|FORM 10-Q

UNITED STATESSECURITIES 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, 2002
OR
|------------------------------------------------------

|__ |  | 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 ofincorporation or organization) | 77-0086010(I.R.S. EmployerIdentification Number)
|------------------------------------------------------------------- | ------------------------------------------------

|160 South Whisman RoadMountain View, California 94041

(650) 960-1025
(Address, including zip
code, and telephone number, includingarea 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
As of March 31, 2002, there were 13,043,324 shares of the Registrants Common Stock, $0.001 par value, outstanding.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|CATAPULT COMMUNICATIONS CORPORATIONFORM 10-Q

INDEX
|---------------------------------------------------

|Part IFinancial Information                                                   | Page |   
|------------------------------------------------------------------------------ | ---- | --
|                                                                              
|Item 1. Financial Statements  (unaudited)                                      |      |   
|                                                                              
|Condensed Consolidated Balance Sheets at March 31, 2002 and September 30, 2001 |      | 3 
|                                                                              
|Condensed Consolidated Statements of Income for the three and six months ended |     
|March 31, 2002 and 2001                                                        |      | 4 
|                                                                              
|Condensed Consolidated Statements of Cash Flows for the six months ended       |     
|March 31, 2002 and 2001                                                        |      | 5 
|                                                                              
|Notes to Condensed Consolidated Financial Statements                           |      | 6 
|                                                                              
|Item 2.  Managements Discussion and Analysis of Financial Condition           |     
|and Results of Operations                                                      |      | 9 
|                                                                              
|Item 3.  Quantitative and Qualitative Disclosures About Market Risk            |      | 17

## Part IIOther
Information

|                                                             | 
|------------------------------------------------------------ | 
|Item 1.  Legal Proceedings                                   | 
|                                                            
|Item 2.  Changes in Securities and Use of Proceeds           | 
|                                                            
|Item 3.  Defaults Upon Senior Securities                     | 
|                                                            
|Item 4.  Submission of Matters to a Vote of Security Holders | 
|                                                            
|Item 5.  Other Information                                   | 
|                                                            
|Item 6.  Exhibits and Reports on Form 8-K                    | 
|                                                            
|Signatures                                                   | 

|2
|-

|Part I. Financial
      Information
Item 1. Financial Statements
CATAPULT COMMUNICATIONS CORPORATIONCONDENSED CONSOLIDATED BALANCE SHEETS(in thousands, except share data)(unaudited)
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                 | March 31,2002 | September
      30,2001
|------------------------------------------------ | ------------- | -----------------------
|                                                 |               |                        
|                                                 |               |                        
|                                                
|ASSETS                                           |               |                        
|                                                
|Current
      Assets:                            |              
|Cash and cash
      equivalents                  |               | $ 24,580               
|Short-term
      investments                     |               | 43,767                 
|Accounts
      receivable, net                   |               | 10,275                 
|Inventories                                      |               | 1,032                  
|Deferred income
      taxes                      |               | 628                    
|Prepaid expenses
      and other current assets  |               | 934                    
|                                                 |               |                        
|Total
      current assets                       |               | 81,216                 
|Property
      and equipment, net                |               | 1,276                  
|Other
      assets                               |               | 504                    
|                                                 |               |                        
|Total
      assets                               |               | $ 82,996               
|                                                 |               |                        
|                                                
|LIABILITIES AND STOCKHOLDERS
    EQUITY         |              
|                                                
|Current
      Liabilities:                       |              
|Accounts
      payable                           |               | $      895             
|Accrued
      liabilities                        |               | 8,625                  
|Deferred
      revenue                           |               | 2,609                  
|                                                 |               |                        
|Total
      current liabilities                  |               | 12,129                 
|                                                 |               |                        
|Stockholders Equity:                            |              
|Common
      stock                               |               | 13                     
|Additional
      paid-in capital                 |               | 22,433                 
|Deferred
      compensation                      |               | (129                   
|Treasury stock
      (50,000 shares at cost)     |               | (300                   
|Accumulated other
      comprehensive income     |               | 354                    
|Retained
      earnings                          |               | 48,496                 
|                                                 |               |                        
|Total
      stockholders equity                 |               | 70,867                 
|                                                 |               |                        
|Total
      liabilities and stockholders equity |               | $ 82,996               
|                                                 |               |                        

|The
      accompanying notes are an integral part of these condensed consolidated
      financial statements.
3
|---------------------------------------------------------------------------------------------------------------

|CATAPULT COMMUNICATIONS CORPORATIONCONDENSED CONSOLIDATED STATEMENTS OF INCOME(in
      thousands, except per share data)(unaudited)
|------------------------------------------------------------------------------------------------------------------------------------

|                                            | For the
      three months ended | For the
      six months ended
|------------------------------------------- | -------------------------------- | ------------------------------
|
|
|                                            |                                  |                               
|Revenues:                                   |                                  |                               
|Product sales                               |                                  | $   10,573                    
|Services                                    |                                  | 1,554                         
|                                            |                                  |                               
|Total
      revenues                        |                                  | 12,127                        
|                                            |                                  |                               
|                                           
|Cost of
      revenues:                     |                                 
|Product sales                               |                                  | 803                           
|Services                                    |                                  | 275                           
|                                            |                                  |                               
|Total
      cost of revenues                |                                  | 1,078                         
|                                            |                                  |                               
|                                           
|Gross
      profit                          |                                  | 11,049                        
|                                            |                                  |                               
|                                           
|Operating
      expenses:                   |                                 
|Research and
      development              |                                  | 1,807                         
|Sales and marketing                         |                                  | 2,696                         
|General and
      administrative            |                                  | 1,636                         
|                                            |                                  |                               
|Total
      operating expenses              |                                  | 6,139                         
|                                            |                                  |                               
|                                           
|Operating
      income                      |                                  | 4,910                         
|                                           
|Interest
      income                       |                                  | 323                           
|Other
      expense, net                    |                                  | (56                           
|                                            |                                  |                               
|                                           
|Income
      before income taxes            |                                  | 5,177                         
|Provision
      for income taxes            |                                  | 1,450                         
|                                            |                                  |                               
|                                           
|Net
      income                            |                                  | $   3,727                     
|                                            |                                  |                               
|                                           
|Earnings
      per share:                   |                                 
|Basic                                       |                                  | $     0.29                    
|                                            |                                  |                               
|Diluted                                     |                                  | $     0.28                    
|                                            |                                  |                               
|                                           
|Shares
      used in per share calculation: |                                 
|Basic                                       |                                  | 13,044                        
|                                            |                                  |                               
|Diluted                                     |                                  | 13,393                        
|                                            |                                  |                               

|The
      accompanying notes are an integral part of these condensed consolidated
      financial statements.
4
|---------------------------------------------------------------------------------------------------------------

|CATAPULT COMMUNICATIONS
      CORPORATIONCONDENSED CONSOLIDATED STATEMENTS OF
      CASH FLOWS(in thousands)(unaudited)
|-----------------------------------------------------------------------------------------------------------------------

|                                                               | Six
      Months EndedMarch 31,
|-------------------------------------------------------------- | -------------------------------
|
|                                                               |                                
|                                                               |                                
|Cash
      flows from operating activities:                    |                                
|Net income                                                     |                                
|Adjustments to reconcile net income to
      net cash provided |                                
|by operating
      activities:                                 |                                
|Depreciation
      and amortization                            |                                
|Amortization
      of deferred stock compensation              |                                
|Gain on sale of property and equipment                         |                                
|(Gain) loss on sale of short-term investments                  |                                
|Change
      in assets and liabilities:                        |                                
|Accounts
      receivable                                      |                                
|Inventories                                                    |                                
|Prepaid
      expenses and other current assets                |                                
|Other
      assets                                             |                                
|Accounts
      payable                                         |                                
|Accrued
      liabilities                                      |                                
|Deferred
      revenue                                         |                                
|                                                               |                                
|Net
      cash provided by operating activities                |                                
|                                                               |                                
|                                                              
|Cash
      flows from investing activities:                    |                                
|Sales (purchases)
      of investments, net                    |                                
|Purchases of
      property and equipment                      |                                
|                                                               |                                
|Net
      cash provided by (used in) investing activities      |                                
|                                                               |                                
|                                                              
|Cash
      flows from financing activities:                    |                                
|Proceeds from
      issuance of common stock                   |                                
|                                                               |                                
|Net
      cash provided by financing activities                |                                
|                                                               |                                
|                                                              
|Effect of
      exchange rate changes on cash                  |                                
|                                                               |                                
|Increase
      (decrease) in cash and cash equivalents         |                                
|                                                              
|Cash and
      cash equivalents, beginning of period           |                                
|                                                               |                                
|                                                              
|Cash and
      cash equivalents, end of period                 |                                
|                                                               |                                

|The
      accompanying notes are an integral part of these condensed consolidated
      financial statements.
5
|---------------------------------------------------------------------------------------------------------------

|CATAPULT
      COMMUNICATIONS CORPORATIONNOTES 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 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.
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 Report on Form 10-K for the year ended September 30, 2001, and filed with the Securities and Exchange Commission. The unaudited financial statements as of March 31, 2002, and for the three and six months ended March 31, 2002 and 2001, 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, 2001 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 is discussed throughout Managements Discussion and Analysis of Financial Condition and Results of Operations where such policies affect the Companys reported and expected 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.

Revenue Recognition
Sales of the Companys product arrangements normally include hardware and software. Certain of the Companys sales may also include installation. The Company also offers training and maintenance services. The Company recognizes revenue on system sales upon shipment or when installed, if installation services are purchased, provided collection is probable. 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.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|6
|-

|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 accumulated as a separate 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 hedge against future movements in foreign exchange rates that affect certain foreign currency denominated inter-company receivables. The Company attempts to match the forward contracts with the underlying receivables being hedged in terms of currency, amount and maturity. The Company does not use derivative financial instruments for speculative or trading purposes.

Use of estimates; allowance for doubtful accounts
The preparation of financial statements requires the Company to make estimates and assumptions that affect the reported amount of assets and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. The Company specifically analyzes accounts receivable, historical bad debt experience, customer concentration, customer credit-worthiness, current economic trends and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. The Companys accounts receivable balance as of March 31, 2002 was $10.3 million, net of allowance for doubtful accounts of $0.1 million.

Accounting for income taxes
As part of the process of preparing consolidated financial statements the Company is required to estimate income taxes in each of the jurisdictions in which we operate. This process involves estimating our 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 the Companys 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.

NOTE 3RECENTLY ISSUED ACCOUNTING STANDARDS
In various areas, including revenue recognition, accounting standards and practices continue to evolve. The FASBs Emerging Issues Task Force continues to address revenue related accounting issues. The management of the Company believes it is in compliance with all of the rules and related guidance, as they currently exist. However, any changes to generally accepted accounting principles in these areas could impact the Companys accounting for its operations.

7
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NOTE
      4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
|----------------------------------------------- | ------------------------------------- | ----------------
|
|
|                                                |                                       |                 
|                                                | (in thousands, except per share data)
|Net income                                      |                                       | $   3,727       
|                                                |                                       |                 
|Weighted
      average shares outstanding       |                                       | 13,044          
|Dilutive
      options                          |                                       | 349             
|                                                |                                       |                 
|Weighted
      average shares assuming dilution |                                       | 13,393          
|                                                |                                       |                 
|                                               
|Earnings
      per share:                       |                                      
|Basic                                           |                                       | $    0.29       
|                                                |                                       |                 
|Diluted                                         |                                       | $    0.28       
|                                                |                                       |                 
|                                               
|Antidilutive
      common equivalent shares     |                                      
|excluded in
      calculating diluted earnings  |                                       |                 
|per
      share                                 |                                       |                
|                                                |                                       |                 

|NOTE
      5COMPREHENSIVE INCOME
The components of
      comprehensive income, net of tax, are as follows (in thousands):
|--------------------------------------------------------------------------------------------------------------------------

|                                      | Three months ended | Six months ended
|------------------------------------- | ------------------ | ----------------
|
|
|                                      |                    |                 
|Net
      income                      |                    | $ 3,727         
|Currency
      translation adjustment |                    | (74             
|Unrealized gain on investment         |                    | (53             
|                                      |                    |                 
|Comprehensive income                  |                    | $ 3,600         
|                                      |                    |                 

## NOTE 6INVENTORIES (in thousands)

|                     | March  31,2002 | September  30,2001
|-------------------- | -------------- | ------------------
|                     |                |                   
|                     |                |                   
|Raw
      Materials  |                | $   950           
|Work-in-process      |                | 52                
|Finished
      goods |                | 30                
|                     |                |                   
|                     |                | $1,032            
|                     |                |                   
|                     |               

|8
|-

|NOTE 7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, sales, income and assets by region for the six month periods ended March 31, 2002 and 2001 were as follows (in thousands):
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                      | NorthAmerica | UK
      &Europe | Japan | ConsolidatedTotal
|------------------------------------- | ------------ | ---------------- | ----- | -----------------
|                                      |              |                  |       |                  
|Six months ended March 31, 2002       |              |                  |       |                  
|Sales to
      unaffiliated customers |              | $   3,054        |       | $ 8,898          
|Net
      income (loss)               |              | (965             | )     | 7,812            
|                                     
|Identifiable Assets at March 31, 2002 |              | $ 69,097         |       | $ 9,606          
|                                     
|Six months ended March 31, 2001       |             
|Sales to
      unaffiliated customers |              | $   7,037        |       | $ 2,663          
|Net
      income                      |              | 4,376            |       | 1,079            
|                                     
|Identifiable assets at March 31, 2001 |              | $ 57,311         |       | $ 3,872          

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

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 2001.

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
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 family of digital communication test systems is designed to enable equipment manufacturers and network operators to deliver complex digital telecommunications equipment and services more quickly and cost-effectively. The DCT product line performs 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 protocols and variants. The DCT system consists of advanced software and hardware running on a third-party UNIX-based workstation. In addition, the Company offers customer support under software support contracts, as well as installation and training services.
9
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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
|----------------------------------- | -------------------------- | ------------------------
|
|
|                                    |                            |                         
|Revenues:                          
|Product sales                       |                            | 87.2                    
|Services                            |                            | 12.8                    
|                                    |                            |                         
|Total
      revenues                |                            | 100.0                   
|                                   
|Cost of
      revenues:             |                           
|Product sales                       |                            | 6.6                     
|Services                            |                            | 2.3                     
|                                    |                            |                         
|Total
      cost of revenues        |                            | 8.9                     
|                                    |                            |                         
|Gross
      profit                  |                            | 91.1                    
|                                   
|Operating
      expenses:           |                           
|Research and
      development      |                            | 14.9                    
|Sales and
      marketing           |                            | 22.2                    
|General and
      administrative    |                            | 13.5                    
|                                    |                            |                         
|Total
      operating expenses      |                            | 50.6                    
|                                    |                            |                         
|Operating
      income              |                            | 40.5                    
|Interest
      income               |                            | 2.7                     
|Other
      expense, net            |                            | (0.5                    
|                                    |                            |                         
|Income
      before income taxes    |                            | 42.7                    
|Provision
      for income taxes    |                            | 12.0                    
|                                    |                            |                         
|Net
      income                    |                            | 30.7                    
|                                    |                            |                         
|                                   
|Gross
      margin on product sales |                            | 92.4                    
|                                    |                            |                         
|Gross
      margin on services      |                            | 82.3                    
|                                    |                            |                         

|10
|--

|Comparison of the Three Month Periods Ended March 31, 2002 and 2001
Revenues
Revenues increased by approximately 13% from $10.7 million for the three months ended March 31, 2001 to $12.1 million for the three months ended March 31, 2002. Over the same period, product sales increased by approximately 12% from $9.4 million to $10.6 million. Services revenue increased by approximately 19% from $1.3 million to $1.6 million. The increase in product sales was attributable to the results generated from the Companys increased focus on test systems for third generation (3G) digital cellular and Voice over IP (VoIP). The increase in services revenue was due to increased sales of software support contracts associated with new system sales as well as support contract renewals and customer training.
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. Cost of services consists  of the costs of payroll and benefits for customer support, installation and training personnel. Cost of revenues decreased approximately 13% from $1.2 million for the three months ended March 31, 2001 to $1.1 million for the three months ended March 31, 2002. Over the same period, the cost of product revenues decreased by approximately 27% and gross margin from product revenues increased from 88% to 92% as the Companys sales mix had a greater proportion of higher margin products. Cost of services increased by approximately 96% from $140,000 for the three months ended March 31, 2001 to $275,000 for the three months ended March 31, 2002 and gross margin on services decreased from 89% to 82% due to an increase in customer service personnel.
Research
      and Development
Research and development expenses consist  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 44% from $1.3 million for the three months ended March 31, 2001 to $1.8 million for the three months ended March 31, 2002. As a percentage of total revenues, research and development expenses increased from 12% to 15% over the same period. The increase in absolute dollars was due to an increase in personnel in the engineering group. The Company expects that research and development expenses will increase in absolute dollars for the foreseeable future as the Company intends to continue to invest in product development.*
Sales and
      Marketing
Sales and marketing expenses consist  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 remained consistent at $2.7 million for the three months ended March 31, 2001 and 2002. As a percentage of total revenues, sales and marketing expenses were 25% and 22% for the three months ended March 31, 2001 and 2002, respectively. The Company expects that sales and marketing expenses will increase in absolute dollars for the foreseeable future as the Company intends to continue to invest in its sales and marketing capabilities.*
General and
      Administrative
General and administrative expenses include costs associated with the Companys general and risk management, meeting public company reporting requirements, employee recruitment and retention, investor relations and finance functions. General and administrative expenses increased by approximately 10% from $1.5 million for the three months ended March 31, 2001 to $1.6 million for the three months ended March 31, 2002 due to increased legal and insurance expenses. As a percentage of total revenues, general and administrative expenses remained consistent at 14% over the same period.
11
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Interest
      Income
Interest income consists  of interest earned on cash and cash equivalents and short-term investments. Interest income decreased from $893,000 for the three months ended March 31, 2001 to $323,000 for the three months ended March 31, 2002. Although the Company had higher invested balances during the three months ended March 31, 2002 compared to the three months ended March 31, 2001, the decrease in prevailing interest rates significantly reduced earnings on the Companys investments.
Other Expense, net
Other expense, net represents gains and losses from fluctuations in exchange rates on transactions denominated in foreign currencies. Other expense decreased from $414,000 for the three months ended March 31, 2001 to $56,000 for the three months ended March 31, 2002 due to reduced foreign exchange losses, including income realized on forward contracts entered into which were denominated in currencies other than the US dollar.
Provision
      for income taxes
Provision for income tax consists of federal, state and international income taxes. The Companys effective tax rate was 35% for the three months ended March 31, 2001 and 28% for the three months ended March 31, 2002. The decrease in the consolidated tax rate reflects changes in the levels of pretax profits in the countries in which the Company and its subsidiaries are registered together with changes in the tax rates in those countries. The Company expects that its future tax rate may vary depending in part on the relative income contribution by its domestic and foreign operations.
Six Months Ended March 31, 2002 and 2001
Revenues
Revenues increased by approximately 12% from $20.5 million for the six months ended March 31, 2001 to $23.0 million for the six months ended March 31, 2002. Over the same period, product sales increased by approximately 13% from $17.8 million to $20.1 million. Services revenue increased by approximately 9% from $2.7 million to $2.9 million. The increase in product sales was attributable to the results generated from the Companys increased focus on test systems for third generation (3G) digital cellular and Voice over IP (VoIP). The increase in services revenue was due to increased sales of software support contracts associated with new system sales as well as support contract renewals and customer training.

Cost of Revenues
Cost of revenues decreased approximately 6% from $2.1 million for the six months ended March 31, 2001 to $2.0 for the six months ended March 31, 2002. Over the same period, the cost of product revenues decreased by approximately 21% and gross margin from product revenues increased from 90% to 93% as the Companys sales mix had a greater proportion of higher margin company products. Cost of services increased by approximately 86% from $290,000 for the six months ended March 31, 2001 to $538,000 for the six months ended March 31, 2002 and gross margin on services decreased from 89% to 82% due to an increase in customer service personnel.

12
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Research and Development
Research and development expenses increased by approximately 54% from $2.2 million for the six months ended March 31, 2001 to $3.4 million for the six months ended March 31, 2002. As a percentage of total revenues, research and development expenses increased from 11% to 15% over the same period. The increase in absolute dollars was due  to an increase in headcount in the engineering group. The Company expects that research and development expenses will increase in absolute dollars for the foreseeable future as the Company intends to continue to invest in product development.*

Sales and Marketing
Sales and marketing expenses increased by approximately 4% from $5.2 million for the six months ended March 31, 2001 to $5.5 million for the six months ended March 31, 2002. As a percentage of total revenues, sales and marketing expenses decreased from 26% for the six months ended March 31, 2001 to 24% for the six months ended March 31, 2002. The increase in absolute dollars was due  to an increase in sales and marketing personnel resulting in increased salary, commissions, and bonuses, increased travel expenses, and the expansion of the Companys sales and support offices. The Company expects that sales and marketing expenses will increase in absolute dollars for the foreseeable future as the Company intends to continue to invest in its sales and marketing capabilities.*

General and Administrative
General and administrative expenses increased by approximately 4% from $2.7 million for the six months ended March 31, 2001 to $2.8 million for the six months ended March 31, 2002 due to an increase in legal and insurance expenses. As a percentage of total revenues, general and administrative expenses decreased from 13% to 12% over the same period.

Interest Income
Interest income decreased from $1.7 million for the six months ended March 31, 2001 to $756,000 for the six months ended March 31, 2002. Although the Company had higher invested balances during the six months ended March 31, 2002 compared to the six months ended March 31, 2001, the decrease in prevailing interest rates significantly reduced earnings on the Companys investments.

Other Expense, net
Other expense decreased from $505,000 for the six months ended March 31, 2001 to $234,000 for the six months ended March 31, 2002 due to reduced foreign exchange losses, including income realized on forward contracts entered into which were denominated in currencies other than the US dollar.

Provision for income taxes
The Companys effective tax rate was 35% for the six months ended March 31, 2001 and 28% for the six months ended March 31, 2002. These tax rates  reflect the anticipated percentages of revenues derived by the Company from international operations. The Company expects that its future tax rate may vary depending in part on the relative income contribution by its domestic and foreign operations.*

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|Liquidity
      and Capital Resources
Historically, the Company has financed its operations, including increases in accounts receivable and capital equipment acquisitions,  through cash generated from operations, cash proceeds from its initial public offering of common stock, investment earnings and the sale of the Companys stock through the exercise of employee stock options and the Employee Stock Purchase Plan.
The Companys operating activities provided cash of $3.5 million and $6.8 million in the six month periods ended March 31, 2001 and 2002, respectively. The cash provided by the Companys operations for the six months ended March 31, 2002 was  attributable to net income and increased deferred revenue and accrued liabilities, partially offset by an increase in accounts receivable that reflected  timing of invoicing. Investing activities, consisting  of purchases and sales of short-term investments and to a lesser extent additions to property and equipment, provided cash of $10.3 million in the six months ended March 31, 2001 and used cash of $26.9 million in the six months ended March 31, 2002. Cash flows from financing activities in the six months ended March 31, 2001 and 2002 were attributable to exercises of employee stock options and the purchase of shares under the employee stock purchase plan in both periods.
As of March 31, 2002, the Company had working capital of $69.1 million, cash and cash equivalents of $24.6 million and short-term investments of $43.8 million. As of March 31, 2002, the Company had no bank indebtedness and no long-term commitments other than operating lease obligations. Minimum annual rental payments under non-cancelable operating leases total $932,000 in the current fiscal year ending September 30, 2002 and decline thereafter. The Company expects that capital expenditures in fiscal 2002 will remain consistent with the $625,000 level in the prior year.*

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.Factors That May Affect Future Results
Fluctuations in Quarterly Operating Results; Lengthy
      Sales Cycle
The Companys revenues and operating results are relatively difficult to forecast for a number of reasons, including (i) the variable size and timing of individual purchases by customers, (ii) seasonal factors that may affect capital spending by customers, such as the varying fiscal year ends of customers and the reduction in business during the summer months, particularly in Europe, (iii) the relatively long sales cycles for the Companys products, (iv) the timing of hiring sales and technical personnel, (v) changes in timing and amount of sales incentive compensation, (vi) competitive conditions in the Companys markets, (vii) exchange rate fluctuations, (viii) changes in the mix of products sold, (ix) the timing of the introduction and market acceptance of new products or product enhancements by the Company, its customers, competitors or suppliers, (x) costs associated with developing and introducing new products, (xi) product life cycles, (xii) changes in the level of operating expenses relative to revenues, (xiii) software defects and other product quality problems, (xiv) customer order deferrals in anticipation of new products, (xv) delays in purchasing decisions or customer orders due to customer consolidation, (xvi) supply interruptions, (xvii) changes in the regulatory environment and (xviii) changes in global or regional economic conditions or in the telecommunications industry.
The Companys revenues in any period generally have been, and are likely to continue to be, derived from relatively small numbers of sales and service transactions with relatively high average revenues per order. Therefore, the loss of any orders or delays in closing such transactions could have a more significant impact on the Companys quarterly revenues and results of operations than on those of companies with relatively high 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 installation of the products, provided no significant vendor obligations remain and collection of the related receivable is deemed 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.
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|The Companys expectations for future revenues are predicated, to a large extent, on the recruitment and hiring of a significant number of employees, particularly experienced sales and technical personnel. Failure to hire, or delays in hiring, sufficient sales and technical personnel could have a material adverse effect on the Companys results of operations for any period.
Due to the relatively fixed nature of most of the Companys costs, including personnel and facilities costs, and because operating expenses are based on anticipated revenue, a decline in revenue from even a limited number of transactions, failure to achieve expected revenue in any fiscal quarter or unanticipated variations in the timing of recognition of specific revenues can cause significant variations in operating results from quarter to quarter and may in some future quarter result in losses or have a material adverse effect on the Companys business, financial condition and results of operations. The Company believes, therefore, that period-to-period comparisons of its operating results should not be relied upon as an indication of future performance.
For all of the foregoing factors, as well as other unanticipated factors, it is possible that in some future quarter the Companys results of operations could fail to meet the expectations of public market analysts or investors. In such event, or in the event that adverse conditions prevail or are perceived to prevail generally or with respect to the Companys business, the price of the Companys common stock will likely be materially adversely affected.
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 three months ended March 31, 2002, the Companys top four customers represented approximately 69% 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
      Associated with International Sales and Operations
Company revenues from international customers were approximately 82% during the three months ended March 31, 2002. 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 three months ended March 31, 2001 a significant portion of the Companys sales has been to customers in Japan. If economic conditions in Japan 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.

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|Most 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.

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 operating system. The Companys current and prospective customers may require other operating systems to be used in their telecommunications test systems, such as Windows 2000 or Windows XP 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 network operators, telecommunications equipment manufacturers 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.

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|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 on foreign currency denominated sales made to foreign subsidiaries. The Company utilizes foreign currency forward exchange contracts and options to hedge against future movements in foreign exchange rates that affect certain foreign currency denominated inter-company receivables. The Company attempts to match the forward contracts with the underlying receivables being hedged in terms of currency, amount and maturity. The Company does not use derivative financial instruments for speculative or trading purposes. Because the impact of movements in currency exchange rates on forward contracts offsets the related impact on the exposures hedged, these financial instruments do not subject the Company to speculative risk that would otherwise result from changes in currency exchange rates. Realized gains and losses on forward exchange contracts offset foreign exchange transaction gains or losses from revaluation of foreign currency denominated inter-company receivable balances which otherwise would be charged to other income (expense). To date, the Company has not fully hedged all risk associated with its sales denominated in foreign currencies, and there can be no assurance that the Companys hedging activities, if any, will be successful.
At March 31, 2002 the Company had forward exchange contracts maturing in fiscal 2002 to sell approximately $5.4 million in Japanese Yen and options maturing in fiscal 2002 to sell $2.1 million in Japanese Yen.
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 2001.Part II.
      Other Information
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|Item 1. |  | Legal Proceedings
|------- |  | -----------------

|Item 2. |  | Changes in Securities and Use
      of Proceeds
|------- |  | -----------------------------------------------

| | Inapplicable
| | ------------

|Item 3. |  | Defaults Upon Senior
      Securities
|------- |  | -------------------------------------

| | Inapplicable
| | ------------

|17
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|
|

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

| | Inapplicable
| | ------------

|Item 5. |  | Other
      Information
|------- |  | -----------------------

| | Inapplicable
| | ------------

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

| |  | (a) |  | Exhibits.
| |  | --- |  | ---------

| | Inapplicable
| | ------------

| |  | (b) |  | Reports on Form
      8-K.
| |  | --- |  | --------------------------

| | No reports on Form 8-K were filed during the quarter for which this report on Form 10-Q is filed.
| | -------------------------------------------------------------------------------------------------

|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.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Date:    April 30, 2002 |  | CATAPULT COMMUNICATIONS CORPORATIONBy:
      /s/ Chris StephensonChris StephensonVice
      President and Chief Financial Officer(Principal
      Financial Officer)
|----------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|18
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