekelec any common stock acquired by Tekelec
upon conversion of the notes.

The fair value of the notes, as determined by an independent valuation,
was $18.1 million, which has been recorded in the balance sheet. The premium of
$0.8 million is being amortized to interest income over the term of the notes
using the effective interest method and a credit to interest income of $102,000
was recorded in the three months ended March 31, 2003.

On the maturity date of the $10.0 million note, the Company is entitled to
pay the principal balance in any combination of cash and/or common stock,
provided that the common stock shall be at a value of 82.5% of the fair market
value of the stock, determined pursuant to a formula set forth in the note.

NOTE 10  REPURCHASE OF COMMON STOCK

In December 1999, the Companys Board of Directors authorized a stock
repurchase program of up to 2,000,000 shares of its common stock. Depending on
market conditions and other factors, repurchases can be made from time to time
in the open market and in negotiated transactions, including block
transactions, and this program may be discontinued at any time. In the
three-month period ending March 31, 2003, the Company repurchased 257,400
shares at a cost of approximately $1.8 million. In the three-month period ended
March 31, 2002, the Company repurchased no shares.

NOTE 11 - SEGMENT REPORTING

The Company is organized to operate and service a single industry segment:
the design, development, manufacture, marketing and support of advanced
software-based test systems globally.

The Companys principal geographical areas of operations, revenues and net
income for the six month periods ended March 31, 2003 and 2002 and long-lived
assets by region at March 31, 2003 and September 30, 2002 were as follows (in
thousands):

|                                        |  |         |        |         |  |       |        |       |  |              |        |  |  |   |        | 
|--------------------------------------- |  | ------- | ------ | ------- |  | ----- | ------ | ----- |  | ------------ | ------ |  |  | - | ------ | 
|                                        |  |         |        |         |  |       |        |       |  |              |        |  |  |  
|                                        |  |         |        |         |  | UK,   |        |       |  |              |        |  |  |  
|                                        |  | North   |        | Europe  |  |       |        |       |  | Consolidated
|                                        |  | America |        | & Other |  | Japan |        | Total
|                                        |  |         |        |         |  |       |        |      
|Six months Ended March 31, 2003         |  |         |        |         |  |       |        |       |  |              |        |  |  |   |        | 
|Revenues from unaffiliated customers    |  | $       | 8,421  |         |  | $     | 5,647  |       |  | $            | 10,353 |  |  | $ | 24,421 | 
|Net income (loss)                       |  |         | (1,078 | )       |  |       | 2,485  |       |  |              | 372    |  |  |   | 1,779  | 
|Long-Lived Assets at March 31, 2003     |  | $       | 38,604 |         |  | $     | 22,023 |       |  | $            | 331    |  |  | $ | 60,958 | 
|Six months Ended March 31, 2002         |  |         |        |         |  |       |        |       |  |              |        |  |  |   |        | 
|Revenues from unaffiliated customers    |  | $       | 3,054  |         |  | $     | 8,898  |       |  | $            | 11,058 |  |  | $ | 23,010 | 
|Net income (loss)                       |  |         | (965   | )       |  |       | 7,812  |       |  |              | 242    |  |  |   | 7,089  | 
|Long-Lived Assets at September 30, 2002 |  | $       | 39,765 |         |  | $     | 21,335 |       |  | $            | 331    |  |  | $ | 61,431 | 

The results of operations by geographic region include significant sales
principally from the United States to the Companys foreign locations at agreed
upon transfer prices.

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NOTE 12  CONTINGENCIES

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 has been a distributor of
products for Tekelec, the company from which the Network Diagnostics Business
was acquired in August 2002. The writ alleges that the defendants improperly
terminated an exclusive distribution agreement with Tucana following the
acquisition of the Network Diagnostics Business and seeks damages of 12,461,000
euros plus costs. A trial date has not yet been established. The Company
believes the allegations to be without merit and would defend itself vigorously
in the event that Tucana proceeds with the lawsuit during this period. The
Company anticipates that it would seek indemnification from Tekelec for any
damages assessed against it in this matter under the terms of the Asset
Purchase Agreement it entered into with Tekelec and hence has not recorded a
liability.




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 Consolidated Financial Data and the Companys Consolidated Financial
Statements and Notes thereto included in the Companys Annual Report on Form
10-K for 2002.

Forward-looking Statements

The following discussion contains statements that are not historical facts
but are forward-looking statements. 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 the Companys
stockholders should carefully review the cautionary statements set forth in
this report on Form 10-Q, 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 in this Form 10-Q and from time to time or on
behalf of the Company.

Overview

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 DCT, MGTS and Lance products
perform a variety of test functions, including simulation, load and stress
testing, feature verification, conformance testing and monitoring. The Company
maintains an extensive library of software modules that support a large number
of industry standard protocols and variants thereon. In addition, the Company
offers customer support under software support contracts, as well as
installation and training services.

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Critical Accounting Policies

There have been no material changes to the Companys critical accounting
policies and estimates as disclosed in its Annual Report on Form 10-K for the
year ended September 30, 2002.

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.

|                              |                            |                          |      |                            |       |                          |      |      |       |      |      |      |       |  |      |      |       | 
|----------------------------- | -------------------------- | ------------------------ | ---- | -------------------------- | ----- | ------------------------ | ---- | ---- | ----- | ---- | ---- | ---- | ----- |  | ---- | ---- | ----- | 
|                              |                            |                          |      | For the
three months ended |       | For the six months ended
|                              |                            |                          |      | March 31,                  |       | March 31,               
|                              |                            |                          |      |                            |       |                         
|                              |                            |                          |      | 2003                       |       | 2002                     |      | 2003 |       | 2002
|                              |                            |                          |      |                            |       |                          |      |      |       |     
|Revenues:                     |                            |                          |      |                            |       |                          |      |      |       |      |      |      |       |  |      |     
|                              | Products                   |                          |      | 82.2                       | %     |                          |      | 87.2 | %     |      |      | 79.8 | %     |  |      | 87.3 | %    
|                              | Services                   |                          |      | 18.0                       |       |                          |      | 12.8 |       |      |      | 20.2 |       |  |      | 12.7 |      
|                              |                            |                          |      |                            |       |                          |      |      |       |      |      |      |       |  |      |     
|                              |                            | Total revenues           |      |                            | 100.0 |                          |      |      | 100.0 |      |      |      | 100.0 |  |      |      | 100.0 | 
|Cost of revenues:             |                            |                          |      |                            |       |                          |      |      |       |      |      |      |       |  |      |     
|                              | Products                   |                          |      | 12.8                       |       |                          |      | 6.6  |       |      |      | 12.9 |       |  |      | 6.2  |      
|                              | Services                   |                          |      | 5.4                        |       |                          |      | 2.3  |       |      |      | 6.0  |       |  |      | 2.3  |      
|                              |                            |                          |      |                            |       |                          |      |      |       |      |      |      |       |  |      |     
|                              |                            | Total cost of revenues   |      |                            | 18.2  |                          |      |      | 8.9   |      |      |      | 18.9  |  |      |      | 8.5   | 
|                              |                            |                          |      |                            |       |                          |      |      |       |      |      |      |       |  |      |     
|Gross profit                  |                            |                          | 81.8 |                            |       |                          | 91.1 |      |       |      | 81.1 |      |       |  | 91.5 |     
|Operating expenses:           |                            |                          |      |                            |       |                          |      |      |       |      |      |      |       |  |      |     
|                              | Research and development   |                          |      | 26.3                       |       |                          |      | 14.9 |       |      |      | 29.0 |       |  |      | 15.0 |      
|                              | Sales and marketing        |                          |      | 27.1                       |       |                          |      | 22.2 |       |      |      | 30.0 |       |  |      | 23.8 |      
|                              | General and administrative |                          |      | 12.3                       |       |                          |      | 13.5 |       |      |      | 16.0 |       |  |      | 12.2 |      
|                              |                            |                          |      |                            |       |                          |      |      |       |      |      |      |       |  |      |     
|                              |                            | Total operating expenses |      |                            | 65.7  |                          |      |      | 50.6  |      |      |      | 75.0  |  |      |      | 51.0  | 
|                              |                            |                          |      |                            |       |                          |      |      |       |      |      |      |       |  |      |     
|Operating income              |                            |                          | 16.1 |                            |       |                          | 40.5 |      |       |      | 6.1  |      |       |  | 40.5 |     
|Interest income, net          |                            |                          | 1.5  |                            |       |                          | 2.7  |      |       |      | 1.7  |      |       |  | 3.3  |     
|Other income (expense), net   |                            |                          | (1.1 | )                          |       |                          | (0.5 | )    |       |      | 2.3  |      |       |  | (1.0 | )   
|                              |                            |                          |      |                            |       |                          |      |      |       |      |      |      |       |  |      |     
|Income before income taxes    |                            |                          | 16.5 |                            |       |                          | 42.7 |      |       |      | 10.1 |      |       |  | 42.8 |     
|                              |                            |                          |      |                            |       |                          |      |      |       |      |      |      |       |  |      |     
|Provision for income taxes    |                            |                          | 4.6  |                            |       |                          | 12.0 |      |       |      | 2.8  |      |       |  | 12.0 |     
|                              |                            |                          |      |                            |       |                          |      |      |       |      |      |      |       |  |      |     
|Net income                    |                            |                          | 11.9 | %                          |       |                          | 30.7 | %    |       |      | 7.3  | %    |       |  | 30.8 | %   
|                              |                            |                          |      |                            |       |                          |      |      |       |      |      |      |       |  |      |     
|Gross margin on product sales |                            |                          | 84.4 | %                          |       |                          | 92.4 | %    |       |      | 83.7 | %    |       |  | 92.9 | %   
|                              |                            |                          |      |                            |       |                          |      |      |       |      |      |      |       |  |      |     
|Gross margin on services      |                            |                          | 69.8 | %                          |       |                          | 82.3 | %    |       |      | 70.4 | %    |       |  | 81.5 | %   
|                              |                            |                          |      |                            |       |                          |      |      |       |      |      |      |       |  |      |     

Comparison of the Three Month Periods Ended March 31, 2003 and 2002

Revenues, cost of revenues and expenses for the three months ended March
31, 2003 include the results of the continuing operations of NDB, which was
acquired by the Company on August 30, 2002 as described in more detail in Note
1 to the Condensed Consolidated Financial Statements.

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Revenues

Revenues increased by approximately 16% from $12.1 million for the three
months ended March 31, 2002 to $14.0 million for the three months ended March
31, 2003. Over the same period, product revenues increased by approximately 9%
from $10.6 million to $11.5 million. The increase in product revenues was
attributable to increased fiscal year end budget surplus purchasing by the
Companys customers in Japan as well as to the presence in the latter period of
revenues from the Companys MGTS products acquired with NDB. Services revenues
increased approximately 62% from $1.6 million to $2.5 million. The increase in
services revenues was due to the addition of the service revenue stream from
the MGTS installed base acquired with NDB.

Cost of Revenues

Cost of product revenues consists of the costs of board assembly by
independent contractors, purchased components, payroll and benefits for
personnel in product testing, purchasing, shipping and inventory management, as
well as supplies, media and freight. In addition, in the three months ended
March 31, 2003, cost of product revenues included fees paid to Tekelec for the
manufacture of the MGTS products under a transitional services agreement that
expired on February 28, 2003. Cost of product revenues increased approximately
123% from $803,000 for the three months ended March 31, 2002 to $1.8 million
for the three months ended March 31, 2003 and gross margin on product revenues
decreased from 92% to 84% due to the inclusion of MGTS product, which has lower
margins than the Companys DCT products, and to $323,000 in manufacturing fees
paid under the transitional services agreement.

Cost of services revenues consists primarily of the costs of payroll and
benefits for customer support, installation and training personnel. Cost of
services revenues increased by approximately 177% from $275,000 for the three
months ended March 31, 2002 to $761,000 for the three months ended March 31,
2003 and gross margin on services revenues decreased from 82% to 70% due to a
120% increase in the number of customer service personnel as a result of the
NDB acquisition.

Research and Development

Research and development expenses consist primarily of the costs of
payroll and benefits for engineers, materials, equipment and consulting
services. To date, all software development costs have been charged to research
and development expenses as incurred. Research and development expenses
increased by approximately 105% from $1.8 million for the three months ended
March 31, 2002 to $3.7 million for the three months ended March 31, 2003 due to
a 102% increase in the number of research and development personnel as a result
of the NDB acquisition. As a percentage of total revenues, research and
development expenses increased from 15% to 26% over the same period. The
Company expects quarterly research and development expenses to remain at
approximately the same dollar level for the remainder of the fiscal year ending
September 30, 2003 as they were in the three months ended March 31, 2003.*

Sales and Marketing

Sales and marketing expenses consist primarily of the costs of payroll,
benefits, commissions and bonuses, occupancy costs, travel and promotional
expenses, such as product brochures and trade show costs. Sales and marketing
expenses increased by approximately 41% from $2.7 million for the three months
ended March 31, 2002 to $3.8 million for the three months ended March 31, 2003
due primarily to a 30% increase in the number of sales and marketing personnel
as a result of the NDB acquisition. As a percentage of total revenues, sales
and marketing expenses increased from 22% to 27% over the same period. The
Company expects quarterly sales and marketing expenses to remain at
approximately the same dollar level for the remainder of the fiscal year ending
September 30, 2003 as they were in the three months ended March 31, 2003.*

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General and Administrative

General and administrative expenses include costs associated with the
Companys general and risk management, public reporting, employee recruitment
and retention, investor relations and finance functions, as well as
amortization of certain intangible assets acquired with NDB in 2003. General
and administrative expenses increased approximately 5% from $1.6 million for
the three months ended March 31, 2002 to $1.7 million for the three months
ended March 31, 2003 due primarily to a 50% increase in the number of
administrative personnel as a result of the NDB acquisition and to the
inclusion of $255,000 in amortization expense. As a percentage of total
revenues, general and administrative expenses decreased from 14% to 12% over
the same period. The Company expects quarterly general and administrative
expenses to decrease for the remainder of the fiscal year ending September 30,
2003 due to the elimination of transitional occupancy costs related to the NDB
acquisition.*

Interest Income, net

Interest income, net consists of interest earned on cash and cash
equivalents and short-term investments and amortization of the valuation
premium attributed to the convertible notes payable, net of interest charges on
those notes. Interest income decreased from $323,000 for the three months ended
March 31, 2002 to $212,000 for the three months ended March 31, 2003. The
decrease is due to a 51% reduction in cash and short-term investments as a
result of the NDB acquisition and to a decrease in interest rates. The $102,000
in amortization of the valuation premium on the convertible notes payable was
partially offset by $87,000 in interest payable on those notes.

Other Income (Expense), net

Other income (expense), net primarily represents gains and losses from
fluctuations in exchange rates on transactions denominated in foreign
currencies and income from miscellaneous refunds. Other expense increased by
$97,000 from $56,000 for the three months ended March 31, 2002 to $153,000 for
the three months ended March 31, 2003.

Provision for income taxes

Provision for income tax consists of federal, state and international
income taxes. The Companys effective tax rate was 28.0% for the three months
ended March 31, 2003 and 2002, respectively. The Company expects that its
future tax rate may vary depending in part on the relative income contribution
by its domestic and foreign operations.*

Comparison of the Six Month Periods Ended March 31, 2002 and 2003

Revenues, cost of revenues and expenses for the six months ended March 31,
2003 include the results of the continuing operations of NDB, which was
acquired by the Company on August 30, 2003 as described in more detail in Note
1 to the Condensed Consolidated Financial Statements.

Revenues

Revenues increased by approximately 6% from $23.0 million for the six
months ended March 31, 2002 to $24.4 million for the six months ended March 31,
2003. Over the same period, product revenues decreased by approximately 3% from
$20.1 million to $19.5 million. The decrease in product revenues was
attributable to reduced demand for the Companys DCT test systems due to
reductions in research and development spending on the part of most of its
major customers, largely offset by the presence in the latter period of
revenues from the Companys MGTS products acquired with NDB. Services revenues
increased

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approximately 69% from $2.9 million to $4.9 million. The increase in services
revenues was due to the addition of the service revenue stream from the MGTS
installed base acquired with NDB.

Cost of Revenues

Cost of product revenues consists of the costs of board assembly by
independent contractors, purchased components, payroll and benefits for
personnel in product testing, purchasing, shipping and inventory management, as
well as supplies, media and freight. In addition, in the six months ended March
31, 2003, cost of product revenues included fees paid to Tekelec for the
manufacture of the MGTS products under a transitional services agreement that
expired on February 28, 2003. Cost of product revenues increased approximately
124% from $1.4 million for the six months ended March 31, 2002 to $3.2 million
for the six months ended March 31, 2003 and gross margin on product revenues
decreased from 93% to 84% due to the inclusion of MGTS product, which has lower
margins than the Companys DCT products, and to $763,000 in manufacturing fees
paid under the transitional services agreement.

Cost of services revenues consists primarily of the costs of payroll and
benefits for customer support, installation and training personnel. Cost of
services revenues increased by approximately 171% from $538,000 for the six
months ended March 31, 2002 to $1.5 million for the six months ended March 31,
2003 and gross margin on services revenues decreased from 82% to 70% due to a
120% increase in the number of customer service personnel as a result of the
NDB acquisition.

Research and Development

Research and development expenses consist primarily of the costs of
payroll and benefits for engineers, materials, equipment and consulting
services. To date, all software development costs have been charged to research
and development expenses as incurred. Research and development expenses
increased by approximately 105% from $3.4 million for the six months ended
March 31, 2002 to $7.1 million for the six months ended March 31, 2003 due to a
102% increase in the number of research and development personnel as a result
of the NDB acquisition. As a percentage of total revenues, research and
development expenses increased from 15% to 29% over the same period.

Sales and Marketing

Sales and marketing expenses consist primarily of the costs of payroll,
benefits, commissions and bonuses, occupancy costs, travel and promotional
expenses, such as product brochures and trade show costs. Sales and marketing
expenses increased by approximately 34% from $5.5 million for the six months
ended March 31, 2002 to $7.3 million for the six months ended March 31, 2003
due primarily to a 30% increase in the number of sales and marketing personnel
as a result of the NDB acquisition. As a percentage of total revenues, sales
and marketing expenses increased from 24% to 30% over the same period.

General and Administrative

General and administrative expenses include costs associated with the
Companys general and risk management, public reporting, employee recruitment
and retention, investor relations and finance functions, as well as
amortization of intangible assets acquired with NDB in 2003. General and
administrative expenses increased approximately 39% from $2.8 million for the
six months ended March 31, 2002 to $3.9 million for the six months ended March
31, 2003 due primarily to a 50% increase in the number of administrative
personnel as a result of the NDB acquisition and to the inclusion of $711,000
in amortization expense. As a percentage of total revenues, general and
administrative expenses increased from 12% to 16% over the same period.

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Interest Income, net

Interest income, net consists of interest earned on cash and cash
equivalents and short-term investments and amortization of the valuation
premium attributed to the convertible notes payable, net of interest charges on
those notes. Interest income decreased from $756,000 for the six months ended
March 31, 2002 to $411,000 for the six months ended March 31, 2003. The
decrease is due to a reduction in cash and short-term investments as a result
of the NDB acquisition and to a decrease in interest rates. The $204,000 in
amortization of the valuation premium on the convertible notes payable more
than offset the $174,000 in interest payable on those notes.

Other Income (Expense), net

Other income (expense), net primarily represents gains and losses from
fluctuations in exchange rates on transactions denominated in foreign
currencies and income from miscellaneous refunds. Other income increased by
$766,000 from an expense of $234,000 for the six months ended March 31, 2002 to
an income of $565,000 for the six months ended March 31, 2003 due to a Japanese
consumption tax refund of approximately $695,000 recorded in the latter period
and to the reduction in the latter period of foreign exchange losses recorded
in the earlier period.

Provision for income taxes

Provision for income tax consists of federal, state and international
income taxes. The Companys effective tax rate was 28.0% for the six months
ended March 31, 2003 and 2002, respectively. The Company expects that its
future tax rate may vary depending in part on the relative income contribution
by its domestic and foreign operations.*

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 on February 11, 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 used cash of $1.2 million in the six
month period ended March 31, 2003 and provided cash of $6.8 million in the six
month period ended March 31, 2002. The cash used by the Companys operations in
the six months ended March 31, 2003 was attributable to decreases in accounts
payable, accrued liabilities and an increase in prepaid expenses totaling $7.4
million, partially offset by net income of $1.8 million, a realization of $1.8
million on the assets of discontinued operations net of liabilities paid,
decreases of $397,000 in accounts receivable and inventories, and to the
recognition of $1.7 million in non-cash expenses for depreciation, amortization
and deferred income tax. The cash provided by the Companys operations in the
six months ended March 31, 2002 million was primarily attributable to net
income of $7.1 million and increased accrued liabilities and deferred revenue
totaling $3.0 million and partially offset by an increase in accounts
receivable of $3.0 million. To the extent that these non-cash items

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increase or decrease and positively or negatively impact the Companys future
operating results, there will be no corresponding impact on its cash flows.

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 and to a lesser extent additions to property and
equipment, provided cash of $4.3 million in the six months ended March 31, 2003
compared to a use of cash of $26.9 million in the six months ended March 31,
2002.

Cash flows used by financing activities for the six months ended March 31,
2003 were attributable to the repurchase of 257,400 shares of the Companys
stock under its stock repurchase program at a cost of $1.8 million, and
partially offset by the exercises of employee stock options and the purchase of
shares under the employee stock purchase plan of $184,000. Cash flows from
financing activities for the six months ended March 31, 2002 were attributable
to exercises of employee stock options and the purchase of shares under the
employee stock purchase plan of $531,000. The Company may continue to use cash
to buy back shares of its common stock in the future.

As of March 31, 2003, the Company had working capital of $29.5 million,
cash and cash equivalents of $14.3 million, short-term investments of $17.5
million and no bank indebtedness. As of March 31, 2003, the Company had the
following contractual obligations, in millions:

|                                          |  |                        |      |        |  |           |     |       |  |         |      |       |  |   |     |  |  |   |     | 
|----------------------------------------- |  | ---------------------- | ---- | ------ |  | --------- | --- | ----- |  | ------- | ---- | ----- |  | - | --- |  |  | - | --- | 
|                                          |  | Payments Due by Period
|                                          |  |                        |      |        |  | Less Than |     | 1-3   |  | 4-5     |      | After
|Contractual Obligations                   |  | Total                  |      | 1 Year |  | Years     |     | Years |  | 5 Years
|                                          |  |                        |      |        |  |           |     |       |  |        
|Principal payable under convertible notes |  | $                      | 17.3 |        |  | $         |    |       |  | $       | 17.3 |       |  | $ |    |  |  | $ |    | 
|Operating leases                          |  |                        | 3.9  |        |  |           | 1.1 |       |  |         | 2.3  |       |  |   | 0.4 |  |  |   | 0.1 | 
|                                          |  |                        |      |        |  |           |     |       |  |         |      |       |  |   |     |  |  |   |     | 
|Total contractual cash obligations        |  | $                      | 21.2 |        |  | $         | 1.1 |       |  | $       | 19.6 |       |  | $ | 0.4 |  |  | $ | 0.1 | 
|                                          |  |                        |      |        |  |           |     |       |  |         |      |       |  |   |     |  |  |   |     | 

The Company expects that capital expenditures will total approximately
$1.5 million in fiscal 2003.*

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 operations for at least the next 12 months.*
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.

Recent Accounting Pronouncements

In July 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 146, Accounting for
Costs Associated with Exit or Disposal Activities. This Statement addresses
financial accounting and reporting for costs associated with exit or disposal
activities and nullifies EITF Issue No. 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring). This Statement requires that a
liability for costs associated with an exit or disposal activity be recognized
and measured initially at fair value only when the liability is incurred. The
provisions of this Statement are effective for exit or disposal activities that
are initiated after December 31, 2002. The Company adopted SFAS No. 146 in the
first quarter

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of 2003 and its adoption did not have a material effect on the Companys
financial position or results of operations.

In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45),
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. FIN 45 requires that a
liability be recorded in the guarantors balance sheet upon issuance of a
guarantee. In addition, FIN 45 requires disclosures about the guarantees that
an entity has issued, including a reconciliation of changes in the entitys
product warranty liabilities. The initial recognition and initial measurement
provisions of FIN 45 are applicable on a prospective basis to guarantees issued
or modified after December 31, 2002, irrespective of the guarantors fiscal
year-end. The disclosure requirements of FIN 45 are effective for financial
statements of interim or annual periods ending after December 15, 2002. The
adoption of this standard did not have a material effect on the Companys
financial position or results of operations.

The following table represents the activity in Warranty Accrual for the
six months ended March 31, 2003 (in thousands):

|                              |                                                  |   |     |     |  
|----------------------------- | ------------------------------------------------ | - | --- | --- | -
|Balance at September 30, 2002 |                                                  | $ | 600 |    
|                              | Settlements made during the period               |   |     | (88 | )
|                              | Accruals for warranties issued during the period |   |     | 88  |  
|                              |                                                  |   |     |    
|Balance at March 31, 2003     |                                                  | $ | 600 |    
|                              |                                                  |   |     |    

In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation, Transition and Disclosure. SFAS No. 148 provides
alternative methods of transition for a voluntary change to the fair value
based method of accounting for stock-based employee compensation. SFAS No. 148
also requires that disclosures of the pro forma effect of using the fair value
method of accounting for stock-based employee compensation be displayed more
prominently and in a tabular format. Additionally, SFAS No. 148 requires
disclosure of the pro forma effect in interim financial statements. The
transition and annual disclosure requirements of SFAS No. 148 are effective for
fiscal years ending after December 15, 2002. The interim disclosure
requirements are effective for interim periods commencing after December 15,
2002. The company has adopted this disclosure standard as required for the
three months ended March 31, 2003.

Factors That May Affect Future Results

Fluctuations in Quarterly Operating Results; Lengthy Sales Cycle

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.

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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 volumes of sales or
low revenues per order. See Dependence on Limited Number of Customers below.
The Companys products generally are shipped within 15 to 30 days after orders
are received and revenues are recognized upon shipment or, if installation
services are purchased, when installed, provided collection is probable. 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,
shipped and installed in that quarter.

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 revenues, a decline in revenues 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.

Dependence on Limited Number of Customers

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, 2002, the Companys
top five customers represented approximately 64% 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.

Risks Relating to Acquisitions

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

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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.

Risk Associated with International Operations

Company revenues from international customers were approximately 66%
during the six months ended March 31, 2003. 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. The Company has international offices located in Japan,
Canada, the United Kingdom, Germany, France, Finland, and Australia and plans
to add offices, staff and resources worldwide from time to time. 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 two fiscal years and during the six months ended
March 31, 2003, a significant portion of the Companys sales has been to
customers in Japan and Europe. If economic conditions in Japan or
Europe deteriorate to a
significant extent, 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.

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.

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.

Dependence on Rapidly Evolving Telecommunications Industry

The
Companys future success is dependent upon the long-term 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.

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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.

Rapid Technological Change; Uncertainty of Acceptance of the Companys Products
and Services

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 UNIX and 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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

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on foreign currency denominated sales made to foreign subsidiaries. The Company
utilizes foreign currency forward exchange contracts and options to mitigate
the risk of future movements in foreign exchange rates that affect certain
foreign currency denominated inter-company receivables. The Company attempts to
match the forward contracts with specific underlying receivables 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 associated exposures, 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 mitigated all risk associated with its sales denominated in foreign
currencies, and there can be no assurance that the Companys foreign exchange
risk management activities, if any, will be successful.

At March 31, 2003 the Company had forward exchange contracts maturing in
fiscal 2003 to sell approximately $5.1 million in Japanese Yen. The fair market
value of these contracts at March 31, 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 changes
in market rates or prices and believes that any such losses would not be
material.*

Additional factors that could affect future operating results or the price
of the Common Stock are set forth under the caption Factors That May Affect
Future Results in the Companys Annual Report on Form 10-K for 2002.

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 March 31, 2003,
short-term investments consisted of available-for-sale securities of $17.5
million. 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 March 31, 2003, the decline in the fair
value of the portfolio would not be material to the Companys financial
position.




Item 4. Controls and Procedures

Under the supervision and with the participation of our Chief Executive
Officer and Chief Financial Officer, the Company has evaluated its disclosure
controls and procedures within 90 days prior to the filing date of this report.
Based upon that evaluation, the Companys Chief Executive Officer and Chief
Financial Officer have concluded that such disclosure controls and procedures
are adequate and effective. There have not been any significant changes in the
Companys internal controls or in other factors that could significantly affect
these controls subsequent to the date of managements evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

The Company intends to review and evaluate the design and effectiveness of
its disclosure controls and procedures on an ongoing basis, to improve its
controls and procedures over time and to correct any deficiencies that it may
discover in the future. The Companys goal is to ensure that its senior
management has timely access to all material financial and non-financial
information concerning its business. While the Company believes the present
design of its disclosure controls and procedures is effective to achieve its
goal, future events affecting its business may cause the Company to
significantly modify our disclosure controls and

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procedures.

Part II. Other Information

Item 4. Submission of Matters to a Vote of Security Holders

The Company held its Annual Meeting of Stockholders on January 21, 2003.
Out of 13,070,513 shares of Common Stock entitled to vote at such meeting,
there were present in person or by proxy 12,248,520 shares. At the Annual
Meeting, the stockholders of Catapult Communications Corporation approved the
following matters:



| |                                                                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) The elections of Richard A. Karp, Nancy H. Karp, Henry P.
Massey, Jr., John Scandalios and Charles Waggoner, as directors of
Catapult Communications Corporation for the ensuing year and until
their successors are elected. The vote for the nominated
directors was as follows:



| |                                                                                                                                                                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Richard A. Karp, 10,923,508 votes cast for and 1,325,012 votes
withheld;
Nancy H. Karp, 11,654,470 votes cast for and 594,050 votes
withheld;
Henry P. Massey, Jr., 11,579,272 votes cast for and 669,248 votes
withheld;
John Scandalios, 11,681,314 votes cast for and 567,206 votes
withheld;
Charles Waggoner, 11,681,314 votes cast for and 567,206 votes
withheld.



| |                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------
| | (b) To amend the Companys 1998 Stock Plan to increase the shares
reserved for issuance thereunder by 1,000,000 shares of Common Stock.



| |                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------
| | 9,610,624 votes were cast for and 1,598,392 votes were cast against
with 11,863 votes abstaining and 1,027,641 broker non-votes.



| |                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (c) The ratification of the appointment of PricewaterhouseCoopers
LLP as independent public accountants of the Company for the
fiscal year ending September 30, 2003.



| |                                                                                              
| | ---------------------------------------------------------------------------------------------
| | 12,033,932 votes were cast for and 213,752 votes were cast
against with 836 votes abstaining.




Item 5. Other Information

A current member of the Audit Committee of the Board of Directors of the
Registrant, Ms. Nancy H. Karp, is not considered independent under rules of the
Nasdaq Stock Market due to the fact that she served as Secretary of the
corporation within the past three years (her service in that capacity ended in
October 2002) and also was a consultant to the corporation within the past
three years. Additionally, although these factors do not affect her
independence under current rules, Ms. Karp was a founder of the corporation,
served as Treasurer for a period of years and is the former spouse of the
Richard A. Karp, the Chairman and Chief Executive Officer of the corporation.
However, pursuant to applicable Nasdaq rules, the Registrants board of
directors has determined that exceptional and limited circumstances exist that
warrant Ms. Karps continued membership on the Audit Committee despite her lack
of independence. The Board of Directors has determined that Ms. Karps
membership on the Audit Committee is required by the best interests of the
corporation and its shareholders because of her abilities and background, her
familiarity with the Registrant, the lack of availability of other independent
directors to serve on the Audit Committee and the fact that failure to continue
her service on the Committee under the permitted exception would jeopardize the
continued listing of the Registrants Common Stock on the Nasdaq National
Market.

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Item 6. Exhibits and Reports on Form 8-K.

| |  |     |  |          |  |                                                                                                                                                                              
| |  | --- |  | -------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | (a) |  | Exhibits |  |                                                                                                                                                                              
| |  |     |  |          |  |                                                                                                                                                                              
| |  |     |  | 10.15    |  | 1998 Stock Plan as Amended January 21, 2003                                                                                                                                  
| |  |     |  |          |  |                                                                                                                                                                              
| |  |     |  | 99.1     |  | 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
| |  |     |  |          |  |                                                                                                                                                                              

| |  |     |  |                                                                                                                                                                                                             |  | 
| |  | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | 
| |  | (b) |  | Reports on Form 8-K                                                                                                                                                                                        
|
| |  |     |  | On April 17, 2003, the Company filed a Current Report on Form
8-K to furnish its press release dated April 17, 2003 announcing the
Registrants results of operations for the quarter ended March 31,
2003.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

CATAPULT COMMUNICATIONS CORPORATION

|                   |  |                                                                                                                               
|------------------ |  | ------------------------------------------------------------------------------------------------------------------------------
|Date: May 14, 2003 |  | By: /s/ Christopher A. Stephenson                                                                                             
|                   |  |                                                                                                                               
|                   |  | Christopher A. Stephenson
              Vice President and Chief Financial Officer
              (Principal Financial Officer)

26



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I, Richard A. Karp, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of Catapult
Communications Corporation;                                                                                                                                                                                                                                    
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we

have:                                                                                                    
|  

| |  | a) |  | designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
| |  | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | b) |  | evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the Evaluation Date); and                                                                                                  
|
| |  | c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        
|

|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  

| |  | a) |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material
weaknesses in internal controls; and
| |  | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | b) |  | any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        
|

|6. |  | The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: May 14, 2003

| |                                                                    
| | -------------------------------------------------------------------
| | /s/ Richard A. Karp                                                
| |                                                                    
| | (Richard A. Karp)
Chief Executive Officer and Chairman of the Board

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I, Christopher A. Stephenson, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of Catapult
Communications Corporation;                                                                                                                                                                                                                                    
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                                     
|  

| |  | a) |  | designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
| |  | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | b) |  | evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the Evaluation Date); and                                                                                                  
|
| |  | c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        
|

|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  

| |  | a) |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material
weaknesses in internal controls; and
| |  | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | b) |  | any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        
|

|6. |  | The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: May 14, 2003

| |                                                    
| | ---------------------------------------------------
| | /s/ Christopher A. Stephenson                      
| |                                                    
| | (Christopher A. Stephenson)
Chief Financial Officer

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EXHIBIT INDEX

|      |  |                                                                                                                                                                              
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.15 |  | 1998 Stock Plan as Amended January 21,2003                                                                                                                                   
|      |  |                                                                                                                                                                              
|99.1  |  | 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