##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THESECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended December 31, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 Commission file number 0-24701
 CATAPULT COMMUNICATIONS CORPORATION
  Nevada
    
    77-0086010(State or other jurisdiction of
    
    (I.R.S. EmployerIncorporation or organization)
    
    Identification Number)
 160 South Whisman Road
Mountain View, California 94041
 (650) 960-1025
 þ o
 Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



CATAPULT COMMUNICATIONS CORPORATION
 FORM 10-Q
 INDEX
 PagePart IFinancial InformationItem 1. Financial StatementsUnaudited Condensed Consolidated Balance Sheets as of December 31, 2007 and September 30, 2007
    
    
    1Unaudited Condensed Consolidated Statements of Operations for the three months ended December 31,
2007 and 2006
    
    
    2Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended
December 31, 2007 and 2006
    
    
    3Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    11Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    16Item 4. Controls and Procedures
    
    
    16Part IIOther InformationItem 1A. Risk Factors
    
    
    17Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    25Item 5. Other Information
    
    
    25Item 6. Exhibits
    
    
    25Signature
    
    
    26EXHIBIT 3.1EXHIBIT 10.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32
  ii




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Part I. Financial Information
 
 Item 1. Financial Statements
 
 CATAPULT COMMUNICATIONS CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
 December 31,
    
    
    September 30,2007
    
    
    2007(In thousands, except shareand par value data)ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    27,638
    
    
    $
    23,351Short-term investments
    
    
    31,533
    
    
    
    38,891Accounts receivable, net of allowances of $16 and $61 as of
December 31, 2007 and September 30, 2007, respectively
    
    
    8,235
    
    
    
    7,015Inventories
    
    
    2,201
    
    
    
    2,485Deferred tax assets
    
    
    262
    
    
    
    96Prepaid expenses and other current assets
    
    
    1,740
    
    
    
    1,767Total current assets
    
    
    71,609
    
    
    
    73,605Property and equipment, net
    
    
    1,558
    
    
    
    1,585Goodwill
    
    
    49,394
    
    
    
    49,394Other intangibles, net
    
    
    125
    
    
    
    143Other assets
    
    
    2,243
    
    
    
    2,243Total assets
    
    $
    124,929
    
    
    $
    126,970LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    633
    
    
    $
    617Accrued liabilities
    
    
    3,613
    
    
    
    4,956Deferred revenue
    
    
    5,927
    
    
    
    6,206Total current liabilities
    
    
    10,173
    
    
    
    11,779Deferred revenue, long-term
    
    
    166
    
    
    
    406Deferred taxes and other liabilities, long-term
    
    
    4,477
    
    
    
    3,009Total liabilities
    
    
    14,816
    
    
    
    15,194Stockholders Equity:Common stock, $0.001 par value, 40,000,000
shares authorized; 13,255,026 and 13,427,073
issued and outstanding as of December 31, 2007
and September 30, 2007, respectively
    
    
    13
    
    
    
    13Additional paid-in capital
    
    
    48,637
    
    
    
    48,661Accumulated other comprehensive income
    
    
    1,006
    
    
    
    1,026Retained earnings
    
    
    60,457
    
    
    
    62,076Total stockholders equity
    
    
    110,113
    
    
    
    111,776Total liabilities and stockholders equity
    
    $
    124,929
    
    
    $
    126,970
  1




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CATAPULT COMMUNICATIONS CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 Three months endedDecember 31,2007
    
    
    2006(In thousands, exceptper share amounts)Revenues:Products
    
    $
    6,770
    
    
    $
    6,556Services
    
    
    3,531
    
    
    
    4,011Total revenues
    
    
    10,301
    
    
    
    10,567Cost of revenues:Products
    
    
    1,248
    
    
    
    1,128Services
    
    
    798
    
    
    
    854Amortization of purchased technology
    
    
    12
    
    
    
    12Total cost of revenues
    
    
    2,058
    
    
    
    1,994Gross profit
    
    
    8,243
    
    
    
    8,573Operating expenses:Research and development
    
    
    3,553
    
    
    
    3,015Sales and marketing
    
    
    4,345
    
    
    
    4,291General and administrative
    
    
    2,172
    
    
    
    2,284Total operating expenses
    
    
    10,070
    
    
    
    9,590Operating loss
    
    
    (1,827
    )
    
    
    (1,017
    )Interest income
    
    
    744
    
    
    
    807Other income (expense), net
    
    
    130
    
    
    
    (7
    )Loss before income taxes
    
    
    (953
    )
    
    
    (217
    )Provision for income taxes
    
    
    218
    
    
    
    227Net loss
    
    $
    (1,171
    )
    
    $
    (444
    )Net loss per share  basic and diluted
    
    $
    (0.09
    )
    
    $
    (0.03
    )Shares used in per share calculation:Basic and diluted
    
    
    13,373
    
    
    
    14,103
  2




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CATAPULT COMMUNICATIONS CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Three months endedDecember 31,2007
    
    
    2006(In thousands)Cash flows from operating activities:Net loss as reported
    
    $
    (1,171
    )
    
    $
    (444
    )Adjustments to reconcile net loss to net cash provided by
operating activities:Depreciation and amortization of property and equipment
    
    
    267
    
    
    
    268Amortization of purchased technology
    
    
    12
    
    
    
    12Amortization of other acquisition related intangibles
    
    
    6
    
    
    
    6Provision for recovery of doubtful accounts
    
    
    (45
    )
    
    
    1Deferred income taxes
    
    
    (19
    )
    
    
    126Stock based compensation expense
    
    
    825
    
    
    
    728Change in assets and liabilities:Accounts receivable
    
    
    (1,189
    )
    
    
    139Inventories
    
    
    286
    
    
    
    (95
    )Prepaid expenses and other current assets
    
    
    21
    
    
    
    564Other assets
    
    
    2
    
    
    
    4Accounts payable
    
    
    15
    
    
    
    13Accrued liabilities
    
    
    (28
    )
    
    
    (5
    )Deferred revenue
    
    
    (519
    )
    
    
    (255
    )Net cash provided by (used in) operating activities
    
    
    (1,537
    )
    
    
    1,062Cash flows from investing activities:Sale and maturities of short-term investments
    
    
    20,374
    
    
    
    29,237Purchase of short-term investments
    
    
    (13,016
    )
    
    
    (25,227
    )Purchase of property and equipment
    
    
    (243
    )
    
    
    (111
    )Net cash provided by investing activities
    
    
    7,115
    
    
    
    3,899Cash flows from financing activities:Repurchase of common stock
    
    
    (1,280
    )
    
    
    (3,612
    )Proceeds from exercise of stock options
    
    
    
    
    
    
    7Net cash used in financing activities
    
    
    (1,280
    )
    
    
    (3,605
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    (11
    )
    
    
    115Net increase in cash and cash equivalents
    
    
    4,287
    
    
    
    1,471Cash and cash equivalents, beginning of period
    
    
    23,351
    
    
    
    22,462Cash and cash equivalents, end of period
    
    $
    27,638
    
    
    $
    23,933Supplemental disclosure of cash flow information:Unrealized gain (loss) on investments
    
    $
    3
    
    
    $
    (1
    )Cash paid for income taxes
    
    
    186
    
    
    
    95Non-cash investing activities:Purchase of property and equipment on account
    
    $
    
    
    
    $
    2
  3




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CATAPULT COMMUNICATIONS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1THE COMPANY AND BASIS OF PRESENTATION
   Significant Accounting Policies
 Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No.
109
 NOTE 2  RECENT ACCOUNTING PRONOUNCEMENTS
 Business Combinations,
 Noncontrolling Interests in
Consolidated Financial Statementsan amendment of ARB No. 51.
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NOTE 3  STOCK-BASED COMPENSATION
 Share-Based Payment.
 Stock-based Compensation Expense
  Three months ended
    
    
    Three months endedDecember 31,
    
    
    December 31,2007
    
    
    2006(In thousands)Stock-Based Compensation Expense:Cost of sales  products
    
    $
    50
    
    
    $
    34Cost of sales  services
    
    
    68
    
    
    
    67Research and development expense
    
    
    201
    
    
    
    147Selling and marketing expense
    
    
    168
    
    
    
    172General and administrative expense
    
    
    338
    
    
    
    308Total stock-based compensation expense
    
    
    825
    
    
    
    728Tax effect on stock-based compensation expenses
    
    
    (4
    )
    
    
    (5
    )Net effect on net income
    
    $
    821
    
    
    $
    723
 General Option Information
  Weighted AverageNumber of Options
    
    
    Weighted Average
    
    
    Remaining
    
    
    Aggregate IntrinsicOutstanding
    
    
    Exercise Price
    
    
    Contractual Term
    
    
    Value(years)
    
    
    (in thousands)Balance at October 1, 2007
    
    
    2,833,760
    
    
    $
    13.68
    
    
    
    6.75
    
    
    $
    361Granted
    
    
    46,696
    
    
    
    7.43Exercised
    
    
    
    
    
    
    Canceled, forfeited or expired
    
    
    (6,859
    )
    
    
    18.61Balance, December 31, 2007
    
    
    2,873,597
    
    
    $
    13.57
    
    
    
    6.56
    
    
    $
    349Vested or expected to vest,
December 31, 2007
    
    
    2,741,322
    
    
    $
    13.70
    
    
    
    6.45
    
    
    $
    347Exercisable, December 31, 2007
    
    
    1,874,820
    
    
    $
    15.01
    
    
    
    5.32
    
    
    $
    343
 5




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##### Table of Contents



Three months ended
    
    Three months endedDecember 31,
    
    December 31,2007
    
    2006Weighted average exercise price
    
    $
    7.43
    
    
    $
    8.72Weighted average fair value
    
    $
    3.47
    
    
    $
    4.67
  Valuation Assumptions
  Employee Stock Option PlanThree months endedDecember 31,2007
    
    2006Dividend yield
    
    
    0.0
    %
    
    
    0.0
    %Expected life of option
    
    4.3 years
    
    4.6 yearsRisk-free interest rate
    
    
    3.61
    %
    
    
    4.54
    %Expected volatility
    
    
    55.0
    %
    
    
    61.7
    %
 Expected life of option
 Expected Volatility
 Expected Dividend
 Risk-Free Interest Rate
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NOTE 4  BASIC AND DILUTED NET LOSS PER SHARE
 Earnings per
Share
 Three months endedDecember 31,2007
    
    
    2006(In thousands, exceptper share amounts)Net loss, as reported for basic and diluted net loss per share
    
    $
    (1,171
    )
    
    $
    (444
    )Weighted average shares outstanding
    
    
    13,373
    
    
    
    14,103Dilutive options
    
    
    
    
    
    
    Weighted average shares assuming dilution
    
    
    13,373
    
    
    
    14,103Net loss per share:Basic and diluted
    
    $
    (0.09
    )
    
    $
    (0.03
    )
  Three months endedDecember 31,2007
    
    2006(In thousands)Common stock options
    
    
    2,852
    
    
    
    2,192
 NOTE 5  INVENTORIES
  December 31,
    
    
    September 30,2007
    
    
    2007(In thousands)Inventories:Raw materials
    
    $
    1,870
    
    
    $
    2,235Work-in-process
    
    
    34
    
    
    
    23Finished goods
    
    
    297
    
    
    
    227$
    2,201
    
    
    $
    2,485
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NOTE 6  GOODWILL AND INTANGIBLE ASSETS
   As of December 31, 2007
    
    
    As of September 30, 2007Gross Carrying
    
    
    Accumulated
    
    
    Net Carrying
    
    
    Gross Carrying
    
    
    Accumulated
    
    
    Net CarryingAmount
    
    
    Amortization
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    Amount(In thousands)Purchased technology
    
    $
    4,800
    
    
    $
    (4,718
    )
    
    $
    82
    
    
    $
    4,800
    
    
    $
    (4,706
    )
    
    $
    94Trade names
    
    
    1,000
    
    
    
    (983
    )
    
    
    17
    
    
    
    1,000
    
    
    
    (980
    )
    
    
    20Customer relationships
    
    
    1,000
    
    
    
    (983
    )
    
    
    17
    
    
    
    1,000
    
    
    
    (980
    )
    
    
    20Non-compete agreements
    
    
    400
    
    
    
    (391
    )
    
    
    9
    
    
    
    400
    
    
    
    (391
    )
    
    
    9System backlog
    
    
    400
    
    
    
    (400
    )
    
    
    
    
    
    
    400
    
    
    
    (400
    )
    
    
    Total
    
    $
    7,600
    
    
    $
    (7,475
    )
    
    $
    125
    
    
    $
    7,600
    
    
    $
    (7,457
    )
    
    $
    143
  EstimatedAmortizationFiscal Year
    
    Expense(In thousands)2008 (remaining nine months)
    
    $
    552009
    
    
    67Thereafter
    
    
    3Total
    
    $
    125
 NOTE 7  INCOME TAXES
  Accounting for Uncertainty in Income an interpretation of FASB Statement No. 109
   8




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NOTE 8  STOCKHOLDERS EQUITY
 Comprehensive loss
  Three months endedDecember 31,2007
    
    
    2006(in thousands)Net loss, as reported
    
    $
    (1,171
    )
    
    $
    (444
    )Currency translation adjustment
    
    
    (18
    )
    
    
    128Unrealized losses on investments
    
    
    (3
    )
    
    
    (1
    )Comprehensive loss
    
    $
    (1,192
    )
    
    $
    (317
    )
 Stock Option Plans
  Repurchase of Common Stock
  9




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NOTE 9  GEOGRAPHICAL INFORMATION
   Europe, Middle
    
    
    
    
    
    Asia
    
    ConsolidatedAmericas
    
    East & Africa
    
    Japan
    
    Pacific
    
    Total(In thousands)Three months ended December 31, 2007Revenues from unaffiliated customers
    
    $
    2,997
    
    
    $
    3,356
    
    
    $
    2,402
    
    
    $
    1,546
    
    
    $
    10,301Three months ended December 31, 2006Revenues from unaffiliated customers
    
    $
    2,929
    
    
    $
    3,643
    
    
    $
    2,169
    
    
    $
    1,826
    
    
    $
    10,567As of December 31, 2007Goodwill
    
    $
    22,896
    
    
    $
    26,498
    
    
    $
    
    
    
    $
    
    
    
    $
    49,394Long-lived assets
    
    
    880
    
    
    
    272
    
    
    
    215
    
    
    
    191
    
    
    
    1,558As of September 30, 2007Goodwill
    
    $
    22,896
    
    
    $
    26,498
    
    
    $
    
    
    
    $
    
    
    
    $
    49,394Long-lived assets
    
    
    937
    
    
    
    323
    
    
    
    223
    
    
    
    102
    
    
    
    1,585
   NOTE 10  CUSTOMER INFORMATION
  Percentage of Accounts
    
    Percentage of RevenuesReceivable as of
    
    For the three months endedDecember 31,
    
    September 30,
    
    December 31,
    
    December 31,2007
    
    2007
    
    2007
    
    2006Customer A
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19
    %Customer B
    
    
    17
    %
    
    
    
    
    
    
    12
    %
    
    
    Customer C
    
    
    15
    %
    
    
    22
    %
    
    
    11
    %
    
    
    Customer D
    
    
    25
    %
    
    
    33
    %
    
    
    17
    %
    
    
    10
    %Customer E
    
    
    
    
    
    
    
    
    
    
    10
    %
    
    
    
 NOTE 11  CONTINGENCIES
 Accounting for Contingencies
 10




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Forward-looking Statements
    Overview
 Our Business and Products
 ® ®
 
    
    design and feature verification;
    
    conformance testing;
    
    interoperability testing; and
    
    load and stress testing.
   
    
    Long-Term Evolution (LTE);
    
    WiMAX;
    
    IP Multimedia Subsystem (IMS);
    
    Third Generation Cellular (3G), including UMTS, cdma2000 and TD-SCDMA;
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
    
    General Packet Radio Service (GPRS);
    
    Global Systems for Mobile Communications (GSM);
    
    Code Division Multiple Access (CDMA);
    
    IP Telephony (Voice over IP or VoIP);
    
    Asynchronous Transfer Mode (ATM); and
    
    Signaling System #7 (SS7).
   Conditions and Trends in Our Industry
   Summary of Our Financial Performance in the First Quarter of Fiscal 2008
   Critical Accounting Policies and Estimates
 Accounting for Uncertainty in Income Taxes, an interpretation of
FASB Statement No. 109
 12




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Results of Operations
  For the three months endedDecember 31,2007
    
    
    2006Revenues:Products
    
    
    65.7
    %
    
    
    62.0
    %Services
    
    
    34.3
    
    
    
    38.0Total revenues
    
    
    100.0
    
    
    
    100.0Cost of revenues:Products
    
    
    12.1
    
    
    
    10.7Services
    
    
    7.7
    
    
    
    8.1Amortization of purchased technology
    
    
    0.1
    
    
    
    0.1Total cost of revenues
    
    
    19.9
    
    
    
    18.9Gross profit
    
    
    80.1
    
    
    
    81.1Operating expenses:Research and development
    
    
    34.5
    
    
    
    28.5Sales and marketing
    
    
    42.2
    
    
    
    40.6General and administrative
    
    
    21.1
    
    
    
    21.6Total operating expenses
    
    
    97.8
    
    
    
    90.7Operating loss
    
    
    (17.7
    )
    
    
    (9.6
    )Interest income
    
    
    7.2
    
    
    
    7.6Other income (expense), net
    
    
    1.2
    
    
    
    (0.1
    )Loss before income taxes
    
    
    (9.3
    )
    
    
    (2.1
    )Provision for income taxes
    
    
    2.1
    
    
    
    2.1Net loss
    
    
    (11.4
    )%
    
    
    (4.2
    )%Gross profit margin on products
    
    
    81.6
    %
    
    
    82.8
    %Gross profit margin on services
    
    
    77.4
    %
    
    
    78.7
    %
  Comparison of the Three-Month Periods Ended December 31, 2007 and 2006
 Revenues
   
    
    revenues in the Americas increased by 2% to $3.0 million from $2.9 million;
    
    revenues in Europe, the Middle East and Africa decreased by 8% to $3.4 million from
$3.6 million;
    
    revenues in Japan increased by 11% to $2.4 million from $2.2 million; and
    
    revenues in Asia Pacific outside Japan decreased by 15% to $1.5 million from $1.8
million.
  13




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Cost of Revenues
     Research and Development
  Sales and Marketing
  General and Administrative
  Interest income
  14




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Provision for income taxes
  Impact of Inflation
  Liquidity and Capital Resources
       Payments Due by PeriodLess Than
    
    
    1-3
    
    
    3-5
    
    
    More thanContractual Obligations
    
    Total
    
    
    1 Year
    
    
    Years
    
    
    Years
    
    
    5 Years(In millions)Operating leases
    
    $
    4.3
    
    
    $
    1.6
    
    
    $
    1.8
    
    
    $
    0.8
    
    
    $
    0.1Unconditional purchase obligations
    
    
    0.3
    
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    Total contractual cash obligations
    
    $
    4.6
    
    
    $
    1.9
    
    
    $
    1.8
    
    
    $
    0.8
    
    
    $
    0.1
 15




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Recent Accounting Pronouncements
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Foreign Exchange Risk and Derivative Financial Instruments
     Interest Rate Risk
  
 Item 4. Controls and Procedures
 Evaluation of disclosure controls and procedures.
  16




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Internal Control-Integrated Framework
   Changes in internal control over financial reporting.
  
 Part II. Other Information
 
 
 Item 1A. Risk Factors
 Factors That May Affect Future Results
  Risks Related to Our Business
 Our quarterly operating results may fluctuate significantly, and this may result in volatility in
the market price of our common stock.
  
    
    the variable size and timing of individual purchases by our customers, including delays
in customer purchasing decisions or orders due to customer consolidation;
    
    the absence of long-term customer purchase contracts;
    
    seasonal factors that may affect capital spending by customers, such as the varying
fiscal year ends of customers and the reduction in business during the summer months,
particularly in Europe;
    
    the relatively long sales cycles for our products;
    
    competitive conditions in our markets;
    
    exchange rate fluctuations;
    
    the timing of the introduction and market acceptance of new products or product
enhancements by us and by our customers, competitors and suppliers;
 17




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##### Table of Contents




    
    costs associated with developing and introducing new products;
    
    product life cycles;
    
    changes in the level of operating expenses relative to revenues;
    
    product defects and other quality problems;
    
    customer order deferrals in anticipation of new products;
    
    supply interruptions;
    
    changes in global or regional economic conditions or in the telecommunications
industry;
    
    asset impairment, valuation allowance and restructuring charges;
    
    changes in our tax rate;
    
    changes in the mix of products sold;
    
    changes in the regulatory environment; and
    
    adverse results from litigation.
    Our ability to deliver products that meet customer demand is dependent on our ability to meet new
and changing requirements for telecommunications test systems and services.
   Ô Ô Ô Ô
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Our business is dependent on our customers outsourcing their telecommunications testing needs, and
our business could be harmed if the market for outsourced testing solutions declines or fails to
grow.
  Historically, our revenues have been dependent upon a few significant customers, the loss of one
or more of which could significantly reduce our revenues.
  Our success depends on the timely development and introduction of new products.
  We face foreign business, political and economic risks because a significant portion of our sales
is to customers outside the United States.
  
    
    longer customer payment cycles;
    
    greater difficulty in accounts receivable collection;
    
    difficulties in staffing and managing foreign operations;
    
    changes in regulatory requirements or in economic or trade policy;
    
    costs related to localizing products for foreign countries;
    
    potentially weaker protection for intellectual property in certain foreign countries;
    
    the burden of complying with a wide variety of foreign laws and practices, tariffs and
other trade barriers; and
    
    potentially adverse tax consequences, including restrictions on repatriation of
earnings.
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We face intense competition in our markets from more established test solutions providers, and if
we are unable to compete successfully we may not be able to maintain or grow our business.
  Our success depends on the
continued technological innovation in the telecommunications industry and increased use
of our test solutions, and lack of growth in this industry could harm our business.
   Our business could be harmed if we were to lose the services of one or more members of our senior
management team, or if we are unable to attract and retain qualified personnel.
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We may not be able to achieve the anticipated benefits of any acquisitions we may make of other
companies, products or technologies.
  
    
    difficulties associated with assimilating the personnel and operations of acquired
companies;
    
    potential disruption of our ongoing business;
    
    distraction of management and other resources;
    
    integration of personnel and technology of an acquired company;
    
    difficulties in evaluating the technology of a potential target;
    
    inability to motivate and retain new personnel;
    
    maintenance of uniform standards, controls, procedures and policies;
    
    impairment of goodwill or other long-lived assets acquired due to a failure to generate
the levels of cash flow anticipated at the acquisition date; and
    
    impairment of relationships with employees and clients as a result of the integration
of new management personnel.
  The inability to successfully defend claims from taxing authorities could adversely affect our
operating results and financial position.
  Many of our suppliers are sole source or single source suppliers, and our inability to obtain
adequate amounts of components from these suppliers could harm our business.
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We depend on a limited number of independent manufacturers, which reduces our ability to control
our manufacturing process.
  The high level of complexity and integration of our products increases the risk of latent defects,
which could damage customer relationships and increase our costs.
  We face exposure to product liability claims, which if successful could harm our business.
  Our success is dependent on our ability to protect our intellectual property, and our failure to
protect our intellectual property could have a significant adverse impact on our business.
  We could become subject to litigation regarding intellectual property, which could divert
management attention, be costly to defend and prevent us from using or selling the challenged
technology.
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Environmental laws and regulations subject us to a number of risks and could result in significant
liabilities and costs.
   Risks Related to Our Stock
 Our stock has been, and likely will continue to be, subject to substantial price and volume
fluctuations due to a number of factors, many of which will be beyond our control.
  
    
    quarterly variations in our operating results;
    
    changes in our revenue growth rates as a whole or for specific geographic areas or
products;
    
    changes in earning estimates by market analysts;
    
    the announcements of new products or product enhancements by us or our competitors;
    
    speculation in the press or analyst community; and
    
    general market conditions or market conditions specific to particular industries.
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If we are unable to determine and demonstrate that we maintain effective internal control over
financial reporting, this may cause investors to lose confidence in our reported financial
information, and the price of our stock could drop significantly.
  Sales of substantial amounts of our common stock by our major stockholders and others could
adversely affect the market price of our common stock.
  Our principal stockholders could prevent or delay a change in control.
  Provisions in our charter documents and Nevada law could prevent or delay a change in the control
of our company and may reduce the market price of our common stock.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  Repurchases of Common StockTotal Number of
    
    
    Maximum NumberTotal
    
    
    
    
    
    
    Shares Purchased as
    
    
    of Shares that MayNumber
    
    
    Average
    
    
    Part of Publicly
    
    
    Yet Be Purchasedof Shares
    
    
    Price Paid
    
    
    Announced
    
    
    Under the PlansPurchased
    
    
    Per Share (1)
    
    
    Plans or Programs
    
    
    Or ProgramsOctober 1, 2007 -
October 31, 2007
    
    
    11,700
    
    
    $
    7.46
    
    
    
    11,700
    
    
    
    1,307,085November 1, 2007 - November 30, 2007
    
    
    56,796
    
    
    
    7.50
    
    
    
    56,796
    
    
    
    1,459,263December 1, 2007 - December 31, 2007
    
    
    103,551
    
    
    
    7.40
    
    
    
    103,551
    
    
    
    1,355,712Total for the Quarter
    
    
    172,047
    
    
    $
    7.44
    
    
    
    172,047
    
    
    
    1,355,712
 
 (1)
    
    Average price paid per share includes brokerage commission.  
 Item 5. Other Information
  
 Item 6. Exhibits
 3.1
    
    Bylaws of the Registrant, as amended February 5, 2008.10.1
    
    First Amendment to Lease, effective October 31, 2007, by and between the Registrant and Raleigh Flex Owner I LLC relating to office space located at 800 Perimeter
Park Drive, Morrisville, NC 27560.31.1
    
    Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32
    
    Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
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SIGNATURE
  CATAPULT COMMUNICATIONS CORPORATIONDate:  February 11, 2008
    By:
    /s/      Christopher A. StephensonChristopher A. StephensonVice President and Chief Financial Officer
(Principal Financial Officer) 26