UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





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





For the
quarterly period ended April 30, 2010





or





 ̈
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934








Commission
File Number: 0-30121





ULTICOM,
INC.


(Exact
name of registrant as specified in its charter)





New
      Jersey
            
            22-2050748(State
      or other jurisdiction of incorporation or organization)
            
            (I.R.S.
      Employer Identification No.)1020
      Briggs Rd. Mt. Laurel, NJ
            
            08054(Address
      of principal executive offices)
            
            (Zip
      Code)





(856)
787-2700


(Registrant's
telephone number, including area code)





Not
Applicable


(Former
name, former address and former fiscal year, if changed since last
report)





Indicate
by check mark whether the registrant (1) has filed all reports required 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.





x
            Yes
            
             ̈
            No





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).





 ̈
            Yes
            
             ̈
            No





Indicate
by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act).





 ̈
            Yes
            
            x
            No





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).





 ̈
            Yes
            
            x
            No





The number of shares of Common Stock,
no par value, outstanding as of June 2, 2010 was11,125,821.








TABLE OF
      CONTENTSPageForward
      Looking Statements
            
            iiPART I - Financial
    InformationITEM
      1.
            
            Condensed
      Consolidated Financial Statements (Unaudited).Condensed
      Consolidated Balance Sheets as of January 31, 2010 and April 30,
      2010
            
            1Condensed
      Consolidated Statements of Operations for the Three Months ended April 30,
      2009 and 2010
            
            2Condensed
      Consolidated Statements of Cash Flows for the Three Months ended April 30,
      2009 and 2010
            
            3Notes
      to Condensed Consolidated Financial Statements
            
            4ITEM
      2.
            
            Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations.
            
            9ITEM
      3.
            
            Quantitative
      and Qualitative Disclosures about Market Risk.
            
            17ITEM
      4.
            
            Controls
      and Procedures.
            
            18PART II - Other InformationITEM
      1.
            
            Legal
      Proceedings.
            
            19ITEM
      1A.
            
            Risk
      Factors.
            
            19ITEM
      2.
            
            Unregistered
      Sales of Equity Securities and Use of Proceeds.
            
            19ITEM
      3.
            
            Defaults
      Upon Senior Securities.
            
            19ITEM
      4.
            
            Removed
      and Reserved.
            
            19ITEM
      5.
            
            Other
      Information.
            
            19ITEM
      6.
            
            Exhibits.
            
            20SIGNATURES
            
            20EX-31.1
            
            (CERTIFICATION
      OF CHIEF EXECUTIVE OFFICER)EX-31.2
            
            (CERTIFICATION
      OF CHIEF FINANCIAL OFFICER)EX-32.1
            
            (CERTIFICATION
      OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER)




















FORWARD-LOOKING
STATEMENTS








Certain statements by
Ulticom, Inc. (referred to herein as “Ulticom,” the “Company,” “we,” “our” or
“us”) appearing in Item 2 (Management’s Discussion and Analysis of
Financial Condition and Results of Operations) and elsewhere in this Quarterly
Report on Form 10-Q constitute “forward-looking statements” for purposes of the
Private Securities Litigation Reform Act of
1995.Forward-looking statements include financial
projections, statements of plans and objectives for future operations,
statements of future economic performance, and statements of assumptions
relating thereto.  In some cases, forward-looking statements can be
identified by the use of future or conditional words such as “may,” “will,”
“expects,” “plans,” “anticipates,” “estimates,” “intends,” “seeks,” “projected,”
“believes,” “potential,” “continue” or the negative thereof or other comparable
terminology.





There can
be no assurances that forward-looking statements will be achieved. By their very
nature, forward-looking statements involve known and unknown risks,
uncertainties, and other important factors that could cause our actual results
or performance to differ materially from those expressed or implied by such
forward-looking statements. Such risks and uncertainties may also give rise to
future claims and increase our exposure to contingent
liabilities.  These risks and uncertainties arise from (among other
factors):




·
            our
      incurring substantial expenses for litigation and governmental enforcement
      actions and our potential exposure to contingent liabilities because of
      historical improper accounting practices which required restatement
      adjustments to be made in our consolidated financial statements as
      disclosed in the Annual Report on Form 10-K for the fiscal year ended
      January 31, 2009 (the “2008 Form 10-K”) and resulted in our inability to
      file required periodic reports with the SEC during the period from
      December 2005 to September 30,
2009;


·
            a
      Final Judgment that was entered in connection with our settlement of an
      SEC enforcement proceeding that permanently enjoins us from violating
      Section 17(a) of the Securities Act of 1933, Sections 13(a), 13(b)(2)(A)
      and (B) and 14(a) of the Securities Exchange Act of 1934 and SEC Rules
      13a-1, 13a-11, 13a-13 and 14a-9;


·
            our
      directors and officers liability insurance is unlikely to cover potential
      expenses or liabilities relating to our historical improper option-related
      accounting practices, and could result in significant indemnification
      liabilities being uninsured, which could have a material adverse effect on
      our business, financial position, results of operations or cash
      flows;


·
            changes
      in our capital structure, including, but not limited to changes relating
      to our payment of a special dividend in April
  2009;


·
            inaccuracies
      in our historical periodic reports filed with the SEC prior to the
      September 30, 2009 filing of the 2008 Form 10-K, and, as indicated in our
      Current Report on Form 8-K dated April 16, 2006, such reports cannot be
      relied upon;


·
            our
      majority shareholder, Comverse Technology, Inc., controls the outcome of
      all matters submitted for shareholder action, including the composition of
      our Board of Directors and the approval of significant corporate
      transactions and the interests of our majority shareholder may not be
      aligned with the interests of our other
  shareholders;


·
            our
      dependence on sales of our Signalware products and the possibility of such
      products becoming outdated because of new
  technology;








ii






·
            our
      ability to (i) identify and respond to emerging technological trends in
      our target markets; (ii) develop and maintain competitive solutions that
      meet customers’ changing needs; and (iii) enhance existing products by
      adding features and functionality that differentiate our products from
      those of our competitors;


·
            our
      investment in sales and marketing and research and development are a
      significant percentage of our revenues, and the failure for a market to
      emerge for these new products or customers to accept them could adversely
      affect our business and the investments may be
  lost;


·
            our
      dependence on a limited number of telecommunication industry customers for
      a significant percentage of our revenues, which customers may experience
      difficulties due to the current market environment and reductions in
      capital spending by telecommunication service providers on projects that
      incorporate our products;


·
            aggressive
      competition which may force us to reduce
prices;


·
            our
      holding a large proportion of our assets in investments in marketable debt
      securities;


·
            our
      products being dependent upon their ability to operate on and support new
      hardware and operating systems, signaling systems and protocols of other
      companies and we are subject to risks associated with the integration of
      our products with those of equipment manufacturers and application
      developers and our ability to establish and maintain channel and marketing
      relationships with leading equipment manufacturers and application
      developers;


·
            our
      products having long sales cycles and our ability to forecast the timing
      and amount of product sales is
limited;


·
            our
      reliance on a limited number of independent manufacturers to manufacture
      boards for our products and on a limited number of suppliers for board
      components;


·
            our
      becoming subject to, defending and resolving allegations or claims of
      infringement of intellectual property rights; risks associated with others
      infringing on our intellectual property rights and the inappropriate use
      by others of our proprietary
technology;


·
            the
      impact changes in general economic conditions may have on our
      business;


·
            our
      ability to maintain the listing of our common stock on a national
      securities exchange;


·
            our
      dependence on customers outside of the United States for a significant
      portion of our total revenues and our exposure to particular risks
      associated with international transactions, including political decisions
      affecting tariffs and trade conditions, rapid and unforeseen changes in
      economic conditions in individual countries, turbulence in foreign
      currency and credit markets, and increased costs resulting from lack of
      proximity to the customer; and


·
            our
      ability to recruit and retain qualified
  personnel.





These
risks and uncertainties, as well as other factors, are discussed in greater
detail in Item 1A (Risk Factors) in our Annual Report on Form 10-K for the
fiscal year ended January 31, 2010. We make no commitment to revise or update
any forward-looking statements in order to reflect events or circumstances after
the date any such statement is made, except where otherwise required by
law.











iii











PART
I – FINANCIAL INFORMATION







ITEM
1.                    CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.





ULTICOM,
INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS


(Unaudited)


(In
thousands, except share data)





January
      31,
            
            
            April
      30,2010*
            
            
            
            2010ASSETSCurrent
      Assets:Cash and cash equivalents
            
            $
            13,190
            
            
            $
            20,250Short-term investments
            
            
            65,087
            
            
            
            55,184Accounts receivable, net
            
            
            10,657
            
            
            
            10,347Inventories
            
            
            1,019
            
            
            
            1,526Prepaid expenses and other current assets
            
            
            7,444
            
            
            
            9,060Total
      current assets
            
            
            97,397
            
            
            
            96,367Property
      and equipment, net
            
            
            1,872
            
            
            
            1,687Other
      assets
            
            
            1,411
            
            
            
            1,407Deferred
      income taxes
            
            
            6,377
            
            
            
            6,051Total
      assets
            
            $
            107,057
            
            
            $
            105,512LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent
      Liabilities:Accounts payable and accrued expenses
            
            $
            6,598
            
            
            $
            4,715Deferred revenue
            
            
            2,945
            
            
            
            4,516Total
      current liabilities
            
            
            9,543
            
            
            
            9,231Long-term
      Liabilities:Deferred
      revenue
            
            
            3,682
            
            
            
            3,628Unrecognized
      income tax benefits
            
            
            1,640
            
            
            
            1,661Other
      long-term liabilities
            
            
            35
            
            
            
            -Total
      liabilities
            
            
            14,900
            
            
            
            14,520Commitments
      and ContingenciesShareholders’
      Equity:Common
      stock, no par value, 50,000,000 shares authorized,
              11,044,685
      and 11,122,146 shares issued and outstanding as
              of
      January 31, 2010 and April 30, 2010, respectively
            
            
            -
            
            
            
            -Additional paid-in capital
            
            
            96,691
            
            
            
            96,810Accumulated deficit
            
            
            (3,582
            )
            
            
            (4,822
            )Accumulated other comprehensive loss
            
            
            (952
            )
            
            
            (996
            )Total
      shareholders’ equity
            
            
            92,157
            
            
            
            90,992Total
      liabilities and shareholders’ equity
            
            $
            107,057
            
            
            $
            105,512





* The
Condensed Consolidated Balance Sheet as of January 31, 2010 has been derived
from the Company’s audited Consolidated Balance Sheet as of that
date.





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


1


ULTICOM,
INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


(Unaudited)


(In
thousands, except per share data)








Three
      months endedApril
      30,
            
            
            April
      30,2009
            
            
            2010Revenues
      from:Products
            $
            8,304
            
            
            $
            4,963Services
            
            3,252
            
            
            
            3,423Total
      revenues
            
            11,556
            
            
            
            8,386Cost
      of revenues:Product
      costs
            
            1,807
            
            
            
            1,376Service
      costs
            
            1,211
            
            
            
            1,207Total
      cost of revenues
            
            3,018
            
            
            
            2,583Gross
      profit
            
            8,538
            
            
            
            5,803Operating
      expenses:Research
      and development
            
            3,490
            
            
            
            3,046Selling,
      general and administrative
            
            7,345
            
            
            
            5,900Loss
      from operations
            
            (2,297
            )
            
            
            (3,143
            )Interest
      and other income, net
            
            853
            
            
            
            372Loss
      before income taxes
            
            (1,444
            )
            
            
            (2,771
            )Income
      tax benefit
            
            (533
            )
            
            
            (1,531
            )Net
      loss
            $
            (911
            )
            
            $
            (1,240
            )Loss
      per share:Basic
            $
            (0.08
            )
            
            $
            (0.11
            )Diluted
            $
            (0.08
            )
            
            $
            (0.11
            )









































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











2





ULTICOM,
INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)


(In
thousands)








Three
      months endedApril
      30,
            
            
            April
      30,2009
            
            
            2010Cash
      flows from operating activities:Net
      loss
            
            $
            (911
            )
            
            $
            (1,240
            )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      and amortization
            
            
            427
            
            
            
            315Deferred
      income taxes
            
            
            (587
            )
            
            
            210Share-based
      payment expense
            
            
            152
            
            
            
            129Net
      realized loss (gain) on sales of investments
            
            
            (124
            )
            
            
            4Changes
      in operating assets and liabilities:Accounts
      receivable, net
            
            
            (1,149
            )
            
            
            310Inventories
            
            
            (310
            )
            
            
            (507
            )Prepaid
      expenses and other current assets
            
            
            951
            
            
            
            (1,665
            )Accounts
      payable and accrued expenses
            
            
            377
            
            
            
            (1,888
            )Deferred
      revenue
            
            
            1,065
            
            
            
            1,518Other,
      net
            
            
            (386
            )
            
            
            112Net cash used in operating activities
            
            
            (495
            )
            
            
            (2,702
            )Cash
      flows from investing activities:Purchases
      of property and equipment
            
            
            -
            
            
            
            (203
            )Purchases
      of investments
            
            
            (22,525
            )
            
            
            (20,000
            )Maturities
      and sales of investments
            
            
            55,800
            
            
            
            30,000Net cash provided by
      investing activities
            
            
            33,275
            
            
            
            9,797Cash
      flows from financing activities:Proceeds
      from exercises of stock options
            
            
            -
            
            
            
            74Payment
      of special dividend
            
            
            (199,643
            )
            
            
            -Net cash provided by (used in) financing activities
            
            
            (199,643
            )
            
            
            74Effect
      of exchange rate changes on cash and cash equivalents
            
            
            6
            
            
            
            (109
            )Net
      increase (decrease) in cash and cash equivalents
            
            
            (166,857
            )
            
            
            7,060Cash
      and cash equivalents, beginning of period
            
            
            206,771
            
            
            
            13,190Cash
      and cash equivalents, end of period
            
            $
            39,914
            
            
            $
            20,250




















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


3


ULTICOM,
INC. AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements


(Unaudited)







1.           BUSINESS
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES




Company Business and Background -Ulticom, Inc. (together with its subsidiaries, the “Company"), a New
Jersey corporation and a majority-owned subsidiary of Comverse Technology, Inc.,
designs, develops, markets, licenses, and supports service enabling signaling
software for fixed, mobile, and internet communications software and hardware
for use in the communications industry.





Basis of Presentation -The
accompanying financial information should be read in conjunction with the
consolidated financial statements, including the notes thereto, contained in the
Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2010.
The condensed consolidated financial information included herein is unaudited;
however, such information reflects all adjustments (consisting solely of normal
recurring adjustments), which are, in the opinion of management, necessary for a
fair statement of results for the interim periods. The results of operations for
the three months ended April 30, 2009 and 2010 are not necessarily indicative of
the results to be expected for the full year.





Recent Accounting Guidance Not Yet
Adopted -In October 2009, the FASB issued an accounting standards update
that provides authoritative guidance regarding revenue arrangements with
multiple deliverables. The guidance in this update:





·
            provides
      principles and application guidance on whether a revenue arrangement
      contains multiple deliverables, how the arrangement should be separated,
      and how the arrangement consideration should be
  allocated;


·
            requires
      an entity to allocate revenue in a multiple-deliverable arrangement using
      estimated selling prices of the deliverables if a vendor does not have
      vendor-specific objective evidence or third-party evidence of selling
      price;


·
            eliminates
      the use of the residual method and, instead, requires an entity to
      allocate revenue using the relative selling price method;
    and


·
            expands
      disclosure requirements with respect to multiple-deliverable revenue
      arrangements.





Also, 
in October 2009,  the FASB issued an accounting standards update that
applies to  multiple-deliverable revenue  arrangements that
contain both software and hardware elements. This update removes tangible
products from the scope of the existing software revenue guidance and provides
guidance on determining whether software deliverables in an arrangement that
includes a tangible product are within the scope of the software revenue
guidance. The guidance in both accounting standards updates should be applied on
a prospective basis for applicable multiple-deliverable revenue arrangements
entered into or materially modified in fiscal years beginning on or after June
15, 2010. Alternatively, an entity can elect to adopt the provisions of the
guidance on a retrospective basis. The Company is assessing the potential impact
that the application of this guidance may have on its consolidated financial
statements and disclosures.

















4








2.
            SPECIAL
      DIVIDEND (FISCAL YEAR 2009)





On April
20, 2009, the Company paid a special cash dividend to its shareholders of record
as of the close of business on April 13, 2009.  The total amount of
the dividend was approximately $199.8 million.  As of April 30, 2010,
a portion of the special dividend, totaling approximately $0.1 million, was
payable to holders of deferred stock units awarded under the Company’s equity
incentive plan pending delivery of the shares of common stock subject to such
awards. The Company’s retained earnings as of the date of the dividend was
approximately $65.9 million.  As the amount of the dividend exceeded
the Company’s retained earnings as of the date of the dividend, the remaining
portion of the dividend, approximately $133.9 million, reduced additional
paid-in capital.  The Company’s accumulated deficit as of January 31,
2010 represented the net loss of the Company from April 21, 2009 through January
31, 2010.





3.
            SHORT-TERM
      INVESTMENTS AND CASH EQUIVALENTS





As of
January 31, 2010 and April 30, 2010, all of the Company’s short-term investments
were marketable debt securities that were classified as available-for-sale and
summarized in the following table:





(Amounts
      in thousands)
            
            Cost
            
            
            Gross
              Unrealized
              Gains
            
            
            Gross
              Unrealized
              Losses
            
            
            Estimated
              Fair
      Value
            
            Ranking
      of
              Market
      Price
              ObservabilityAs of January 31, 2010U.S.
      governmental agency obligations
            
            $
            64,959
            
            
            $
            285
            
            
            $
            (157
            )
            
            $
            65,087
            
            Level
      2As of April 30, 2010U.S.
      governmental agency obligations
            
            $
            54,957
            
            
            $
            234
            
            
            $
            (7
            )
            
            $
            55,184
            
            Level
      2





The
Company’s measurements of the fair values of these financial instruments are
performed on a recurring basis and, as of April 30, 2010, were based on
non-binding market consensus prices that can be corroborated with observable
market data. The valuation techniques used to determine these prices are
primarily income-based approaches, the inputs to which generally consist of
yield curves and other factors considering the risk attributes of the investment
security. Accordingly, the inputs to the valuation techniques used to measure
the fair values of these instruments were ranked, according to their market
price observability, as Level 2 inputs.





As of
January 31, 2010 and April 30, 2010, the Company’s cash equivalents primarily
consisted of investments in institutional money market funds placed with high
credit-quality financial institutions.  Due to the short-term nature
of the Company’s cash and cash equivalents, the carrying amounts are not
generally subject to price risk that may result from fluctuations in interest
rates.





4.           INVENTORIES





As of
January 31, 2010 and April 30, 2010, the Companies inventories principally
consisted of finished goods, as the carrying amounts of raw material inventories
were not significant.








5








5.           INTEREST
AND OTHER INCOME, NET




Interest
and other income, net consisted of the following:


(Amounts
      in thousands)
            Three
      months endedApril
      30,
            
            
            April
      30,2009
            
            
            2010Interest
      income
            $
            737
            
            
            $
            379Realized
      gain (loss) on sales of investments, net
            
            124
            
            
            
            (4
            )Other
            
            (8
            )
            
            
            (3
            )$
            853
            
            
            $
            372





6.           COMPREHENSIVE
INCOME (LOSS)





Comprehensive
income (loss) consisted of the following:


(Amounts
      in thousands)
            Three
      months endedApril
      30,
            
            
            April
      30,2009
            
            
            2010Net
      loss
            $
            (911
            )
            
            $
            (1,240
            )Unrealized
      gains (losses) on investments, net of reclassification adjustments and
      income taxes
            
            (130
            )
            
            
            62Foreign
      currency translation adjustments
            
            52
            
            
            
            (106
            )Total
      comprehensive loss
            $
            (989
            )
            
            $
            (1,284
            )





Upon the
sale of an available-for-sale investment security, the cumulative unrealized
gain or loss associated with the sold security that was previously recorded in
accumulated other comprehensive income (loss) is reclassified into the condensed
consolidated statement of operations as a realized gain (loss).  For
each of the three months ended April 30, 2009 and 2010, realized gains, net of
applicable income taxes, reclassified into the condensed consolidated statements
of operations were less than $0.1 million.





7.           EARNINGS
(LOSS) PER SHARE





Basic
earnings (loss) per share is determined by using the weighted average number of
shares of common stock outstanding during each period. Diluted earnings per
share further assumes the issuance of common shares for all dilutive potential
shares outstanding.  The share amounts used in the computations of
basic and diluted loss per share were as follows:





(Amounts
      in thousands)
            Three
      months endedApril
      30,
            
            
            April
      30,2009
            
            
            2010Basic
      share amounts
            
            10,883
            
            
            
            10,953Effect
      of dilutive potential shares:Options
            
            -
            
            
            
            -Restricted
      stock and deferred stock units
            
            -
            
            
            
            -Diluted
      share amounts
            
            10,883
            
            
            
            10,953










6







For
purposes of computing basic earnings (loss) per share, any nonvested shares of
restricted stock that have been issued by the Company and are contingently
returnable to the Company are excluded from the weighted average number of
shares of common stock outstanding. Incremental potential common shares from
stock options and nonvested restricted stock and deferred stock units (“DSUs”)
are included in the computation of diluted earnings per share except when the
effect would be antidilutive. Accordingly, diluted earnings (loss) per share for
the three months ended April 30, 2009 and 2010 excluded approximately 0.8
million and 0.7 million potential common shares associated with outstanding
stock options and nonvested restricted stock and DSUs, as these potential common
shares would have had an antidilutive effect.





8.           RELATED PARTY
TRANSACTIONS





The
Company sells products and provides services to other subsidiaries of Comverse
Technology, Inc.  For each of the three months ended April 30, 2009
and 2010, the Company’s revenues included sales to subsidiaries of Comverse
Technology, Inc. of approximately $0.4 million.





As of
January 31, 2010 and April 30, 2010, the amount due from subsidiaries of
Comverse Technology, Inc. was approximately $0.3 million and $0.4 million,
respectively.





9.           SHARE-BASED
PAYMENT TRANSACTIONS





Equity
Award Grants





In
February 2010, the independent directors of the Company’s Board of Directors
were awarded, in the aggregate, approximately 9,300 DSUs for their service
during the fiscal year ending January 31, 2011.  The DSUs vest 25% on
April 30, 2010; 25% on July 31, 2010; 25% on October 31, 2010; and 25% on
January 31, 2011.  Shares of the Company’s common stock equal to the
number of vested DSUs will be issued to these directors on or before January 2,
2012.  Based on the fair market value of the Company’s common stock at
the date of the grant, the total share-based payment cost of the DSU grants was
approximately $0.1 million and is recognized in the condensed consolidated
statement of operations on a pro rata basis in proportion to the number of
vested DSUs at each vesting date.





In April
2010, executive officers of the Company were granted, in the aggregate,
approximately 110,000 shares of restricted common stock, of which 40% of these
shares vest over a three-year service period (“time-based awards”) while vesting
of the remaining shares is contingent on the achievement of defined operating
income targets during fiscal year 2010 (“performance-based awards”). Based on
the fair market value of the Company’s common stock as of the grant date, the
total share-based payment costs of the time-based awards and performance-based
awards were approximately $0.4 million and $0.7 million, respectively. The cost
of the time-based awards is recognized into expense in the consolidated
statement of operations on a straight-line basis over the vesting period of each
grant. No share-based payment expense was recognized for the performance-based
awards during the three months ended April 30, 2010, as the Company determined
that satisfaction of the award’s performance conditions, and therefore vesting
of each award, was not a probable outcome. If, during the remainder of fiscal
year 2010, circumstances change and it is determined that satisfaction of the
performance conditions is a probable











7








outcome,
share-based payment expense will be recognized for each performance-based award
over the award’s vesting period, which is three years commencing with the grant
date.





10.         
INCOME TAXES





The
Company and its subsidiaries are subject to U.S. federal income tax, as well as
income tax of multiple foreign and state jurisdictions. For all periods
presented in the condensed consolidated statements of operations, the Company’s
income tax benefit reflects current and deferred income taxes associated with
each of these taxing jurisdictions. For the three months ended April 30, 2010,
the Company’s effective income tax rate was significantly higher than the
statutory federal income tax rate of 34%, due to foreign income tax expense that
was only partially offset by the deferred tax benefits associated with U.S.
foreign tax credits.





During
May 2010, the Company effectively settled income tax positions associated with
benefits realized in tax returns previously filed with a foreign taxing
jurisdiction.  Prior to this settlement, the Company considered these
positions to be uncertain as to their being sustained upon the foreign taxing
authority’s examination of such positions.  The benefit attributable
to these positions that was included in the Company’s liability for unrecognized
income tax benefits in the condensed consolidated balance sheet as of April 30,
2010, totaling approximately $1.0 million, will be recognized in the Company’s
income tax provision in the second quarter of fiscal year
2010.  Partially offsetting this benefit in the Company’s income tax
provision will be the write-off of an income tax receivable that was originally
established to account for the anticipated U.S. income tax benefits that would
have been realized by the Company had the foreign taxing authority’s examination
resulted in an unfavorable outcome.  As of April 30, 2010, the income
tax receivable totaled approximately $0.9 million and was included in other
assets in the condensed consolidated balance sheet.





11.          COMMITMENTS
AND CONTINGENCIES





Subject
to certain limitations, the Company has agreed to indemnify its current and
former directors, officers and employees in connection with any regulatory or
litigation matter relating to the improper stock option granting practices
described in the Company’s Fiscal Year 2008 Form 10-K. Such obligations may
arise under the terms of the Company’s articles of incorporation, as amended,
the Company’s amended and restated bylaws, applicable agreements and New Jersey
law. An obligation to indemnify generally means that the Company is required to
pay or reimburse the individual’s reasonable legal expenses and possibly damages
and other liabilities that may be incurred. The Company’s insurance policies for
periods prior to June 29, 2007 are unlikely to provide adequate coverage for
expenses resulting from the historical stock option granting practices and any
such coverage may have to be shared with related parties. Factors that may
affect such coverage are minimum retention requirements and exceptions for
certain non-qualifying expenses. Additionally, the Company’s current director
and officer liability insurance does not provide coverage with respect to its
historical stock option granting practices.





8


ITEM
2.                    MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL


CONDITION AND RESULTS OF
OPERATIONS.





The
following management’s discussion and analysis should be read in conjunction
with the Company’s Annual Report on Form 10-K for the fiscal year ended January
31, 2010 and the condensed consolidated financial statements and notes thereto
included in Part I, Item 1 of this Quarterly Report on Form 10-Q.  The
discussion contains forward-looking statements that involve risks and
uncertainties.  Our actual results could differ materially from the
results contemplated in these forward-looking statements as a result of factors
including, but not limited to, those described under “Item 1A – Risk Factors” of
the Company’s Annual Report on Form 10-K for the fiscal year ended January 31,
2010.





OVERVIEW
OF THE COMPANY’S OPERATIONS





The
Company designs, develops, markets, licenses and supports network signaling
solutions. Its products are sold primarily through direct sales to network
equipment manufacturers, application developers, and service providers that
include the Company’s products within their systems or services. Product
revenues consist primarily of sales of software licenses and interface boards.
Service revenues consist primarily of software maintenance fees related to
previously deployed licenses of the Company’s products and fees for support
services. Service revenues are expected to show less volatility than product
revenues. The key drivers of the Company’s financial results are:





·
            product
      price and volume;


·
            cost
      to support new and existing customer deployments of its
      products;


·
            investments
      in product enhancements and expansion into new markets;
  and


·
            interest
      income earned on its cash equivalents and short-term
      investments.





During
fiscal years 2008 and 2009, the Company’s financial results were adversely
affected by the ongoing slowdown of infrastructure spending by communication
service providers and by declines in technology expenditures, resulting in a
significant decline in quarterly revenues. In response to these circumstances,
the Company took measures during these years to lower its costs to operate more
effectively at these lower sales levels.  Such actions principally
consisted of reductions in the numbers of personnel in substantially all areas
of its operations, the largest of which occurred in September 2009.





As
compared to the same period in fiscal year 2009,revenues for the
three months ended April 30, 2010 declined 27%, primarily resulting from a
lowersales volume
of boards and licenses of approximately 40%.  Delays in the timing of
anticipated orders for the Company’s products and continued weakness in
infrastructure spending by communication service providers were the
primary causes of the decline in product revenues.  Though the timing
of the ultimate receipt of these orders is uncertain, the Company expects that
the majority of these orders will be received in subsequent quarters of fiscal
year 2010.





The
Company continues to focus on the key elements of its strategy to expand its
role as a premium provider of signaling solutions to the telecommunications
industry. These elements include the Company leveraging its strengths to
maintain and expand its market share in the











9











wireless
broadband services and communication infrastructure markets. Specifically, the
Company is currently focusing on further developing the following strengths of
its business:





·
            comprehensive
      product portfolio – signaling component and system
    solutions;


·
            high-value
      customer base – established and emerging equipment manufacturers and
      service providers; and


·
            increasing
      operational efficiency – continuous process innovation and talent
      management.





RESULTS
OF OPERATIONS





Three
Months Ended April 30, 2010 Compared to Three Months Ended April 30,
2009





Revenues.





Three
      Months Ended(in thousands)
            April
      30,
            
            April
      30,2009
            
            2010
            
            ChangeProduct
      revenues
            $
            8,304
            
            $
            4,963
            
            $
            (3,341
            )Service
      revenues
            
            3,252
            
            
            3,423
            
            
            171Total
      revenues
            $
            11,556
            
            $
            8,386
            
            $
            (3,170
            )





The
decrease in product revenues was due to lower sales of boards and licenses of
approximately $1.7 million and $1.6 million, respectively.  As
compared to the three months ended April 30, 2009, the sales volume of boards
and licenses was lower by approximately 40% and product revenues from the
Company’s three largest customers decreased by approximately $3.6 million.
Delays in the timing of anticipated orders for the Company’s products and
continued weakness in infrastructure spending by
communication service providers were the primary causes of the decline in
product revenues.  Though the timing of the ultimate receipt of these
orders is uncertain, the Company expects that the majority of these orders will
be received in subsequent quarters of fiscal year 2010.





Cost
of Revenues.





Three
      Months Ended(dollar amounts in
    thousands)
            April
      30,
            
            April
      30,2009
            
            2010
            
            ChangeProduct
      costs
            $
            1,807
            
            $
            1,376
            
            $
            (431
            )Service
      costs
            
            1,211
            
            
            1,207
            
            
            (4
            )Total
      cost of revenues
            $
            3,018
            
            $
            2,583
            
            $
            (435
            )Gross
      margin (as a percentage of revenues)
            
            74%
            
            
            69%





Lower
materials and production costs from the lower volume of board and license sales
resulted in an approximate $0.4 million decrease in cost of product revenues. As
the change in labor and overhead costs charged to cost of revenues was minimal,
the reduction in gross margin was primarily attributable to the significant
decrease in sales volume.













10











Research and Development
Expenses.





Three
      Months Ended(dollar amounts in
    thousands)
            April
      30,
            
            April
      30,2009
            
            2010
            
            ChangeResearch
      and development expenses
            $
            3,490
            
            $
            3,046
            
            $
            (444
            )As
      a percentage of revenues
            
            30%
            
            
            36%





Reductions
in the number of research and development personnel, mostly resulting from the
reduction in force occurring in September 2009, lowered research and development
expenses by approximately $0.4 million.





Selling,
General and Administrative Expenses.





Three
      Months Ended(dollar amounts in
    thousands)
            April
      30,
            
            April
      30,2009
            
            2010
            
            ChangeSelling,
      general and administrative expenses
            $
            7,345
            
            $
            5,900
            
            $
            (1,445
            )As
      a percentage of revenues
            
            64%
            
            
            70%





Included
in selling, general and administrative expenses for the three months ended April
30, 2009 were various costs incurred to complete the restatement of the
Company’s financial statements that were included in the 2008 Form 10-K,
totaling approximately $1.2 million, and fees paid in connection the evaluation
of the special dividend paid in April 2009 of approximately $0.3
million. Included
in selling, general and administrative expenses for the three months ended April
30, 2010 were costs associated with restatement-related matters, totaling
approximately $0.2 million, and certain severance and termination benefits,
totaling approximately $0.5 million. Reductions
in the number of sales, marketing and administrative personnel during fiscal
year 2009, mostly resulting from the reduction in force occurring in September
2009, lowered selling, general and administrative expenses by approximately $0.5
million.





Interest and Other Income,
net.  Interest and other income, net was approximately $0.9
million and $0.4 million for the three months ended April 30, 2009 and 2010,
respectively. The payment of the special dividend on April 20, 2009 lowered the
Company’s total cash equivalents and short-term investments by approximately
$200 million, resulting in lower interest income of approximately $0.4
million.





Income Tax
Benefit.  For the first fiscal quarters of 2009 and 2010, the
Company recorded income tax benefits of approximately $0.5 million and $1.5
million, respectively. The Company’s overall effective tax rate was 37% and 55%
for the three months ended April 30, 2009 and 2010, respectively. For the three
months ended April 30, 2010, the Company’s effective income tax rate was
significantly higher than the statutory federal income tax rate of 34%, due to
foreign income tax expense that was only partially offset by the deferred tax
benefits associated with U.S. foreign tax credits.









11








LIQUIDITY
AND CAPITAL RESOURCES





At
January 31, 2010 and April 30, 2010, the Company’s cash and cash equivalents and
short-term investments totaled approximately $78.3 million and $75.4 million,
respectively. On April 20, 2009, the Company paid a special cash dividend to its
shareholders, totaling approximately $200 million. The Company has no current
plans to pay additional cash dividends on its equity securities. Any future
determination as to the declaration and payment of dividends will be made by the
Board of Directors in its discretion and will depend upon the Company’s
earnings, financial condition, capital requirements, and other relevant
factors.





The
Company believes that its cash, cash equivalent and short-term investment
balances will be sufficient to meet anticipated cash needs for working capital,
capital expenditures, research and development and other activities for the
foreseeable future. However, if current sources are not sufficient to meet the
Company’s needs, it may seek additional debt or equity financing.





Although
there are no present understandings, commitments, or agreements with respect to
acquisitions of other businesses, products, or technologies, the Company may, in
the future, consider such transactions, which may require debt or additional
equity financing. The issuance of debt or equity securities may have a dilutive
impact on the Company’s shareholders, and any acquired business may not
contribute positive operating results commensurate with the associated
investment.





Analysis
of Cash Flows





Although
the Company made significant reductions in the aggregate amount of cash used for
personnel-related expenses and nonrecurring costs (e.g., restatement related
expenses) during first quarter of fiscal year 2010, operations for the three
months ended April 30, 2010 used cash of approximately $2.7 million, mostly due
to an approximate $1.9 million reduction in accounts payable and accrued
expenses that primarily resulted from payments of certain commission and other
compensation-related expenses incurred during the fourth quarter of fiscal year
2009.  The Company’s operating loss for the three months ended April
30, 2010 also contributed significantly to the use of cash.





Throughout
fiscal year 2009 and the first quarter of fiscal year 2010, the Company’s cash
provided by or used in investing activities primarily reflected the Company’s
shifts between cash equivalents and short-term investments, as capital
expenditures were not significant. For fiscal year 2010, the Company expects
that its capital expenditures will be less than $1 million.





From
April 17, 2006 through December 10, 2009, holders of options to purchase common
stock under the Company’s equity incentive plans were prohibited from exercising
their vested options until the time that the Company became current in its
reporting obligations under applicable securities laws and had an effective
registration statement on Form S-8 on file with the SEC, both of which occurred
on December 10, 2009.  The resumption of option exercises on December
11, 2009 has provided a source of cash from financing
activities.












12








CRITICAL
ACCOUNTING POLICIES AND ESTIMATES





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America (“GAAP”) requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. The Company evaluates these estimates and
judgments on an ongoing basis, and the estimates are based on experience,
current and expected future conditions, third-party evaluations and various
other assumptions that the Company believes are reasonable under the
circumstances. The results of estimates form the basis for making judgments
about the carrying amounts of assets and liabilities, as well as identifying and
assessing the accounting treatment with respect to commitments and
contingencies. Actual results could differ from those estimates.





Critical
accounting policies are those that are both most important to the portrayal of a
company’s financial position and results of operations and require management to
make difficult, subjective, or complex judgments.





The
Company’s accounting policies that require a significant amount of estimation or
judgment in their application include:





·
            revenue
      recognition;


·
            allowance
      for doubtful accounts receivable;


·
            reserve
      for obsolete or excess inventory;


·
            accounting
      for share-based payment transactions;
and


·
            accounting
      for income taxes.





Revenue
Recognition





Product
revenues, which include software license and hardware revenue, are generally
recognized in the period in which persuasive evidence of a sale or service
arrangement exists, the products are delivered and accepted by the customer, the
fee is fixed and determinable, and collection is considered probable. When the
Company has significant obligations subsequent to shipment, revenues are not
recognized until the obligations are fulfilled. Revenues from arrangements that
include significant acceptance terms are not recognized until acceptance has
occurred. The Company provides its customers with post-contract support
services, which generally consist of bug-fixing and telephone access to the
Company’s technical personnel, but may also include the right to receive
unspecified product updates, upgrades, and enhancements, when and if available.
Revenue from these services is recognized ratably over the contract period.
Post-contract support services included in the initial licensing fee are
allocated from the total contract amount based on the relative fair value of
vendor-specific objective evidence (“VSOE”). For multiple element software
arrangements, the fair value of any undelivered element is determined using
VSOE. The Company allocates revenue based on VSOE to the undelivered elements
and the residual revenue to the delivered elements. Where VSOE of the
undelivered element cannot be determined, the Company defers revenue for the
delivered elements until the undelivered elements are delivered.








13







Sales of
development kits are deferred and recognized as revenue over the estimated
period of future customer software deployments and related maintenance, which
the Company considers to be the economic life of the development kit. Additional
development license fees are deferred and recognized as revenue over the
remaining estimated economic life of the development kit. The estimation of the
economic life of the development kit requires significant management judgment
and is based on the customer’s historical project experience. Any change in the
estimated economic life of the development kit would affect the amount of
revenue recognized in future periods.





Allowance
for Doubtful Accounts Receivable





The
collectability of the Company’s accounts receivable requires a considerable
amount of judgment when assessing the realization of these receivables,
including reviewing the current creditworthiness, current and historical
collection history, and the related aging of past due balances of each customer.
The Company evaluates specific accounts when it becomes aware of information
indicating that a customer may not be able to meet its financial obligations due
to deterioration of its financial condition, lower credit ratings, bankruptcy,
or other factors affecting the ability to render payment. Reserve requirements
are based on the facts available and are re-evaluated and adjusted each
accounting period as additional information is received.





Reserve
for Obsolete or Excess Inventory





Inventory
reserves for excess and obsolete inventory are determined primarily by future
demand forecasts and charges are recorded to cost of revenues. Demand forecasts
are assessed on at least a quarterly basis. Charges are recorded to reduce
inventory to its estimated net realizable value and there is no increase in its
carrying value due to subsequent changes in demand forecasts.





Accounting
for Share-based Payment Transactions





For all
share-based payment transactions in which the Company acquires services from
employees or directors by issuing shares of the Company’s common stock, options
to purchase shares or other equity instruments, the Company recognizes the cost
of awarded equity instruments that are ultimately expected to vest based on each
instrument’s grant-date fair value over the period during which the employee or
director is required to provide service in exchange for the award. For purposes
of calculating each stock option’s fair value, the Company uses the
Black-Scholes option pricing model, which involves the determination of
assumptions that become inputs into the model. The primary inputs are expected
volatility, expected term of the option, risk-free interest rate and dividend
yield. Expected volatility is based on the historical performance of the
Company’s common stock. Prior to the option award made in January 2010, the
Company had not made an option award since December 2005 and all holders of
options were prohibited from exercising their vested options from April 17, 2006
through December 10, 2009.  Accordingly, sufficient recent data
regarding exercise behavior did not exist in a form that could reasonably
predict the term, or life, of an option.  Therefore, for the options
granted during January 2010, the Company estimated the expected term using the
“simplified method.”  Until such time that Company has sufficient data
regarding exercise behavior, the Company expects to employ the simplified method
to estimate expected term.  The risk-free interest rate is the implied
yield available as of the grant date on U.S. Treasury zero-coupon issues with a
remaining term equal to the option’s expected term. Prior to the Company’s
special cash











14








dividend
paid on April 20, 2009, the Company had not paid dividends and had not declared
any intentions of doing so. Accordingly, the dividend yield is assumed to be
zero.





The
Black-Scholes model was developed for use in estimating the fair value of traded
options and does not consider the non-traded nature of employee stock options,
vesting and trading restrictions, lack of transferability or the possibility
that employees may forfeit their options prior to expiration.  Because
the Company’s employee stock options have characteristics significantly
different from those of traded options, and because changes in subjective input
assumptions can materially affect the fair value estimate, the Black-Scholes
model may not necessarily provide a reliable single measure of the fair value of
the options granted under the Company’s equity incentive plans.





The total
cost to recognize as share-based payment expense over the requisite service
period is based on the number of awards that are ultimately expected to
vest.  Accordingly, the Company develops expectations with respect to
forfeitures of awards, based on historical experience regarding employee
turnover or, in the case of awards that vest upon the satisfaction of
predetermined performance conditions, on the probable outcome of the performance
conditions.  Upon vesting of awards, the Company’s share-based payment
expense is adjusted to reflect the effects of actual forfeitures.





Accounting
for Income Taxes





The
Company accounts for income taxes using an asset and liability approach, which
requires estimates of taxes payable or refunds for the current period and
estimates of deferred income tax assets and liabilities for the future tax
consequences attributable to differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the corresponding amounts
used for income tax purposes.  Current and deferred tax assets and
liabilities are based on provisions of the enacted tax laws and are measured
using the enacted tax rates and laws that are expected to be in effect when the
future tax events are expected to reverse. The effects of future changes in tax
laws or rates are not anticipated.





Significant
judgment is required in evaluating the Company's income tax positions and
measuring any related future benefit that may result from such positions. In its
determination of income tax expense, the Company does not recognize any benefit
from tax positions it considers to be uncertain.  Only benefits that
may result from tax positions that are more likely than not of being sustained
on audit, based on the technical merits of the position, are
recognized.  Further, the effect on the Company’s income tax provision
of these tax positions is measured at the largest amount of benefit that is
greater than 50% likely of being realized upon the ultimate
settlement.  Differences between the amount of benefits taken or
expected to be taken in the Company’s income tax returns and the amount of
benefits recognized based on the evaluation and measurement of the related tax
positions represent unrecognized income tax benefits, the total of which is
reflected as a liability in the consolidated balance
sheet.





The
portion of any deferred tax asset for which it is more likely than not that a
tax benefit will not be realized is offset by recording a valuation
allowance.  Future realization of the tax benefit of an existing
deductible temporary difference or carryforward ultimately depends on the
existence of sufficient taxable income of the appropriate character (for
example, ordinary income or capital gain) within the carryforward period
available under the tax law. The Company’s














15











policy is
to consider the following sources of taxable income, which may be available
under the tax law to realize a tax benefit for deductible temporary differences
and carryforwards:





·
            future
      reversals of existing taxable temporary
  differences;


·
            future
      taxable income exclusive of reversing temporary differences and
      carryforwards;


·
            taxable
      income in prior carryback year(s) if carryback is permitted under the
      tax law; and


·
            tax
      planning strategies that would, if necessary, be implemented
      to:


(1)  accelerate
taxable amounts to utilize expiring carryforwards;


(2)  change
the character of taxable or deductible amounts from ordinary income or loss to
capital gain or loss; and


(3)  switch
from tax-exempt to taxable investments.





Evidence
available about each of those possible sources of taxable income will vary
between tax jurisdictions and, possibly, from year to year. To the extent
evidence about one or more sources of taxable income is sufficient to support a
conclusion that a valuation allowance is not necessary, the Company’s policy is
that other sources need not be considered. Consideration of each source is
required, however, to determine the amount of the valuation allowance that may
be required to be recognized for deferred tax assets.





For any
specific jurisdiction where a history of three years of cumulative losses has
occurred or where there has been a substantial change in the business, the
Company does not rely on projections of future taxable income as described
above. Instead, the Company determines its need for a valuation allowance on
deferred tax assets, if any, by determining an average steady-state normalized
taxable income amount over the last three years. The Company will also consider
the following positive evidence in the above scenarios, if present:





·
            existing
      customer contracts that will produce more than enough taxable income to
      realize the deferred tax asset based on existing sales prices and cost
      structures; and


·
            an
      excess of appreciated asset value over the tax basis of the entity’s net
      assets in an amount sufficient to realize the deferred tax
      asset.





RECENT
ACCOUNTING GUIDANCE NOT YET ADOPTED





In
October 2009, the FASB issued an accounting standards update that provides
authoritative guidance regarding revenue arrangements with multiple
deliverables. The guidance in this update:





·
            provides
      principles and application guidance on whether a revenue arrangement
      contains multiple deliverables, how the arrangement should be separated,
      and how the arrangement consideration should be
  allocated;


·
            requires
      an entity to allocate revenue in a multiple-deliverable arrangement using
      estimated selling prices of the deliverables if a vendor does not have
      vendor-specific objective evidence or third-party evidence of selling
      price;


·
            eliminates
      the use of the residual method and, instead, requires an entity to
      allocate revenue using the relative selling price method;
    and


·
            expands
      disclosure requirements with respect to multiple-deliverable revenue
      arrangements.










16







Also, in
October 2009, the FASB issued an accounting standards update that applies to
multiple-deliverable revenue arrangements that contain both software and
hardware elements. This update removes tangible products from the scope of the
existing software revenue guidance and provides guidance on determining whether
software deliverables in an arrangement that includes a tangible product are
within the scope of the software revenue guidance. The guidance in both
accounting standards updates should be applied on a prospective basis for
applicable multiple-deliverable revenue arrangements entered into or materially
modified in fiscal years beginning on or after June 15, 2010. Alternatively, an
entity can elect to adopt the provisions of the guidance on a retrospective
basis. The Company is assessing the potential impact that the application of
this guidance may have on its consolidated financial statements and
disclosures.








ITEM
      3.
            QUANTITATIVE AND
      QUALITATIVE DISCLOSURES ABOUT MARKET
  RISK.





The
Company is exposed to financial market risks, primarily from changes in interest
rates that may impact the fair values of the Company’s
short-term investments in marketable debt securities. Derivative financial
instruments have not been used to manage these risks.





As
discussed in Note 3 to the Condensed Consolidated Financial Statements,
short-term investments as of April 30, 2010 consisted of marketable debt
securities, principally U.S. government agency obligations, which the Company
deems available-for-sale. The Company’s investment policy provides guidelines
relative to diversification and maturities designed to maintain reasonable
levels of safety and liquidity.  At any given time, the Company’s mix
of investments held as cash and cash equivalents versus short-term investments
is dependent upon the Company’s view of each prospective investment’s price risk
relative to the attainment of potentially higher yields or returns on its
invested cash.  A 10% increase or decrease in the fair values of the
Company’s short-term investments held at April 30, 2010 would have a material
effect on the Company's consolidated financial position.





As of the
end of each reporting period, the Company adjusts the carrying amount of each
short-term investment to its fair value. For each of the Company’s marketable
debt securities held as of April 30, 2010, the Company’s measurements of fair
value were based on non-binding market consensus prices that can be corroborated
with observable market data.  As of each reporting date, the Company
monitors the liquidity of each investment it holds by analyzing current trading
activity, to the extent such activity exists and is verifiable.  The
Company obtains alternate fair value estimates for each of its investments from
independent pricing services as a means of verifying the prices used to measure
fair value.





As of
April 30, 2010, cash and cash equivalents and short-term investments totaled
approximately $75.4 million. If, during the fiscal year ending January 31, 2011,
average short-term interest rates increase or decrease by 50 basis points
relative to average rates realized during the year ended January 31, 2010, the
Company’s projected interest income from cash and cash equivalents and
short-term investments would increase or decrease by approximately $0.4 million,
assuming a similar level of investments as held at April 30, 2010.





As of
April 30, 2010, the Company’s cash equivalents primarily consisted of
investments in institutional money market funds placed with high credit-quality
financial institutions.  Due to














17








the
short-term nature of the Company’s cash and cash equivalents, the carrying
amounts are not generally subject to price risk that may result from
fluctuations in interest rates.








ITEM
4.                    CONTROLS AND
PROCEDURES.








EVALUATION
OF DISCLOSURE CONTROLS AND PROCEDURES





Disclosure
controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), are controls
and other procedures designed to ensure that information required to be
disclosed in reports filed or submitted under the Exchange Act is recorded,
processed, summarized, and reported within the time periods specified by the
rules and forms promulgated by the Securities and Exchange Commission.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that such information is accumulated and
communicated to management, including the chief executive officer and the chief
financial officer, as appropriate, to allow timely decisions regarding required
disclosure.





In
connection with the preparation of this Quarterly Report on Form 10-Q, the
Company completed an evaluation, as of April 30, 2010, under the supervision of
and with the participation of the Company’s management, including the Chief
Executive and Chief Financial Officers, as to the effectiveness of the Company’s
disclosure controls and procedures.  Based upon the evaluation, the
Company’s Chief Executive Officer and Chief Financial Officer have concluded
that, as of April 30, 2010, the Company’s disclosure controls and procedures
were effective.





It should
be noted that any system of controls, however well designed and operated, can
provide only reasonable, and not absolute, assurance that the objectives of the
system will be met. In addition, the design of any control system is based in
part upon certain assumptions about the likelihood of future
events.





CHANGES
IN INTERNAL CONTROL OVER FINANCIAL REPORTING





There
were no changes in the Company’s internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred
during the period covered by this report that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over
financial reporting.


18


PART
II – OTHER INFORMATION







ITEM
1.                    LEGAL
PROCEEDINGS.




From time
to time, the Company is subject to claims in legal proceedings arising in the
normal course of its business. The Company does not believe that it is currently
party to any pending legal actions that could reasonably be expected to have a
material adverse effect on its business, financial condition, results of
operations or cash flows.




ITEM
1A.                 RISK
FACTORS.




There
were no additions to or material changes in the Company’s risk factors for the
fiscal quarter ended April 30, 2010 from those disclosed in the Part I, Item 1A
of the Company’s Annual Report on Form 10-K for the fiscal year ended January
31, 2010.




ITEM
              2.UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF
    PROCEEDS.




None.





ITEM
3.                    DEFAULTS UPON SENIOR
SECURITIES.





None.








ITEM
4.                    REMOVED AND
RESERVED.








ITEM
5.                    OTHER
INFORMATION.





None.


19


ITEM
6.                    EXHIBITS.





(a)  Exhibit
Index.





31.1           Certification
of Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.





31.2           Certification
of Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.





32.1           Certification
of Chief Executive Officer and Chief Financial Officer pursuant to Rule
13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.








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.








ULTICOM,
      INC.Dated:
            
            June
      9, 2010
            /s/
      Shawn K. OsborneShawn
      K. OsbornePresident
      and Chief Executive OfficerDated:
            
            June
      9, 2010
            /s/
      Mark A. KissmanMark
      A. KissmanSenior
      Vice President and Chief Financial
Officer


























20