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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

(MARK ONE)

[X]      ANNUAL  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
         EXCHANGE ACT OF 1934

                  For the fiscal year ended September 30, 1999

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

         For the transition period from ________________ to ___________________.

                         Commission File Number: 0-24701

                       CATAPULT COMMUNICATIONS CORPORATION
             (Exact name of Registrant as specified in its charter)

         Nevada                                          77-0086010
(State of Incorporation)                    (IRS Employer Identification Number)

             160 South Whisman Road, Mountain View, California 94041
          (Address of principal executive offices, including zip code)

               Registrant's telephone number, including area code:
                   (650) 960-1025/Web Site (www.catapult.com)

Securities Registered Pursuant to Section 12(b) of the Act:   None

Securities Registered Pursuant to Section 12(g) of the Act: Common Stock, $0.001
par value

         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. Yes X No _

         Indicate by a check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained  herein,  and will not be contained,
to the best of  registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. Yes _ No X

         As of November 30, 1999,  12,729,570 shares of the Registrant's  common
stock,  $0.001 par value,  were  outstanding.  The aggregate market value of the
voting stock held by  non-affiliates  of the Registrant  (based upon the closing
price of the  Registrant's  common  stock on November  30, 1999 of $19.4375  per
share)  was  approximately  $99,160,756.  Shares  of common  stock  held by each
executive  officer  and  director  of the  outstanding  common  stock  have been
excluded in that such persons may be deemed to be affiliates. This determination
of affiliate  status is not  necessarily  a conclusive  determination  for other
purposes.

                       DOCUMENTS INCORPORATED BY REFERENCE

         Part III  incorporates  information  by reference  from the  definitive
proxy statement for the Annual Meeting of  Stockholders  scheduled to be held on
February 11, 2000.

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<PAGE>

<TABLE>
                                                   Insert Table of Contents

<CAPTION>
<S>                                                                                                                      <C>
PART I....................................................................................................................1
ITEM 1.       BUSINESS ...................................................................................................1
              The Company.................................................................................................1
              The DCT Product Line........................................................................................2
              Customers...................................................................................................3
              Sales and Marketing.........................................................................................4
              International Sales.........................................................................................5
              DCT Product Line Support....................................................................................5
              Product Development.........................................................................................5
              Manufacturing...............................................................................................6
              Competition.................................................................................................6
              Intellectual Property.......................................................................................7
              Employees...................................................................................................8
              Executive Officers of the Company...........................................................................8
ITEM 2.       PROPERTIES ................................................................................................10
ITEM 3.       LEGAL PROCEEDINGS .........................................................................................10
ITEM 4.       SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........................................................10

PART II..................................................................................................................10
ITEM 5.       MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS..................................10
ITEM 6.       SELECTED FINANCIAL DATA....................................................................................12
ITEM 7.       MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS........................14
              Overview...................................................................................................14
              Fiscal Years Ended September 30, 1998 and 1999.............................................................15
              Fiscal Years Ended September 30, 1997 and 1998.............................................................16
              Liquidity and Capital Resources............................................................................18
              Year 2000 Readiness Disclosures............................................................................18
              Factors That May Affect Future Results.....................................................................19
ITEM 7A.      QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS.................................................27
              Foreign Exchange Risk and Derivative Financial Instruments.................................................27
ITEM 8.       FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................................................................30
              Range of Exercise Price....................................................................................44
ITEM 9.       CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.......................48

PART III.................................................................................................................48
ITEM 10.      DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.........................................................48
ITEM 11.      EXECUTIVE COMPENSATION.....................................................................................48
ITEM 12.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.............................................48
ITEM 13.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............................................................48

PART IV..................................................................................................................49
ITEM 14.      EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K...........................................49
</TABLE>

                                       i

<PAGE>

                           FORWARD-LOOKING STATEMENTS

         THIS REPORT ON FORM 10-K CONTAINS  STATEMENTS  THAT ARE NOT  HISTORICAL
FACTS BUT ARE FORWARD-LOOKING STATEMENTS RELATING TO SUCH MATTERS AS ANTICIPATED
FINANCIAL  PERFORMANCE,  BUSINESS  PROSPECTS,  TECHNOLOGICAL  DEVELOPMENTS,  NEW
PRODUCTS AND SIMILAR  MATTERS.  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  STOCKHOLDERS  OF CATAPULT
SHOULD  CAREFULLY  REVIEW THE CAUTIONARY  STATEMENTS SET FORTH IN THIS REPORT ON
FORM 10-K,  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 FROM TIME TO TIME BY OR ON BEHALF OF THE COMPANY.

                                     PART I

ITEM 1.       BUSINESS

The Company

         Catapult Communications  Corporation  ("Catapult," the "Company" or the
"Registrant") designs, develops, manufactures,  markets and supports an advanced
software-based test system offering an integrated suite of testing  applications
for the global  telecommunications  industry.  Catapult's DCT product line(1), a
family of digital  communications  test systems, is designed to enable equipment
manufacturers    and   network    operators   to   deliver    complex    digital
telecommunications  equipment  and services  more quickly and  cost-effectively,
while helping to ensure interoperability and reliability. The Company's advanced
software and hardware assist customers in the design, integration,  installation
and acceptance testing of a broad range of digital telecommunications  equipment
and services.  The Company markets its products  through a direct sales force to
industry leaders such as Cable & Wireless  Communications  PLC, Fujitsu Limited,
LM Ericsson, Lucent Technologies,  Inc. ("Lucent"), Marconi Communications Ltd.,
Motorola  Inc.  ("Motorola"),  NEC  Corporation  ("NEC"),  Nippon  Telephone and
Telegraph ("NTT"), Northern Telecom Limited and Tellabs Inc.

         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 approximately 160 protocols and variants. The Company's emphasis is
on complex,  high-level  and  emerging  protocols,  including  Third  Generation
Cellular,  IP Telephony  (Voice over IP),  General Packet Radio Service  (GPRS),
Asynchronous Transfer Mode (ATM), Signaling System #7 (SS7), Intelligent Network
(IN), V5,

----------
1    The DCT product  line  consists  of the DCT-S and  DCT2000,  introduced  in
     November of 1999. The DCT2000  introduces  PCI-bus  architecture to the DCT
     product  line.  Emerging  Third  Generation  Cellular  technology  will  be
     implemented on the DCT2000 platform.

                                       1
<PAGE>

Integrated   Services   Digital  Network  (ISDN),   Global  Systems  for  Mobile
Communications (GSM), Interim Standard 41 (IS-41), Code Division Multiple Access
(CDMA), X.25 and Frame Relay(2).  The Company's extensive technical know-how and
proprietary  software  development  tools  enable the Company to  implement  new
protocols and protocol  variants rapidly in response to customer needs. With its
extensive  library of software  protocol  modules,  large  selection of physical
interfaces and versatile platform,  the DCT product line is easily configured to
support  a wide  variety  of  digital  testing  functions,  thereby  reducing  a
customer's  need for  multiple  test  systems.  In  addition,  the DCT  system's
multi-protocol,  multi-user  capability allows multiple testing operations to be
performed  simultaneously,  helping the Company's  customers to accelerate their
product development cycles.

The DCT Product Line

         DCT systems  consist of advanced  software  and  hardware  running on a
third-party  UNIX-based  workstation.  In a  system  sale,  customers  typically
license one or more software modules and purchase  hardware and ongoing software
support.  Customers may upgrade their systems by purchasing  additional software
protocol  modules and hardware to meet future testing needs.  Customers have the
option to  purchase  a  third-party  workstation  from the  Company or provide a
workstation to the Company for configuration. Prices for DCT systems vary widely
depending upon the overall system  configuration,  including the number and type
of software protocol modules and the number of physical  interfaces  required by
the customer.  A DCT system sale  typically  ranges in price from  approximately
$50,000 to $150,000.

     Applications

         The principal applications of the DCT product line are simulation, load
and stress testing, feature verification, conformance testing and monitoring.

         Simulation.  DCT  systems  simulate  or act  like  one or more  network
devices,  emulating their actions and responses.  By simulating  various network
devices, such as digital switches,  wireless base stations, network access nodes
and  network   databases,   the   Company's   products   assist   engineers   to
cost-effectively  develop  equipment  that will be compatible  with the networks
within  which they will be  deployed.  This helps  ensure  that  equipment  will
interoperate reliably, thereby reducing costly failures after installation.

         Load and Stress  Testing.  DCT systems allow customers to verify that a
device under test can successfully handle its designed traffic capacity and that
its  performance  will  degrade  gradually,  rather than fail  completely,  when
stressed  beyond its  specifications.  Distributed  interface  processing  and a
high-performance  UNIX-based  platform  enable the DCT systems to  initiate  and
maintain high traffic volumes.

         Feature  Verification.  DCT systems  perform  feature  verification  by
simulating  one or more  network  devices and testing a wide variety of possible
scenarios to verify that the device under test handles all features specified by
the protocol.  The user is able to initiate multiple  simultaneous  calls across
one or many links, create correct call scenarios,  send messages out of sequence
to verify error  response  mechanisms and use the DCT systems'  traffic  channel
facilities to verify a voice or data path.

         Conformance  Testing.  DCT  systems  test for  conformance  by enabling
manufacturers  and network  operators  to verify  that  devices  meet  specified
standards.  Conformance test suites validate the  implementation of new features
and the  functionality  of  existing  features  against  a  standardized  set of
predefined  criteria.  The  Company  provides  pre-packaged  V5 ,  ISDN  and SS7
conformance test suites which assist in this testing.

----------
2    Please refer to Glossary on page 29.

                                       2
<PAGE>

         Monitoring.  DCT  systems  monitor  network  links  and  store  network
activity  information for future analysis,  typically  without affecting network
traffic.  By collecting and analyzing traffic,  the DCT systems help ensure that
the link has been  brought  into  service and that the devices  connected by the
link are  functioning  properly.  The DCT systems also provide notice of network
device failure. The DCT systems can be used to set "traps" and "triggers," count
error messages and filter packets by address or selected field criteria. The DCT
systems can  simultaneously  monitor multiple links,  each of which may be using
different protocols.

     DCT Product Line Software

         The DCT product line software,  based on a UNIX(TM)  operating  system,
consists of protocol  encoders and decoders,  protocol state machines,  protocol
validation  tests  and  conformance   test  suites.   The  DCT  system  includes
approximately  160  protocols  and  variants,  enabling  the  DCT  system  to be
configured  for many different test  applications.  The Company's  customers can
choose to program the DCT system using Catapult's graphical user interface (GUI)
or  by  writing  their  own  code  using  the  Company's  Digital  Communication
Programming Language (DCPL), a fully featured optimized communications language.
In addition, the Company has introduced  pre-programmed  applications to perform
load  generation and network  entity  simulation.  These turnkey  solutions were
introduced  under  the  product  name,  CrossBow(TM)  in May of  1999.  Finally,
customers  can also  choose to  integrate  their own  libraries  of  subroutines
written in industry standard programming languages such as C or C++.

     DCT Product Line Hardware

         The  DCT  product  line  employs  modular  hardware  architecture  that
supports a wide variety of physical  interfaces which connect the DCT systems to
the device under test. The Company  provides this  flexibility  through both the
DCT-S  protocol-independent  MPI  co-processor  cards and the  DCT2000  PowerPCI
co-processor  cards,  which are inserted  into the  workstation  or an expansion
chassis.  The  DCT  system  is  hosted  on  a  Sun  Microsystems  or  compatible
workstation.

         DCT-S  Hardware.   Using  up  to  three  expansion  chassis,  a  single
workstation  may also support up to 19 MPI cards or 76 signaling  channels.  The
Company  offers  MPI cards  for a  variety  of  physical  interfaces,  including
industry standards such as Primary Rate E-1, Primary Rate T-1, Serial port card,
ISDN Basic Rate (S/T), and Japanese CII.

         DCT-2000  Hardware.  Using  up to  four  expansion  chassis,  a  single
workstation may also support up to 52 PowerPCI cards or 208 signaling  channels.
The Company  will offer  PowerPCI  cards for a variety of  physical  interfaces,
including  industry  standards  such  as a  Primary  Rate  E-1,  T-1  card,  ATM
Optical/UTP cards, ATM PDH DS3/E3 cards, Serial port card, ISDN Basic Rate card,
and Japanese CII.*

         The Company  also offers a number of  auxiliary  cards to increase  the
versatility  of the DCT-S system.  For example,  the VOX card adds voice channel
testing  capability  on up to 64  channels  of E-1 and T-1 links.  The  Timeslot
Interchange (TSI) card supports  individual  dynamic or static channel selection
for up to 248  timeslots.  The Subscriber  Line  Interface Card (SLIC)  converts
two-wire analog subscriber line interfaces to four-wire handset interfaces.  The
Company provides a converter for CMI, the Japanese physical interface.

Customers

         The  Company's  customers in the United States and Canada are primarily
telecommunications  equipment  manufacturers,  and outside  North  America,  its
customer base also includes network operators.

         Revenues   from   the   Company's   top  four   customers   represented
approximately  60%, 73% and 87% of total

                                       3
<PAGE>

revenues in fiscal 1997,  1998 and 1999,  respectively.  The  Company's  largest
customers have been Motorola,  which accounted for  approximately 28% and 15% of
total revenues in fiscal 1997 and 1998,  respectively  and NTT, which  accounted
for  approximately  58% of total  revenues in fiscal 1999.  The  Company's  four
largest  customers  in fiscal 1999 were NTT,  Motorola,  NEC and  Lucent,  which
accounted  for   approximately   58%,  14%,  12%  and  3%  of  total   revenues,
respectively. The Company's four largest customers in fiscal 1998 were NTT, NEC,
Motorola and Lucent,  which accounted for approximately 24%, 21%, 15% and 12% of
total  revenues,  respectively.  In  fiscal  1997,  sales  to  Motorola  and NEC
accounted  for  approximately  28%  and  17% of  total  revenues,  respectively.
Separate  engineering  groups  of  the  same  customer  at  different  locations
generally make  independent  decisions to purchase the Company's  products.  For
example,  several divisions of one major customer have  independently  installed
DCT systems at multiple  locations  in the United  States as well as in Ireland,
the United Kingdom, Israel, India and China.

         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.

         Subsequent to September 30, 1999, the Company received information that
sales to NTT, a major customer in Japan,  would likely be significantly  reduced
beginning in fiscal 2000. The Company  believes that these reductions are due to
the intensely competitive  marketplace in Japan and to significant reductions in
NTT's budget. The Company believes it is likely that sales to NTT will no longer
represent as large a percentage  of total  revenue,  and this will likely have a
negative  effect on the Company's  long term growth  expectations.  Accordingly,
results for fiscal 2000 will likely be  significantly  reduced and  different in
terms of total revenue,  earnings per share,  geographic  sales mix and customer
concentration from fiscal 1999.

Sales and Marketing

         The Company markets its products and services  through its direct sales
force, a majority of whom have technical degrees. As of September 30, 1997, 1998
and 1999, the Company's  direct sales force consisted of 5, 10 and 15 employees,
respectively.  The sales and marketing staff is located in North America, Japan,
Europe and Canada.  The Company does not  anticipate  entering into  independent
distributor  arrangements  for  the  foreseeable  future  and  intends  to  sell
exclusively  through  direct  sales  personnel  because  of the  high  level  of
technical  expertise and support  required by customers.*  Pursuant to a special
agreement,  one of the  Company's  customers  has the  right  to  re-market  the
Company's test systems as part of an integrated product sale.

         The  Company's  sales  strategy  is to focus on the  functional  groups
related to the customer's  product  development  cycle,  including  research and
development,  network  integration and final test.  Sales to a new customer have
often led to sales at other  facilities  of the  customer,  as often a  customer
performs development at multiple sites in order to adapt its  telecommunications
equipment to local  requirements and standards.  The Company intends to continue
to leverage its existing  customer base not only for follow-on and upgrade sales
but also to gain access to new customers.  For example, because users of similar
test systems can benefit from sharing test scripts and results,  an initial sale
can facilitate a subsequent  sale to other equipment  manufacturers  and network
operators.

         The  Company  has  implemented  a number of  marketing  initiatives  to
support the sales of its products and  services.  These  efforts are intended to
inform  customers of the  capabilities  and benefits of the  Company's  advanced
software-based  test systems.  Marketing  programs include direct mail,  on-site
customer  seminars,  limited  participation in industry trade shows,  technology
conferences  and forums and  dissemination  of information  concerning  products
through the Company's website.

                                       4
<PAGE>

         Customers  generally  purchase on an as-needed  basis,  and none of the
Company's  customers has entered into agreements that require minimum purchases.
The Company's  products  generally are shipped within 15 to 30 days after orders
are received.  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 and shipped in that quarter.

         A customer's  decision to purchase  the  Company's  products  typically
involves  a  significant  technical   evaluation,   internal  procedural  delays
associated with large capital  expenditure  approvals and testing and acceptance
of new systems  that affect key  operations.  For these and other  reasons,  the
sales cycle  associated  with the  Company's  products is typically  lengthy and
subject to a number of significant risks over which the Company has little or no
control.  Historically, the period between initial customer contact and purchase
of the  Company's  products has typically  ranged from two to nine months,  with
sales to new customers  (including new divisions  within existing  customers) at
the  longer  end of this  range.  Because  of the  lengthy  sales  cycle and the
relatively  small  number  and large  size of  customers'  orders,  if  revenues
forecast from a specific  customer for a particular  quarter are not realized in
that  quarter,  the  Company's  operating  results  for  that  quarter  could be
materially adversely affected.

International Sales

         International  sales constituted  approximately 53%, 72% and 78% of the
Company's  total  revenues  in fiscal  1997,  1998 and 1999,  respectively.  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. In addition,  the Company has
offices and sales staff located in Japan, the United Kingdom,  Germany,  Sweden,
France  and Canada and plans to open new  offices  internationally  from time to
time.*

         Subsequent to September 30, 1999, the Company received information that
sales to NTT, a major customer in Japan and our largest customer in fiscal 1999,
would likely be  significantly  reduced  beginning  in fiscal 2000.  The Company
believes that these reductions are due to the intensely competitive  marketplace
in Japan and to  significant  reductions in NTT's budget.  The Company  believes
that sales in Japan will not  represent as large a percentage  of total  revenue
and this will likely have a negative  effect on the  Company's  long term growth
expectations.  Accordingly, results for fiscal 2000 will likely be significantly
reduced and different in terms of total revenue,  earnings per share, geographic
sales mix and customer concentration from fiscal 1999.

DCT Product Line Support

         Due to the  complexity of its  customers'  testing  needs,  the Company
offers  its  customers  support  and  training  from  highly  skilled  technical
personnel.  As of September 30, 1997,  1998 and 1999, the Company had 10, 16 and
26, applications  engineers worldwide who provide full-time technical support to
the Company's customers, including technical assistance and development support,
respectively. The Company provides ongoing training, generally at the customer's
site,  and technical  assistance  from all of its offices.  Support is generally
offered during normal business hours applicable to each office. The Company also
offers product warranties for various lengths of time,  depending on the product
and country of purchase or operation.

         The  Company  provides  periodic  software  releases  that  contain new
features,  new  protocol  variants  and other  improvements.  Each new  software
release is carefully  designed not only to enhance  performance and flexibility,
but also to maximize compatibility with the Company's earlier software releases,
enabling  the  DCT  system  to  continue  to  be  used  as  customer  needs  and
applications  evolve. As part of its ongoing software  support,  the Company may
also develop protocol variants at the request of its customers.*

                                       5
<PAGE>

Product Development

         The  Company's  development  efforts  are  directed  at  improving  the
capability,  performance and ease of use of the DCT system.  The Company intends
to  continue  to devote a large  portion  of its  engineering  resources  to the
enhancement of its suite of software  protocol  modules in order to meet current
and  projected  customer  requirements.  The Company also intends to continue to
develop and enhance its proprietary internal tools and techniques for supporting
new protocols in the DCT systems.

         The Company is  continually  seeking to make the DCT systems  easier to
use in order to expand its market to include a broad range of users. In order to
run test  scenarios,  particularly  on advanced test systems,  users may need to
create customized test scripts, a process that may require significant technical
expertise.  The Company  continues  to extend the  CrossBow(TM)  product line of
pre-programmed  applications,   such  as  load  generators  and  network  entity
simulators,   across  emerging  network  areas.  Catapult  believes  that  these
additional  product  offerings  will permit  expansion  of its market to include
companies with limited  programming  resources.* The Company plans to expand and
refine its GUI and  pre-programmed  applications to continue to improve the ease
of use of the DCT system.* In addition, the Company is continuing to implement a
number of test suites specified by telecommunications  standards bodies, such as
ITU-T  (International),  ETSI  (European) and EIA-TIA  (North  American) and the
Third Generation Partnership Program (3GPP). The Company believes that these new
solutions  will provide the  opportunity  to capture  more  revenues and sell to
companies with fewer programming resources.*

         Most of the Company's hardware  development program is directed towards
designing protocol co-processors and associated physical interfaces. The Company
has initiated these projects to increase the performance and capabilities of the
DCT  system  and  expand  the range of  devices  to which the DCT  system can be
directly connected for testing purposes.

         Research  and product  development  expenses  were  approximately  $1.4
million,  $2.0  million  and  $2.8  million  in  fiscal  1997,  1998  and  1999,
respectively.  The Company's policy is to evaluate software development projects
for  technological   feasibility  to  determine  if  they  meet   capitalization
requirements.  To date,  all software  development  costs have been  expensed as
research and  development  expenses as incurred.  As of September 30, 1997, 1998
and 1999, 10, 15 and 24, of the Company's engineers,  respectively, were engaged
in or provided support to research and development.

Manufacturing

         The Company's  manufacturing  operations consist of the procurement and
inspection of components,  final assembly,  quality control tests and packaging.
Workstations that host the Company's  products are either purchased by customers
directly or purchased by the Company on behalf of its customers. Printed circuit
boards,  chassis and most of the other major  components  used in the  Company's
products  are  sub-assembled  to the  Company's  specifications  by  independent
contractors.  The  sub-assembled  components are then delivered to the Company's
facilities  for final  assembly,  quality  control and testing  against  product
specifications  and  product   configuration,   including  installation  of  the
Company's software and proprietary  hardware.  The Company believes that its use
of  independent  contractors  for  sub-assembly  combined  with  in-house  final
assembly improves production planning,  increases efficiency,  reduces costs and
improves quality.

         The Company has a computerized  manufacturing  inventory control system
that is integrated with its financial  bookkeeping  system.  This  manufacturing
control system monitors purchasing, inventory control and production.

                                       6
<PAGE>

Competition

         The market for  telecommunications  test  systems is  characterized  by
intense competition. The Company believes that the principal competitive factors
affecting  its market  include  availability  of a broad range of protocols  and
protocol variants, system performance,  length of operating history and industry
experience,  product  reliability,  ease of use, quality of service and support,
status as an independent vendor and price/performance.  In addition, the Company
believes that potential customers consider other factors,  such as the number of
protocols   required  and  whether  the  test  system  vendor  sells   competing
telecommunications  products.  The Company  believes that it competes  favorably
with respect to these factors.

         The Company believes its principal  competitors are Able Communications
Inc. ("Able"), Agilent Technologies Inc. ("Agilent"),  IFR Systems Inc. ("IFR"),
INET, Inc. ("INET"),  Schlumberger,  Ltd.  ("Schlumberger"),  Tekelec, Tektronix
Inc.  ("Tektronix") and Wavetek Corporation  ("Wavetek").  Many of the Company's
existing  and  potential   competitors  are  large  domestic  and  international
companies   that   have   substantially   greater   financial,    manufacturing,
technological,  marketing,  sales,  distribution  and  other  resources,  larger
installed customer bases, greater name recognition and longer-standing  customer
relationships  than the  Company.  Accordingly,  such  competitors  or potential
competitors may be able to respond more quickly to new or emerging  technologies
and changes in  customer  requirements  or to devote  greater  resources  to the
development, promotion and sales of their products than the Company. The Company
believes   that  the  market  for  high-end   testing   systems  is   fragmented
geographically.  For example,  Tekelec, INET, Tektronix and Schlumberger are the
Company's primary competitors in North America, while its primary competitors in
Europe are  Tektronix,  Wavetek,  Schlumberger  and IFR. The  Company's  primary
competitors  in Japan are Able and Tekelec.  The Company also faces  competition
from several relatively small companies.

         The Company also  competes  with the internal test system groups of its
customers and potential customers.  Many of the Company's existing and potential
customers have the technical capability and financial resources to produce their
own test  systems  and  perform  test  services  internally.  These  systems and
services would be competitive with the test systems offered by the Company.

         The Company expects competition to increase in the future from existing
competitors  and from other  companies that may enter this market with solutions
that may be less costly or provide  higher  performance  or offer more  features
than the Company's solutions. Current and potential competitors have established
or may  establish  cooperative  relationships  among  themselves  or with  third
parties to develop  new test  solutions  for  internal  use or for sale to third
parties  in  the  Company's  markets.  Accordingly,  it  is  possible  that  new
competitors  may  emerge  and  acquire   significant  market  share.   Increased
competition  may result in price  reductions,  reduced gross margins and loss of
market share, any of which would have a material adverse effect on the Company's
business, financial condition and results of operations.

Intellectual Property

         The Company relies on a combination  of trademark,  copyright and trade
secret  laws,  as  well  as  nondisclosure   agreements  and  other  contractual
restrictions,  to  establish  and protect its  proprietary  rights.  The Company
generally enters into nondisclosure and invention assignment agreements with its
employees and consultants,  and into nondisclosure agreements with its customers
and  suppliers.  To date,  the Company has not sought patent  protection for its
proprietary technology. The Company believes that, historically,  because of the
rapid pace of technological change in the telecommunications test system market,
patent protection has been a less significant factor than the knowledge, ability
and experience of the Company's  employees,  the nature and frequency of product
enhancement and the quality of the Company's  support services.  However,  there
can be no assurance that patent  protection  will not become a more  significant
factor  in the  Company's  industry  in the  future.  Likewise,  there can be no
assurance that the measures the Company  undertakes  will be adequate to protect
its proprietary  technology.  To date, the Company has not federally  registered
any  of its  trademarks  or  copyrights.  The  Company's  practice  is to  affix
copyright  notices

                                       7
<PAGE>

on  software,  hardware  and  product  literature  in order to assert  copyright
protection  for these works.  There can be no assurance that the lack of federal
registration  of the  Company's  trademarks  and  copyrights  would  not  have a
material  adverse effect on the Company's  intellectual  property  rights in the
future.  Additionally,  the Company may be subject to further risks as it enters
into transactions in countries where intellectual property laws are unavailable,
do not provide adequate protection or are difficult to enforce.

         Despite  the  Company's  efforts to  protect  its  proprietary  rights,
unauthorized  parties may attempt to duplicate aspects of the Company's products
or to obtain and use information that the Company regards as proprietary.  There
can be no  assurance  that  the  steps  taken  by the  Company  to  protect  its
proprietary  technology  will be  adequate to prevent  misappropriation  of such
technology or that they will preclude competitors from independently  developing
products with functionality or features similar to the Company's  products.  The
failure of the  Company  to  protect  its  proprietary  technology  would have a
material  adverse  effect on the  Company's  business,  financial  condition and
results of operations.

         While,  to  date,  the  Company  has not  been  subject  to  claims  of
infringement  or  misappropriation  of  intellectual  property of third parties,
there can be no assurance that third parties will not assert infringement claims
against the Company,  that any such assertion of infringement will not result in
litigation or that the Company would  prevail in such  litigation.  Furthermore,
any such claims,  with or without merit, could result in substantial cost to the
Company  and  diversion  of its  personnel,  require  the Company to develop new
technology,   or  require  the  Company  to  enter  into  royalty  or  licensing
arrangements.  Such royalty or  licensing  agreements,  if required,  may not be
available on terms acceptable to the Company or at all. Because the Company does
not rely on patents to protect its  technology,  the Company will not be able to
offer a license for patented  technology  in connection  with any  settlement of
patent infringement lawsuits. In the event of a successful claim of infringement
or misappropriation  against the Company and failure or inability of the Company
to develop non-infringing  technology or license the infringed,  misappropriated
or similar  technology at a reasonable cost, the Company's  business,  financial
condition and results of operations would be materially  adversely affected.  In
addition,  the Company indemnifies its customers against claimed infringement of
patents,  trademarks,  copyrights and other proprietary rights of third parties.
Any  requirement  for the Company to indemnify a customer  could have a material
adverse  effect on the Company's  business,  financial  condition and results of
operations.

Employees

         As of September 30, 1999, the Company employed 93 full-time  employees,
including 24 in research and development, 26 in application engineering customer
support,  25 in sales, five in marketing,  eight in  administration  and five in
manufacturing. Of these employees, 63 were employed in North America of which 46
are at the Mountain View, California headquarters,  15 in the United Kingdom and
Europe and 15 in Japan. The Company is not subject to any collective  bargaining
agreement and has not experienced any work stoppages.  The Company believes that
its relations with its employees are good.

Executive Officers of the Company

         The following table sets forth certain information, as of September 30,
1999, with respect to the executive officers of the Company:

Name                         Age                  Positions
----                         ---                  ---------

Richard A. Karp............  55  President, Chief Executive Officer,
                                 Chairman of the Board and
                                 Acting Chief Financial Officer

                                       8
<PAGE>

Barry R. Hoglund...........  51  Vice President of Sales

Glenn Stewart..............  49  Vice President of Engineering

Guy R. Simpson.............  41  Vice President of Application Development

Barbara J. Fairhurst.......  51  Vice President of Operations

Terry Eastham..............  52  Vice President of Marketing

Kathy T. Omaye-Sosnow......  43  Director of Human Resources

         Dr.  Richard  A. Karp  founded  the  Company  in 1985 and has served as
President,  Chief  Executive  Officer  and  Chairman of the Board of the Company
since inception. Prior to founding Catapult in 1985, Dr. Karp was Vice President
of Software  Development for Tri-Data,  Inc., a supplier of protocol  conversion
equipment, from 1982 to 1985. Previously, he was a founder and Vice President of
Software of Sequoia Systems, a fault-tolerant computer systems manufacturer. Dr.
Karp has also served as an independent  software  consultant,  and he spent five
years as a systems programmer and project leader at Burroughs  Corporation.  Dr.
Karp holds a Ph.D.  in computer  science  from  Stanford  University,  a M.S. in
mathematics  from the  University  of  Wisconsin  and a B.S. in science from the
California Institute of Technology.

         Mr.  Barry R. Hoglund  joined the Company in 1993 as Vice  President of
Sales.  From 1992 to 1993,  he was Vice  President of North  American  Sales and
Service at Spectra-Physics  Lasers.  Prior to that, he was employed for 17 years
by Watkins-Johnson  Company, where his last position was Vice President of Sales
and  Marketing.  Mr.  Hoglund  received a M.S. in Physics from the University of
Illinois and a B.S. in Physics from the University of Minnesota.

         Mr.  Glenn  Stewart  joined the  Company in 1992 as Vice  President  of
Engineering.  Prior to joining the Company,  he was Director of  Engineering  at
Tektronix/LP Com. Previously, he spent nine years at Bell Northern Research as a
manager of development of telecommunications  products and services. Mr. Stewart
holds a M.Sc. and a B.Sc. in Computer Science from the University of Toronto.

         Mr.  Guy  R.  Simpson  has  served  as  Deputy   Chairman  of  Catapult
Communications Ltd. ("CCL"), the Company's UK subsidiary, since October 1996 and
was elected Vice  President of  Applications  Development  of the Company in May
1998.  Mr. Simpson joined the Company in 1989 and has held a number of technical
and management  positions with the Company and CCL since that time. From October
1996 to April 1998,  Mr.  Simpson was the Director of Field Test Systems for the
Company.  From July 1994 to September 1996, Mr. Simpson was Managing Director of
CCL. From July 1992 to June 1994, he was Secretary of CCL.  Prior to joining the
Company,  Mr.  Simpson was employed  for eight years by AT&T Bell  Laboratories,
where he held a variety of engineering  and management  positions in the area of
advanced digital switching systems. Mr. Simpson holds a B.Sc. degree in Computer
Science from Hatfield  Polytechnic  at the University of  Hertfordshire,  United
Kingdom.

         Mr. Barbara J. Fairhurst joined the Company in June 1995 as Director of
Operations.  From 1994 to 1995, Ms. Fairhurst was Principal at BJF Consulting, a
consulting  firm, where she developed  business plans and implemented  operating
systems.  From 1990 to 1993,  Ms.  Fairhurst  was  Corporate  Vice  President at
Intersource  Technologies,  Inc.,  where she was  responsible for operations and
manufacturing. Prior to that time, Ms. Fairhurst spent 10 years as President and
Chief  Operating  Officer of Sequential  Circuits,  a manufacturer of electronic
music equipment.  Ms.  Fairhurst holds a M.B.A.  from the Santa Clara University
and a B.A. from San Jose State University.

         Mr. Terry  Eastham  joined the Company in 1999 as the  company's  first
Vice  President of Marketing.  Prior to

                                       9
<PAGE>

joining the Company, he served as Chief Operating Officer for Sherwood Networks,
a manufacturer of network computers and display terminals.  Previously, he spent
six years at Wyse Technology as Vice President of Product Marketing and 17 years
at  Hewlett-Packard  Co.  where  he  held  a  variety  of  marketing  and  sales
development  positions.  Mr.  Eastham  holds both a M.B.A.  degree and a M.S. in
Physics  degree from  Washington  University  and a B.S.  degree in Physics from
Oklahoma State University.

         Ms. Kathy T. Omaye-Sosnow  joined the Company in 1997. Ms. Omaye-Sosnow
has served as the  Company's  Director  of Human  Resources  since June of 1999.
Prior to  that,  Ms.  Omaye-Sosnow  served  as the  Company's  Manager  of Human
Resources.  Prior to joining the Company,  she held a variety of human resources
positions,  most  recently as Manager of Corporate  Employment  at McKesson HBOC
Corporation,  a pharmaceutical  distributor and health  management  corporation.
Prior to that, she was employed with Delta Dental Plan of  California,  a dental
insurance firm in California,  where she held various human resources positions.
Ms.  Omaye-Sosnow  holds a B.S. degree in Human Resources from California  State
University, Sacramento.

ITEM 2.       PROPERTIES

         The  Company's  executive  offices,  product  development  and  primary
support and  production  operations  are located in Mountain  View,  California,
where the Company occupies  approximately 17,750 square feet pursuant to a lease
that expires  early in 2002.  The annual rent for the property is  approximately
$168,000.  The Company  believes  that this  facility  will be adequate  for its
planned purposes.*

         In addition,  the Company leases professional  services office space in
the following  locations with the following  approximate  square footage:  2,000
square feet in Schaumburg,  Illinois;  1,500 square feet in Dallas, Texas; 1,300
square feet in Ottawa,  Canada;  1,950 square feet in Chippenham,  England;  and
2,000 square feet in Tokyo, Japan.

ITEM 3.       LEGAL PROCEEDINGS

         The Company is not subject to any pending legal proceedings.

ITEM 4.       SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         No matters  were  submitted  to a vote of security  holders  during the
fourth quarter of fiscal 1999.

                                     PART II

ITEM 5.  MARKET  FOR THE  REGISTRANT'S  COMMON  EQUITY AND  RELATED  STOCKHOLDER
         MATTERS

         The  Company's  common  stock is quoted on the Nasdaq  National  Market
System  ("Nasdaq")  under the symbol "CATT." The following  table sets forth the
range of high and low closing sales prices for each period  indicated  beginning
on February 11, 1999 when the Company's common stock began trading on Nasdaq:

                                                1999
                                                ----
                                      High                  Low
                                      ----                  ---
Second quarter                      $15.15                 $ 9.94
Third quarter                       $30.69                 $12.75
Fourth quarter                      $27.19                 $13.75

                                       10
<PAGE>

         The Company had approximately 54 stockholders of record as of September
30, 1999.  The Company has not declared or paid any cash dividends on its common
stock and presently  intends to retain its future earnings,  if any, to fund the
development and growth of its business and, therefore does not anticipate paying
cash dividends in the foreseeable future.*

                                       11
<PAGE>

ITEM 6.       SELECTED FINANCIAL DATA

         The following  selected financial data is qualified by reference to and
should be read in conjunction  with the  "Management  Discussion and Analysis of
Financial   Condition  and  Results  of  Operations"  section  and  Consolidated
Financial Statements and Notes thereto included elsewhere in this Report on Form
10-K.

<TABLE>
Consolidated Statements of Income Data:

<CAPTION>
                                                                        Fiscal Year Ended September 30,
                                                  -----------------------------------------------------------------------------
                                                     1995            1996            1997             1998            1999
                                                  ------------    ------------    ------------    -------------    ------------
                                                                    (in thousands, except per share data)
<S>                                                    <C>             <C>            <C>              <C>             <C>
Revenues:
     Product Sales...........................          $5,857          $7,690         $11,519          $15,833         $25,505
     Services................................           1,012           1,562           1,833            2,373           3,450
                                                  ------------    ------------    ------------    -------------    ------------
         Total revenues......................           6,869           9,252          13,352           18,206          28,955
                                                  ------------    ------------    ------------    -------------    ------------
Cost of revenues:
     Product sales...........................             804           1,103           1,576            1,852           2,701
     Services................................             132             246             344              564             945
                                                  ------------    ------------    ------------    -------------    ------------
         Total cost of revenues..............             936           1,349           1,920            2,416           3,646
                                                  ------------    ------------    ------------    -------------    ------------
     Gross profit............................           5,933           7,903          11,432           15,790          25,309
                                                  ------------    ------------    ------------    -------------    ------------
Operating expenses:
     Research and development................             697             908           1,419            2,001           2,777
     Sales and marketing.....................           1,300           1,881           2,550            3,242           5,623
     General and administrative..............             889           1,384           2,063            2,188           2,485
     Offering costs..........................              --              --              --              769              --
                                                  ------------    ------------    ------------    -------------    ------------
         Total operating expenses............           2,886           4,173           6,032            8,200          10,885
                                                  ------------    ------------    ------------    -------------    ------------
Operating income.............................           3,047           3,730           5,400            7,590          14,424
     Interest income.........................             224             269             380              594           1,294
     Other income (expense)..................             126            (209)             (6)            (263)           (107)
                                                  ------------    ------------    ------------    -------------    ------------
     Income before taxes.....................           3,397           3,790           5,774            7,921          15,611
     Provision for taxes.....................           1,225           1,502           2,436            3,396           6,706
                                                  ------------    ------------    ------------    -------------    ------------
         Net income..........................          $2,172          $2,288         $ 3,338          $ 4,525         $ 8,905
                                                  ============    ============    ============    =============    ============
Earnings per share:
     Basic...................................           $0.23           $0.24           $0.35            $0.44           $0.75
                                                  ============    ============    ============    =============    ============
     Diluted.................................           $0.22           $0.22           $0.31            $0.41           $0.73
                                                  ============    ============    ============    =============    ============
Shares used in per share calculation:
     Basic...................................           9,581           9,621           9,630           10,369          11,874
                                                  ============    ============    ============    =============    ============
     Diluted.................................          10,058          10,301          10,605           10,940          12,217
                                                  ============    ============    ============    =============    ============
</TABLE>

                                       12
<PAGE>

<TABLE>
Consolidated Balance Sheet Data:

<CAPTION>
                                                                       Fiscal Year Ended September 30,
                                                  -----------------------------------------------------------------------------
                                                     1995            1996            1997             1998            1999
                                                  ------------    ------------    ------------    -------------    ------------
                                                                               (in thousands)
<S>                                                    <C>             <C>            <C>              <C>             <C>
Cash, cash equivalents and short-term
investments................................            $5,438          $7,171         $10,672          $15,229         $41,654
Working capital............................             4,260           6,496           9,698           14,006          42,372
Total assets...............................             6,760           9,542          14,035           19,495          50,667
Redeemable common stock....................                --              --              --            5,000              --
Total stockholders' equity.................            $4,557          $6,832         $10,170          $10,150         $43,589
</TABLE>

<TABLE>
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.

<CAPTION>
                                                                                     Percentage of Total Revenues Fiscal Year
                                                                                               Ended September 30,
                                                                                    -------------------------------------------
                                                                                       1997           1998            1999
                                                                                    -----------    ------------    ------------
<S>                                                                                      <C>            <C>             <C>
Revenues:
     Product Sales..........................................................             86.3%          87.0%           88.0%
     Services...............................................................             13.7           13.0            12.0
                                                                                    -----------    ------------    ------------
         Total revenues.....................................................            100.0          100.0           100.0
                                                                                    -----------    ------------    ------------
Cost of revenues:
     Product sales..........................................................             11.8           10.2             9.3
     Services...............................................................              2.6            3.1             3.3
                                                                                    -----------    ------------    ------------
         Total cost of revenues.............................................             14.4           13.3            12.6
                                                                                    -----------    ------------    ------------
     Gross profit...........................................................             85.6           86.7            87.4
                                                                                    -----------    ------------    ------------
Operating expenses:
     Research and development...............................................             10.6           11.0             9.6
     Sales and marketing....................................................             19.1           17.8            19.4
     General and administrative.............................................             15.5           12.0             8.6
     Offering costs.........................................................               --            4.2              --
                                                                                    -----------    ------------    ------------
         Total operating expenses...........................................             45.2           45.0            37.6
                                                                                    -----------    ------------    ------------
Operating income............................................................             40.4           41.7            49.8
     Interest income........................................................              2.8            3.3             4.5
     Other income (expense).................................................               --           (1.5)           (0.4)
                                                                                    -----------    ------------    ------------
     Income before taxes....................................................             43.2           43.5            53.9
     Provision for taxes....................................................             18.2           18.6            23.2
                                                                                    -----------    ------------    ------------
         Net income.........................................................             25.0%          24.9%           30.8%
                                                                                    ===========    ============    ============
Gross margin on product sales...............................................             86.3%          88.3%           89.4%
                                                                                    ===========    ============    ============
Gross margin on services....................................................             81.2%          76.2%           73.0%
                                                                                    ===========    ============    ============
</TABLE>

                                       13
<PAGE>

ITEM 7.  MANAGEMENT  DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION AND RESULTS
         OF OPERATIONS

Overview

         The Company's  revenues are derived from product  sales,  which include
both  licenses  of the DCT  system  software  and  sales of  hardware,  and from
services,  which includes customer support under software support contracts,  as
well as  installation  and  training.  Prices  for the DCT  system  vary  widely
depending  upon overall system  configuration,  including the number and type of
software protocol modules and the number of physical  interfaces required by the
customer. A DCT system sale typically ranges in price from approximately $50,000
to $150,000.  In addition to the initial  system  purchase,  customers  also may
upgrade their systems by purchasing  additional  software  protocol  modules and
hardware.  Customers have the option to purchase a third-party  workstation from
the Company or provide a workstation to the Company for  configuration.  Product
sales  are  recognized  upon  shipment  provided  that  no  significant   vendor
obligations remain and collection is considered probable.

         The Company  offers  product  warranties  for various  lengths of time,
depending  on the product and country of purchase or  operation.  Customers  may
elect to purchase an annual  software  support  contract,  which  includes  both
ongoing  technical  support and any new software  releases made available during
the term of the support  contract.  These  software  releases  include  protocol
variants for protocols already purchased by the customer. Revenues from software
support  contracts are  recognized  ratably over the contract  period,  which is
generally one year. New customers  typically  purchase onsite  installation  and
training,  which  are  charged  on a  fixed-price  basis and  recognized  as the
services are performed.

         A customer's  decision to purchase  the  Company's  products  typically
involves  a  significant  technical   evaluation,   internal  procedural  delays
associated with large capital  expenditure  approvals and testing and acceptance
of new systems  that affect key  operations.  For these and other  reasons,  the
sales cycle  associated  with the  Company's  products is typically  lengthy and
subject to a number of significant risks over which the Company has little or no
control.  Historically, the period between initial customer contact and purchase
of the  Company's  products has typically  ranged from two to nine months,  with
sales to new customers  (including new divisions  within existing  customers) at
the  longer  end of this  range.  Because  of the  lengthy  sales  cycle and the
relatively  small  number  and large  size of  customers'  orders,  if  revenues
forecast from a specific  customer for a particular  quarter are not realized in
that  quarter,  the  Company's  operating  results  for  that  quarter  could be
materially adversely affected.

         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.

                                       14
<PAGE>

Fiscal Years Ended September 30, 1998 and 1999

     Revenues

         Revenues  increased by  approximately  59% from $18.2 million in fiscal
1998 to $29.0  million  in fiscal  1999.  Over the same  period,  product  sales
increased  by  approximately  61% from  $15.8  million  in fiscal  1998 to $25.5
million in fiscal 1999.  Services revenue  increased by  approximately  46% from
$2.4  million in fiscal 1998 to $3.5  million in fiscal  1999.  The  increase in
product  sales  was  primarily   attributable  to  increased   system  sales  to
international  customers,  including  a large sale in the second  quarter to NTT
DoCoMo  of Japan,  and  domestic  customers  as well as  increased  sales of the
Company's MPI cards.  The increase in service revenue was primarily due to sales
of  software  support  contracts  associated  with new  system  sales as well as
contract renewals.  Services revenue will vary depending in part on the relative
contributions  of each sales  region.  In Japan,  the Company  has  historically
received lower services revenue in proportion to its product sales,  principally
due to market factors affecting the pricing of such services.

         Subsequent to September 30, 1999, the Company received information that
sales to NTT, the Company's largest customer in fiscal 1999 and a major customer
in Japan,  would likely be significantly  reduced  beginning in fiscal 2000. The
Company  believes that these  reductions  are due to the  intensely  competitive
marketplace in Japan and to significant  reductions in NTT's budget. The Company
believes  it is likely  that  sales to NTT will no longer  represent  as large a
percentage of total revenue,  and this will likely have a negative effect on the
Company's long term growth  expectations.  Accordingly,  results for fiscal 2000
will likely be  significantly  reduced and different in terms of total  revenue,
earnings per share,  geographic sales mix and customer concentration from fiscal
1999.

     Cost of Revenues

         Cost of product sales increased by approximately  42% from $1.9 million
for fiscal 1998 to $2.7  million in fiscal 1999.  Gross margin on product  sales
increased from 88.3% for fiscal 1998 to 89.4% in fiscal 1999.  This increase was
due  primarily to a  significantly  higher  proportion of higher margin sales in
Japan and increased  sales of higher margin  proprietary  products,  such as MPI
cards,  in fiscal 1999.  Cost of services  increased by  approximately  68% from
$564,000 for fiscal 1998 to $945,000 for fiscal 1999 due  primarily to increased
cost of engineering personnel additions. Gross margin on services decreased from
76.2% for fiscal 1998 to 73.0% for fiscal 1999 as the Company added  application
and other engineers to service the increased sales to customers. Gross margin on
services will vary depending in part on the amount of sales to Japan,  where the
Company  has  historically  generated  lower  margins on service  revenue due to
market  factors  affecting  pricing  as well as the  timing of system  sales and
support contract renewals.

     Research and Development

         Research and development  expenses  increased by approximately 39% from
$2.0 million for fiscal 1998 to $2.8 million in 1999.  As a percentage  of total
revenues,  research and development  expenses  decreased  slightly from 11.0% to
9.6% over the same  period.  The  increase  in  expenses  was due  primarily  to
increased  spending on projects and  increases in the cost to recruit and retain
software and application  engineering  personnel.  The decrease in expenses as a
percentage  of sales was due  primarily to revenue  growth at a higher rate than
R&D expense growth.

                                       15
<PAGE>

     Sales and Marketing

         Sales and marketing  expenses  increased by approximately 73% from $3.2
million for fiscal 1998 to $5.6 million in fiscal 1999. As a percentage of total
revenues,  sales and marketing  expenses increased from 17.8% for fiscal 1998 to
19.4% in fiscal 1999.  The increases  were due primarily to higher  compensation
and occupancy cost  resulting  from the hiring of additional  sales staff in the
UK, Europe,  Canada and the US,  expansion of Japanese  sales office,  opening a
sales  office in Texas and  hiring a Vice  President  of  Marketing  along  with
additional marketing personnel.

     General and Administrative

         General and administrative expenses increased by approximately 14% from
$2.2 million for fiscal 1998 to $2.5 million in fiscal 1999.  As a percentage of
total revenues, general and administrative expenses decreased from 12.0% to 8.6%
over the same  period.  This  increase was due  primarily to increased  bonuses,
executive compensation cost and cost associated with being a public company.

     Investment Income

         Investment income increased from $594,000 for fiscal 1998 to $1,294,000
in fiscal 1999 due to the  investment of cash balances and the proceeds from the
initial public offering.

     Other Income (expense)

         Other  expense  decreased  from $263,000 for fiscal 1998 to $107,000 in
fiscal 1999 due primarily to lower  exchange  losses and hedging cost related to
transactions denominated in foreign currencies.

     Income taxes

         The  Company's  effective  tax rate was 42.9% in fiscal 1998 and fiscal
1999.  The  effective  tax rate  primarily  reflects  the higher  percentage  of
revenues  derived by the Company from  international  operations in fiscal 1999,
particularly its operations in Japan,  which has an overall higher corporate tax
rate than the US.

Fiscal Years Ended September 30, 1997 and 1998

     Revenues

         Revenues  increased by  approximately  36% from $13.4 million in fiscal
1997 to $18.2  million  in fiscal  1998.  Over the same  period,  product  sales
increased  by  approximately  37% from  $11.5  million  in fiscal  1997 to $15.8
million in fiscal 1998.  Services revenue  increased by  approximately  29% from
$1.8  million in fiscal 1997 to $2.4  million in fiscal  1998.  The  increase in
product  sales  was  primarily   attributable  to  increased   system  sales  to
international  customers as well as increased  sales of the Company's MPI cards.
The increase in service  revenue was primarily due to sales of software  support
contracts  associated  with  new  system  sales  as well as  contract  renewals.
Services revenue varied depending in part on the relative  contributions of each
sales region.  The Company has  historically  received lower services revenue in
Japan in  proportion to its product  sales,  principally  due to market  factors
affecting the pricing of such services.

     Cost of Revenues

         Cost of product sales increased by approximately  18% from $1.6 million
for fiscal 1997 to $1.9  million in fiscal 1998.  Gross margin on product  sales
increased from 86.3% for fiscal 1997 to 88.3% in fiscal 1998.  This increase was
due   primarily  to  a   significantly   higher   proportion  of  higher  margin
international  sales  and  to  increased

                                       16
<PAGE>

sales of higher margin proprietary products,  such as MPI cards, in fiscal 1998.
Cost of services increased by approximately 64% from $344,000 for fiscal 1997 to
$564,000  for fiscal 1998 due to personnel  additions.  Gross margin on services
decreased  from 81.2% for fiscal  1997 to 76.2% for fiscal  1998 as the  Company
added support  personnel in  anticipation  of increased  sales.  Gross margin on
services  varied  depending  in part on the amount of sales to Japan,  where the
Company  historically  generated  lower margins on service revenue due to market
factors affecting pricing.

     Research and Development

         Research and development  expenses  increased by approximately 41% from
$1.4 million for fiscal 1997 to $2.0 million in 1998.  As a percentage  of total
revenues,  research and development  expenses  increased  slightly from 10.6% to
11.0% over the same period. These increases were due primarily to an increase in
engineering personnel.

     Sales and Marketing

         Sales and marketing  expenses  increased by approximately 27% from $2.6
million  for fiscal 1997 to $3.2  million in fiscal  1998 as the  Company  hired
additional  personnel.  As a percentage of total  revenues,  sales and marketing
expenses decreased from 19.1% for fiscal 1997 to 17.8% in fiscal 1998.

     General and Administrative

         General  and  administrative  expenses  increased  slightly  from  $2.1
million for fiscal 1997 to $2.2 million in fiscal 1998. As a percentage of total
revenues, general and administrative expenses decreased from 15.5% to 12.0% over
the same period.  This  percentage  decrease was due  primarily to a decrease of
approximately  $500,000  in  executive  bonuses,  offset  in part  by  personnel
additions,  settlement of a claim and $176,000 of deferred  compensation expense
related to employee stock option grants.

     Offering Costs

         In fiscal 1998, the Company  expensed  $769,000 of costs related to its
delayed  initial  public  offering.  There were no such costs in the  comparable
period of fiscal 1997.

     Investment Income

         Interest income  increased from $380,000 for fiscal 1997 to $594,000 in
fiscal  1998 due to an  increase  in the  Company's  cash  and  cash  equivalent
balances and short-term investments.

     Other Income (expense)

         Other  expense  was $6,000 for fiscal  1997 and was  $263,000 in fiscal
1998,  due to exchange  losses  related to  transactions  denominated in foreign
currencies.

     Income Taxes

         The Company's  effective tax rate was 42.2% in fiscal 1997 and 42.9% in
fiscal  1998.  The  increase  in the tax  rate  primarily  reflects  the  higher
percentage of revenues derived by the Company from  international  operations in
fiscal 1998,  particularly its operations in Japan,  which has a relatively high
tax rate.

                                       17
<PAGE>

Liquidity and Capital Resources

         Historically,  the  Company  has  financed  its  operations,  including
increases in accounts receivable and capital equipment  acquisitions,  primarily
through cash generated from operations.

         On  February  11,  1999,  the  Company  consummated  an initial  public
offering  of  3,352,500  shares of its common  stock at a price to the public of
$10.00 per share, of which 2,100,000  shares were issued and sold by the Company
and  1,252,500  shares were sold by certain  stockholders  of the  Company.  The
proceeds,  net of underwriter  fees and other expenses,  to the Company from the
offering were approximately $19.2 million.

         The Company's operating activities provided cash of $3.4 million,  $4.8
million  and  $7.6  million  in  fiscal  1997,  1998  and  1999,   respectively,
principally  from net income in those periods.  The use of cash in the Company's
operations  for  fiscal  1997,  1998 and 1999 was  primarily  attributable  to a
significant increase in accounts receivable due to increased sales and increases
in accrued  liabilities  and  deferred  revenue  offset in part by  decreases in
accounts payable.  Investing  activities,  consisting primarily of purchases and
sale of short-term investments and additions to property and equipment, provided
cash of $167,000 in fiscal 1997 and used cash of  $562,000  and  $33,552,000  in
fiscal 1998 and 1999,  respectively.  Financing  activities  were  immaterial in
fiscal 1997.  Financing activities provided cash of $212,000 in fiscal 1998 from
the exercise of stock  options and  $18,987,000  in fiscal 1999,  primarily as a
result of proceeds from the Company's  initial public  offering and the proceeds
from the exercise of stock options  offset in part by a repurchase of stock from
an executive officer in fiscal 1999.

         As of  September  30,  1999,  the Company had working  capital of $42.3
million and cash and cash equivalents of $8.5 million and temporary  investments
of $33.2 million. As of September 30, 1999, the Company had no bank indebtedness
and no long-term commitments other than operating lease obligations. The Company
expects that capital  expenditures will total  approximately  $500,000 in fiscal
2000.

         The  Company  believes  that cash and cash  equivalents  and  temporary
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.

Year 2000 Readiness Disclosures

         Many currently  installed  computer  systems and software  products are
coded to accept only two-digit  entries in the date code field.  These date code
fields will need to accept four-digit  entries to distinguish 21st century dates
from 20th century dates. As a result,  computer  systems and/or software used by
many  companies  may  need to be  upgraded  to  comply  with  such  "Year  2000"
requirements.   The  Company's  internal  information  systems,   including  its
financial  accounting,  product  development  and  operations  systems,  utilize
software  and hardware  provided by third  parties.  In most cases,  the Company
employs widely available  software  applications and other products from leading
third-party  vendors and has been advised by such vendors that such products and
upgrades  are Year 2000  compliant.  However,  the  failure of such  third-party
products to operate  properly with regard to the Year 2000 or  thereafter  could
require the Company to incur  unanticipated  expenses to remedy any  problems or
otherwise disrupt the Company's business.

         Non-information  technology  systems that utilize embedded  technology,
such as  microcontrollers,  have been  upgraded  or replaced to become Year 2000
compliant.  The  Company  does  not  believe  that it uses  any  non-information
technology  systems the  failure of which  would be  material  to the  Company's
business,  financial condition and results of operations,  although there can be
no assurance in this regard.*

                                       18
<PAGE>

         The Company generally  represents to its customers that it has achieved
Year 2000  compliance  for its products  and believes  this to be the case.* The
Company's products do not contain hardware  components or software which involve
the rollover of dates.  The Company's  products may be integrated by the Company
or its customers with, or otherwise  interact with,  non-compliant  hardware and
software  produced  by other  companies,  which may expose the Company to claims
from its  customers.  The foregoing may result in the loss of or delay in market
acceptance  of the  Company's  products and  services or  increased  service and
warranty  costs to the  Company,  both of which  would have a  material  adverse
effect on the Company's business, financial condition and results of operations.
Given the large number of such  third-party  hardware and software  products and
the  Company's  limited  resources,  the Company  does not intend to review such
products for Year 2000 compliance.

         The Company  surveyed its key vendors  regarding  their  readiness  and
exposure  with  respect  to the Year  2000  problem.  The  Company  has not been
notified to date by these  vendors  that they are not Year 2000  compliant.  The
Company  believes  that  it  will  have  adequate  inventory  on hand of all key
components and will therefore have adequate time to find a replacement vendor in
the event  supplies  from one of its key vendors are  disrupted due to Year 2000
issues.* However,  there can be no assurance that its plans will be adequate and
that it will not experience unanticipated disruption in the supply of components
which could delay or result in the loss of revenue.

         The Company's customers are large companies with complex operations and
as such the Company cannot  adequately  assess the impact which Year 2000 issues
might have on their  operations.  In  addition,  since the  Company's  sales are
highly  concentrated,  with its top  four  customers  accounting  for 87% of its
business in fiscal year 1999,  operational  disruptions  caused by the Year 2000
could have an  adverse  effect on the  timing  and size of the  Company's  sales
during the Year 2000 and a material impact on its business,  financial condition
and results of operations.

         To date, the Company has not incurred  material costs  associated  with
its efforts to become Year 2000 compliant.  Furthermore, based on its assessment
to date,  the Company  believes that any future costs  associated  with its Year
2000 compliance efforts will not be material.*

         The Company does not intend to develop any specific  contingency  plans
to address the effects of any Year 2000 problems.  The Company  believes that it
has adequate  liquidity to sustain a temporary  disruption  in its business as a
result of such problems.*  However,  since it cannot forecast with any certainty
the impact,  extent and duration of any Year 2000  problems on the Company,  its
customers  or its  suppliers,  there  can be no  assurance  that  the  Company's
resources will be adequate to withstand any prolonged disruption.

Factors That May Affect Future Results

         The risk  factors set forth below and  elsewhere in this Report on Form
10-K are important  factors that may affect future  results and that could cause
actual  results to differ  materially  from those  projected in  forward-looking
statements that may be made by the Company from time to time.

     Fluctuations in Quarterly Operating Results; Lengthy Sales Cycle

         The Company has  experienced,  and anticipates that it will continue to
experience,   significant  fluctuations  in  quarterly  revenues  and  operating
results.  The Company's revenues and operating results are relatively  difficult
to forecast for a number of reasons,  including (i) the variable size and timing
of  individual  purchases by customers,  (ii)  seasonal  factors that may affect
capital spending by customers, such as the varying fiscal year ends of customers
and the reduction in business during the summer months,  particularly in Europe,
(iii) the  relatively  long sales cycles for the  Company's  products,  (iv) the
timing of hiring sales and technical personnel, (v) changes in timing and amount
of sales incentive  compensation,  (vi) competitive  conditions in the Company's
markets, (vii) exchange rate

                                       19
<PAGE>

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  shipment  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 and shipped in that quarter.

         Subsequent to September 30, 1999, the Company received information that
sales to NTT, the  Company's  largest  customer in Japan in fiscal  1999,  would
likely be significantly  reduced  beginning in fiscal 2000. The Company believes
that these reductions are due to the intensely competitive  marketplace in Japan
and to significant reductions in NTT's budget. The Company believes it is likely
that  sales to NTT will no  longer  represent  as  large a  percentage  of total
revenue,  and this will likely have a negative effect on the Company's long term
growth  expectations.  Accordingly,  results  for  fiscal  2000  will  likely be
significantly  reduced and  different  in terms of total  revenue,  earnings per
share, geographic sales mix and customer concentration from fiscal 1999.

         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 fiscal year ended September 30, 1999, the Company's top
four customers  represented  approximately  87% of total  revenues.  The Company
expects  that it will

                                       20
<PAGE>

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.

     Stock Market Fluctuations

         In  recent  years,  the stock  market in  general  and the  market  for
technology  stocks in  particular,  including the Company's  common stock,  have
experienced extreme price fluctuations. The market price of the Company's common
stock  may be  significantly  affected  by  various  factors  such as  quarterly
variations in the Company's  operating results,  changes in revenue growth rates
for the Company as a whole or for specific geographic areas or products, changes
in earning  estimates by market analysts,  the  announcements of new products or
product enhancements by the Company or its competitors, speculation in the press
or analyst community and general market conditions or market conditions specific
to particular industries. There can be no assurance that the market price of the
Company's  common  stock will not  experience  significant  fluctuations  in the
future.

     Competitive Market for Technical and Sales Personnel

         The Company's success depends in part on its ability to attract,  hire,
train,  retain  and  motivate  qualified  technical  and  sales  personnel  with
appropriate  levels  of  managerial  and  technical  capabilities.  The  Company
believes that a significant level of expertise is required to develop and market
the  Company's  products and services  effectively.  The Company has in the past
experienced,  and expects to continue to  experience,  difficulty  in recruiting
qualified  technical and sales personnel.  The Company believes that the pool of
potential  applicants with the requisite  expertise is very limited.  Recruiting
qualified personnel is an intensely competitive and time-consuming  process. The
Company  competes for such personnel with a number of other  companies,  many of
which have  substantially  greater resources than the Company.  Such competition
has  also  resulted  in  demands  for  increased   compensation  from  qualified
applicants,  and the  Company  may not be able to compete  effectively  for such
personnel with companies that provide more attractive compensation arrangements.
There can be no assurance  that the Company will be successful in attracting and
retaining the  technical  and sales  personnel it requires to conduct and expand
its operations  successfully  on a timely basis.  The failure to attract,  hire,
train, retain and motivate qualified technical and sales personnel in the future
would  have a  material  adverse  effect on the  Company's  business,  financial
condition and results of operations.

     Risk Associated with International Operations

         International  sales and  operations  are  subject to  inherent  risks,
including  difficulties  in staffing and  managing  foreign  operations,  longer
customer payment cycles,  greater difficulty in accounts receivable  collection,
changes in regulatory requirements or in economic or trade policy, costs related
to localizing products for foreign countries,  potentially weaker protection for
intellectual property in certain foreign countries, the burden of complying with
a wide variety of foreign laws and  practices,  tariffs and other trade barriers
and potentially adverse tax consequences, including restrictions on repatriation
of earnings.  During the last three fiscal years,  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.  In addition,
although the Company cannot predict the potential  consequences to the Company's
business  of the  adoption  of the  Euro as a common  currency  in  Europe,  the
transition  to  the  Euro  presents  a  number  of  risks,  including  increased
competition  from  European  firms  as a  result  of  pricing  transparency.  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.

                                       21
<PAGE>

         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.

     Management of Growth

         The Company's growth has placed,  and is expected to continue to place,
significant demands on its management, administrative and operational resources.
To manage  expansion  effectively,  the Company needs to continue to develop and
improve its operational and financial systems,  sales and marketing capabilities
and expand,  train,  retain,  manage and motivate its employee base. Some of the
Company's  senior  management  have not  previously  managed a  business  of the
Company's size, and these individuals have limited experience  managing a public
company.  There can be no assurance  that the Company's  systems,  procedures or
controls  will be  adequate  to support  the  Company's  operations  or that the
Company's  management  will  be  able  to  successfully  exploit  future  market
opportunities or successfully manage the Company's  relationships with customers
and  other  third  parties.  There can be no  assurance  that the  Company  will
continue to grow or, if it does, that the Company will  effectively  manage such
growth. Any failure to manage growth would have a material adverse effect on the
Company's business, financial condition and results of operations.

     Dependence on Customer Outsourcing of Test Systems

         The Company's success will depend on continued growth in the market for
telecommunications  test  systems  and  services  and the  continued  commercial
acceptance  of the  Company's  products  as a solution  to address  the  testing
requirements  of   telecommunications   equipment   manufacturers   and  network
operators. While most of the Company's existing and potential customers have the
technical  capability and financial  resources to produce their own test systems
and perform test services  internally,  to date, many have chosen to outsource a
substantial proportion of their test system and service requirements.  There can
be no  assurance  that  the  Company's  customers  will  continue,  or that  new
customers  will  choose,  to  outsource  any of their test  systems  and service
requirements or that the Company's products and services will be widely adopted.
If the market for  telecommunications  test systems and services,  or the demand
for  outsourcing,  declines or fails to grow, or if the  Company's  products and
services  are not widely  adopted as a  telecommunications  test  solution,  the
Company's  business,  financial  condition  and results of  operations  would be
materially adversely affected.

     Competitive Market

         The market for the Company's  products is highly  competitive.  Many of
the  Company's  competitors  are  better  known and have  substantially  greater
financial,  technological,  production and marketing resources than the Company.
While the Company  believes that the  price/performance  characteristics  of its
products are  competitive,  price  competition  in the markets for the Company's
products  is  intense.  Any  material  reduction  in the price of the  Company's
products without corresponding decreases in manufacturing costs and increases in
unit volume would  negatively  affect gross margins,  which could in turn have a
material  adverse  effect on the  Company's  business,  financial  condition and
results of operations.  Increased  competition  for the Company's  products that
result in lower

                                       22
<PAGE>

product sales could also  adversely  impact the Company's  upgrades  sales.  The
Company's  ability to maintain its competitive  position will depend upon, among
other factors, its success in anticipating industry trends, investing in product
research   and    development,    developing    new   products   with   improved
price/performance  characteristics and effectively  managing the introduction of
new products into targeted markets.

     Dependence on Rapidly Evolving Telecommunications Industry

         The Company's  future success is dependent upon the continued growth of
the  telecommunications  industry.  The global  telecommunications  industry  is
evolving  rapidly,  and it is difficult to predict its potential  growth rate or
future  trends in  technology  development.  There can be no assurance  that the
deregulation,   privatization  and  economic   globalization  of  the  worldwide
telecommunications  market  that  has  resulted  in  increased  competition  and
escalating  demand for new  technologies  and services will continue in a manner
favorable to the Company or its business strategies.  In addition,  there can be
no assurance  that the growth in demand for Internet  services and the resulting
need for high speed or enhanced  telecommunications  equipment  will continue at
its current rate or at all.

         While  the  Company's  operations  are  not  directly  regulated,   the
Company's  existing and  potential  customers are subject to a variety of United
States and foreign  governmental  regulations.  Such  regulations  may adversely
affect the telecommunications  industry, limit the number of potential customers
for the  Company's  products and services or otherwise  have a material  adverse
effect on the Company's business, financial condition and results of operations.
Recently  enacted  legislation  deregulating  the  telecommunications  industry,
including the Telecommunications Act of 1996 (the "Telecommunications Act"), has
caused significant  changes in the  telecommunications  industry,  including the
entrance of new competitors and possible industry consolidation,  which could in
turn  affect  demand for the  Company's  telecommunications  test  solutions  or
otherwise have a material  adverse effect on the Company's  business,  financial
condition  and results of  operations.  Currently,  the  Federal  Communications
Commission  ("FCC") and state authorities are implementing the provisions of the
Telecommunications  Act,  and  several  of the  decisions  by the FCC and  state
authorities are being challenged in court. Therefore, the Company cannot at this
time predict the extent to which such  legislation  and related  litigation will
affect the Company's  current and potential  customers or ultimately  affect the
Company's business, financial condition and results of operations.

         The  Company's   future   success  is  dependent   upon  the  increased
utilization  of its test solutions by network  operators and  telecommunications
equipment  manufacturers.  Industry-wide  network  equipment and  infrastructure
development  driving the demand for the  Company's  products and services may be
delayed  or  prevented  by a variety  of  factors,  including  cost,  regulatory
obstacles  or  the  lack  of  or  reduction  in  consumer  demand  for  advanced
telecommunications  products  and  services.  There  can  be no  assurance  that
telecommunications  equipment  manufacturers  and network operators will develop
new technology or enhance  current  technology  or, if developed,  that such new
technology or  enhancements  will create  demand for the  Company's  products or
services.

     Dependence on Key Personnel

         The Company's future growth and success depends to a significant extent
upon the continuing  services of its executive officers and other key employees.
During  fiscal  1999,  the Chief  Financial  Officer  and  Corporate  Controller
resigned  from the  Company  to  pursue  other  interests.  Efforts  were  begun
immediately to locate and hire replacements. The Company has retained an interim
Controller to manage the accounting and reporting functions while continuing the
search for full-time replacements.

         The  Company  does  not  have   long-term   employment   agreements  or
non-competition agreements with any of its employees.  Competition for qualified
management  and  other  high-level   telecommunications  industry  personnel  is
intense,  and there can be no assurance  that the Company will be  successful in
attracting  and  retaining  such  personnel.  The  loss of  services  of any key
employees  would  have a  material  adverse  effect on the  Company's  business,
financial

                                       23
<PAGE>

condition  and  results  of  operations.  The  Company  maintains,  and  is  the
beneficiary  of, a key person life insurance  policy in the amount of $2 million
with respect to Dr. Richard A. Karp, the Company's  President,  Chief  Executive
Officer and Chairman of the Board.

     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 95,  Windows 98 or Windows NT 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.

     Dependence on Sole and Single Source Suppliers

         The  Company   purchases  many  key   components,   including   certain
microprocessors,  workstations,  bus interface and other chips,  connectors  and
other  hardware,  from the sole  supplier of a particular  component.  For other
components,  even though  multiple  vendors may exist,  the Company may purchase
components  from only a single  source.  The Company does not have any long-term
supply  agreements  with these vendors to ensure  uninterrupted  supply of these
components.  In the event of a reduction or  interruption in the supply of a key
component, a significant amount of time could be required to qualify alternative
suppliers   and   receive   an   adequate   flow  of   replacement   components.
Reconfiguration of the Company's products to adapt to new components may also be
required and could entail substantial time and expense. In addition, the process
of  manufacturing  certain of these  components  is extremely  complex,  and the
Company's  reliance on the suppliers of these components  exposes the

                                       24
<PAGE>

Company to potential production difficulties and quality variations, which could
negatively  affect  cost and timely  delivery  of the  Company's  products.  The
Company  has from  time to time in the past  experienced  supply  problems  as a
result of the financial or operational difficulties of its suppliers,  shortages
and  discontinuations  resulting  from  component  obsolescence.   Although  the
Company,  to date, has not experienced  material delays in product deliveries to
its customers  resulting  from such supply  problems,  there can be no assurance
that  supply  problems  will not  recur  or, if such  problems  do  recur,  that
satisfactory  solutions  would be  found.  Any  prolonged  inability  to  obtain
adequate amounts of fully functional  components or any other circumstances that
would  require the Company to seek  alternative  sources of supply  could have a
material adverse effect on the Company's relationship with its customers as well
as on its business, financial condition and results of operations.

     Dependence on Third-Party Manufacturers

         The Company relies on a limited  number of  independent  manufacturers,
some of which are small,  privately held companies,  to provide certain assembly
services  to the  Company's  specifications.  The  Company  does  not  have  any
long-term supply agreements with any third-party manufacturer. In the event of a
reduction or  interruption  in assembly  services to the Company,  the Company's
business,  financial  condition  and results of  operations  would be materially
adversely affected until the Company was able to establish  sufficient  assembly
services  supply  from  alternative  sources.  There  can be no  assurance  that
alternative  manufacturing  sources  will be able to meet the  Company's  future
requirements  or that  existing  or  alternative  sources  will  continue  to be
available to the Company at favorable prices.

     Risk of Product Defects

         Products  as  complex  as those  offered  by the  Company  may  contain
undetected  errors or "bugs,"  particularly  when first  introduced  or when new
versions are released.  There can be no assurance  that errors will not be found
in future  releases of the  Company's  software or that any such errors will not
generate  adverse  publicity,  impair the market  acceptance of these  products,
create customer  concerns or adversely affect  operating  results due to product
returns, the costs of generating corrective releases or otherwise.

     Product Liability

         The Company's license  agreements with its customers  typically contain
provisions  designed  to limit  the  Company's  exposure  to  potential  product
liability  claims.  However,  it is possible  that the  limitation  of liability
provisions  contained in the Company's  license  agreements may not be effective
under the laws of certain jurisdictions,  particularly since the Company sells a
majority  of  its  products  internationally.   Although  the  Company  has  not
experienced  any  product  liability  claims to date,  the sale and  support  of
products by the Company may entail the risk of such claims,  and there can be no
assurance  that the Company will not be subject to such claims in the future.  A
successful  product  liability  claim  brought  against the Company could have a
material  adverse effect upon the Company's  business,  financial  condition and
results  of  operations.   The  Company  does  not  maintain  product  liability
insurance.  There can be no  assurance  that the  failure  to  maintain  product
liability  insurance,  in the  event of the  successful  assertion  against  the
Company of one or a series of large uninsured claims,  would not have a material
adverse  effect on the Company's  business,  financial  condition and results of
operations.

     Product Concentration

         To  date,  substantially  all  of  the  Company's  revenues  have  been
attributable  to sales of the DCT family of products and related  services.  The
Company  currently  expects the DCT family of products  and related  services to
account for substantially all of its revenues for the foreseeable  future.* As a
result,  factors adversely  affecting the pricing of or demand for DCT products,
such as  competition  or  technological  change,  could have a material  adverse

                                       25
<PAGE>

effect on the Company's business, financial condition and results of operations.
The Company's future financial  performance will depend, in significant part, on
the  successful  development,  introduction  and customer  acceptance of new and
enhanced versions of the DCT family of products.  There can be no assurance that
the Company will continue to be  successful in developing  and marketing the DCT
family of products and related services.

     Control By Principal Stockholder

         As of  November  30,  1999,  Dr.  Richard  A. Karp  beneficially  owned
6,966,875 shares or approximately  55% of the Company's common stock outstanding
on such date, which includes 2,786,875 shares beneficially owned as of such date
by Ms. Nancy H. Karp.  Dr. Karp has voting control  through a voting trust,  but
not  dispositive  power,  with respect to the shares  beneficially  owned by Ms.
Karp.  As a result,  Dr.  Karp has the  ability  to  control  matters  requiring
approval  by  the  stockholders  of  the  Company,  including  the  election  of
directors.  Such a concentration of ownership may have the effect of delaying or
preventing a change in control of the Company.

     Limited Protection of Proprietary Rights; Enforcement of Rights

         The  Company's  success  and its  ability  to compete  effectively  are
dependent  in part upon its  proprietary  technology.  The  Company  relies on a
combination  of  trademark,   copyright  and  trade  secret  laws,  as  well  as
nondisclosure  agreements and other contractual  restrictions,  to establish and
protect its  proprietary  rights.  To date,  the  Company has not sought  patent
protection for its proprietary technology. There can be no assurance that patent
protection will not become a more significant  factor in the Company's  industry
in the future. Likewise, there can be no assurance that the measures the Company
undertakes will be adequate to protect its proprietary technology.  To date, the
Company has not federally  registered any of its  trademarks or copyrights.  The
Company's  practice is to affix  copyright  notices on  software,  hardware  and
product  literature  in order to assert  copyright  protection  for these works.
There can be no assurance that the lack of federal registration of the Company's
trademarks  and  copyrights  would  not have a  material  adverse  effect on the
Company's intellectual property rights in the future. Additionally,  the Company
may be subject to further  risks as it enters  into  transactions  in  countries
where  intellectual  property  laws are  unavailable,  do not  provide  adequate
protection or are difficult to enforce. Despite the Company's efforts to protect
its proprietary rights, unauthorized parties may attempt to duplicate aspects of
the Company's products or to obtain and use information that the Company regards
as proprietary. There can be no assurance that the steps taken by the Company to
protect its proprietary technology will be adequate to prevent  misappropriation
of such  technology or that they will preclude  competitors  from  independently
developing  products  with  functionality  or features  similar to the Company's
products. The failure of the Company to protect its proprietary technology would
have a material adverse effect on the Company's  business,  financial  condition
and results of operations.

     Risks of Third-Party Claims of Infringement

         The  telecommunications  industry is characterized by a relatively high
level of litigation based on allegations of infringement of proprietary  rights.
While to date,  the Company has not been  subject to claims of  infringement  or
misappropriation  of  intellectual  property by third  parties,  there can be no
assurance  that third parties will not assert  infringement  claims  against the
Company,  that any such assertion of infringement  will not result in litigation
or that the Company  would  prevail in such  litigation.  Furthermore,  any such
claims,  with or without merit,  could result in substantial cost to the Company
and diversion of its personnel, require the Company to develop new technology or
require  the  Company to enter  into  royalty or  licensing  arrangements.  Such
royalty or  licensing  agreements,  if  required,  may not be available on terms
acceptable  to the  Company  or at all.  Because  the  Company  does not rely on
patents to  protect  its  technology,  the  Company  will not be able to offer a
license for patented  technology  in  connection  with any  settlement of patent
infringement  lawsuits.  In the event of a successful  claim of  infringement or
misappropriation  against the Company and failure or inability of the Company to
develop non-infringing  technology or license the infringed,  misappropriated or
similar  technology  at a reasonable  cost,  the Company's  business,  financial

                                       26
<PAGE>

condition and results of operations would be materially  adversely affected.  In
addition,  the Company indemnifies its customers against claimed infringement of
patents,  trademarks,  copyrights and other proprietary rights of third parties.
Any  requirement  for the Company to indemnify a customer  could have a material
adverse  effect on the Company's  business,  financial  condition and results of
operations.

     Risks Relating to Potential Acquisitions

         As part of its business strategy, the Company may make acquisitions of,
or significant  investments  in,  companies,  products or  technologies  that it
believes are  complementary,  although no such  acquisitions  or investments are
currently  pending.  Any such future  transactions  would be  accompanied by the
risks commonly  encountered in making  acquisitions  of companies,  products and
technologies. Such risks include, among others, the difficulties associated with
assimilating the personnel and operations of acquired  companies,  the potential
disruption of the Company's ongoing business,  the distraction of management and
other  resources,  the  integration  of personnel and  technology of an acquired
Company,  difficulties  in  evaluating  the  technology  of a potential  target,
inability  to motivate  and retain new  personnel,  the  maintenance  of uniform
standards, controls, procedures and policies and the impairment of relationships
with  employees  and clients as a result of the  integration  of new  management
personnel.  The Company has no experience in assimilating  acquired companies or
product lines into its  operations.  There can be no assurance  that the Company
will be successful in overcoming  these risks or any other problems  encountered
in connection with any such acquisitions.  Furthermore,  future  acquisitions by
the Company  could result in the  issuance of dilutive  equity  securities,  the
incurrence of debt or contingent liabilities or amortization expenses related to
goodwill and other intangible assets, any of which could have a material adverse
effect on the Company's  business,  financial condition and results of operation
or on the market price of the Company's common stock.

     Product Development Risks

         The  Company's  future  success  will  depend in part on its ability to
anticipate and respond to changing industry standards and customer  requirements
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.

     Anti-Takeover Effect of Nevada Law and Charter and Bylaw Provisions;
     Availability of Preferred Stock for Issuance

         Nevada  law and the  Company's  Articles  of  Incorporation  and Bylaws
contain  provisions that could discourage a proxy contest or make more difficult
the  acquisition  of a  substantial  block of the  Company's  common  stock.  In
addition,  the Board of Directors is  authorized to issue,  without  stockholder
approval, up to 5,000,000 shares of preferred stock with voting,  conversion and
other rights and  preferences  that may be superior to those of the common stock
and that could adversely  affect the voting power or other rights of the holders
of common stock. The issuance of preferred stock or rights to purchase preferred
stock could be used to discourage an unsolicited acquisition proposal.

ITEM 7A.      QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS

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

                                       27
<PAGE>

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  September  30,  1999,  the Company had forward  exchange  contracts
maturing in fiscal  2000 to sell  approximately  $7 million in Japanese  Yen and
$1.9 million in Pounds  Sterling  designed to hedge against future  movements in
foreign  exchange rates. At September 30, 1998, the Company had forward exchange
contracts  maturing  in fiscal 1999 to sell  approximately  $560,000 in Japanese
Yen. In addition, at September 30, 1999, the Company had a foreign currency call
option  contract for $2 million in Japanese Yen maturing on June 30, 2000.  This
option, redeemable at maturity, was in the money at September 30, 1999. The fair
market value of the contracts at September 30, 1999 was not material.

         The Company has  evaluated  the  potential  near-term  losses in future
earnings, fair values and cash flows from reasonably possible near-term currency
fluctuations and believes that any such losses would not be material.*

                                       28
<PAGE>

<TABLE>
                                                              GLOSSARY

<CAPTION>
<S>                           <C>
Asynchronous Transfer         A cell-based network technology  protocol that supports  simultaneous  transmission of data, voice and
Mode (ATM)                    video typically at T-1 or higher speeds.

Code Division Multiple        A  digital  wireless  technology  that  uses  a  modulation  technique  in  which  many  channels  are
Access (CDMA)                 independently coded for transmission over a single wideband channel.

E-1                           A digital  transmission link used by European carriers to transmit thirty-two 64 Kbps digital channels
                              for voice or data.

Frame Relay                   An  access  standard  which  employs  a  form  of  packet  switching  to  facilitate  high-speed  data
                              communications.

Global System for Mobile      A digital wireless technology that is widely deployed in Europe and,  increasingly,  in other parts of
Communications (GSM)          the world.

Graphical User
Interface (GUI)               A graphics-based computer interface that usually incorporates icons, pull-down menus and a mouse.

Intelligent Network (IN)      A network that allows  functionality  to be distributed  flexibly to a variety of nodes on and off the
                              network and allows that architecture to be modified to control network services.

Integrated Services           An international telecommunications standard for transmitting voice, data and video over digital lines
Digital Network (ISDN)        at transmission speeds of up to 142 Kbps.

IS-41 (Interim Standard 41)   A signaling protocol used in the North American cellular applications.

Personal Communication
Service (PCS)                 A digital cellular communication service offered by some North American operators.

Personal Digital
Cellular (PDC)                A digital cellular communication service used in Japan.

Protocol                      A  specific  set of rules,  procedures  or  conventions  governing  the  format,  means and  timing of
                              transmissions between two devices.

System Signalling 7 (SS7)     A message-based  protocol for exchanging  signaling and control  information between telephony network
                              entities.

T-1                           A point-to-point  dedicated line with transmission  speeds of up to 1.544 Mbps widely used for private
                              networks and high-speed links to the Internet.

V5                            A European  standard  protocol for the  interface  between the access  network and the carrier  switch
                              principally for basic telephony.

Variant                       A specific implementation of a protocol, typically unique to a country or region.

X.25                          A switched  communications  protocol  that defines how data streams are to be assembled  into packets,
                              controlled, routed and protected as they cross a network.
</TABLE>

                                                                 29
<PAGE>

ITEM 8.       FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

<TABLE>
                                              CATAPULT COMMUNICATIONS CORPORATION
                                          INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<CAPTION>
                                                                                                                           Page
Financial Statements:                                                                                                      ----
  <S>                                                                                                                       <C>
  Report of Independent Accountants...............................................................................          31
  Consolidated Balance Sheets at  September 30, 1998 and 1999                                                               32
  Consolidated Statements of Income for each of the three years in the period ended September 30, 1999............          33
  Consolidated Statements of Stockholders' Equity for each of the three years in the period ended September 30,
    1999..........................................................................................................          34
  Consolidated Statements of Cash Flows for each of the three years in the period ended September 30, 1999........          35
  Notes to Consolidated Financial Statements......................................................................          36

  All schedules are omitted because they are not applicable or the required information is shown in the
    consolidated financial statements or notes thereto.

  Supplementary Financial Data:
    Quarterly Financial Data (unaudited) for the two years ended September 30, 1998 and 1999 .......................        47
  </TABLE>

                                                                 30
<PAGE>

                        Report of Independent Accountants

To the Board of Directors and Stockholders of
Catapult Communications Corporation

         In our opinion,  the consolidated  financial  statements  listed in the
accompanying  index  present  fairly,  in all material  respects,  the financial
position  of  Catapult  Communications   Corporation  and  its  subsidiaries  at
September 30, 1998 and 1999, and the results of their  operations and their cash
flows for each of the three years in the period ended  September  30,  1999,  in
conformity  with  generally  accepted  accounting  principles.  These  financial
statements   are  the   responsibility   of  the   Company's   management;   our
responsibility  is to express an opinion on these financial  statements based on
our audits.  We conducted  our audits of these  statements  in  accordance  with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable  assurance about whether the financial statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence  supporting the amounts and  disclosures  in the financial  statements,
assessing the  accounting  principles  used and  significant  estimates  made by
management,  and evaluating the overall  financial  statement  presentation.  We
believe  that our audits  provide a reasonable  basis for the opinion  expressed
above.

/S/ PRICEWATERHOUSECOOPERS LLP

San Jose, California
November 2, 1999

                                       31
<PAGE>

<TABLE>
                                              CATAPULT COMMUNICATIONS CORPORATION
                                                  CONSOLIDATED BALANCE SHEETS
                                        (in thousands, except share and per share data)
<CAPTION>
                                                                                                                  September 30,
                                                                                                             -----------------------
                                                                                                               1998          1999
                                                                                                             --------     ----------
                                                            ASSETS
<S>                                                                                        <C>                      <C>
Current Assets:
   Cash and cash equivalents ...........................................................................     $ 15,229      $  8,486
   Short-term investments ..............................................................................         --          33,168
   Accounts receivable, net of allowances of $75 and $86 ...............................................        2,007         5,852
   Inventories, net ....................................................................................          612           705
   Deferred income taxes ...............................................................................          406           890
   Prepaid expenses ....................................................................................           95           349
                                                                                                             --------      --------
         Total current assets ..........................................................................       18,349        49,450
Property and equipment, net ............................................................................          778           998
Other assets ...........................................................................................          368           219
                                                                                                             --------      --------
         Total assets ..................................................................................     $ 19,495      $ 50,667
                                                                                                             ========      ========

                                 LIABILITIES, REDEEMABLE COMMON STOCK AND STOCKHOLDERS' EQUITY
Current Liabilities:
   Accounts payable ....................................................................................     $    782      $    444
   Accrued liabilities .................................................................................        2,341         4,782
   Deferred revenue ....................................................................................        1,222         1,852
                                                                                                             --------      --------
         Total current liabilities .....................................................................        4,345         7,078
                                                                                                             --------      --------
Redeemable common stock (Note 5) .......................................................................        5,000          --
                                                                                                             --------      --------
Commitments (Note 7)
Stockholders' Equity:
   Preferred stock, $0.001 par value, 5,000,000 shares authorized none
      issued and outstanding ...........................................................................         --            --
   Common stock, $0.001 par value, 40,000,000 shares authorized; 9,992,317
      and 12,689,394 issued and outstanding actual .....................................................           10            13
   Additional paid-in capital ..........................................................................         --          20,040
   Deferred compensation ...............................................................................         (609)         (132)
   Retained earnings ...................................................................................       10,756        23,796
   Accumulated other comprehensive income (loss) .......................................................           (7)          172
   Treasury stock, 50,000 shares at cost ...............................................................         --            (300)
                                                                                                             --------      --------
         Total stockholders' equity ....................................................................       10,150        43,589
                                                                                                             --------      --------
         Total liabilities, redeemable common stock and stockholders' equity ...........................     $ 19,495      $ 50,667
                                                                                                             ========      ========

<FN>
                    The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>

                                                              32
<PAGE>

<TABLE>
                                              CATAPULT COMMUNICATIONS CORPORATION
                                               CONSOLIDATED STATEMENTS OF INCOME
                                        (in thousands, except share and per share data)
<CAPTION>
                                                                                         Year Ended September 30,
                                                                       ------------------------------------------------------------
                                                                           1997                    1998                   1999
                                                                       ------------            ------------           -------------
<S>                                                                    <C>                     <C>                     <C>
Revenues:
     Product sales .........................................           $     11,519            $     15,833            $     25,505
     Services ..............................................                  1,833                   2,373                   3,450
                                                                       ------------            ------------            ------------
         Total revenues ....................................                 13,352                  18,206                  28,955
                                                                       ------------            ------------            ------------
Cost of revenues:
     Product sales .........................................                  1,576                   1,852                   2,701
     Services ..............................................                    344                     564                     945
                                                                       ------------            ------------            ------------
         Total cost of revenues ............................                  1,920                   2,416                   3,646
                                                                       ------------            ------------            ------------
Gross profit ...............................................                 11,432                  15,790                  25,309
                                                                       ------------            ------------            ------------
Operating expenses:
     Research and development ..............................                  1,419                   2,001                   2,777
     Sales and marketing ...................................                  2,550                   3,242                   5,623
     General and administrative ............................                  2,063                   2,188                   2,485
     Offering costs ........................................                   --                       769                    --
                                                                       ------------            ------------            ------------
         Total operating expenses ..........................                  6,032                   8,200                  10,885
                                                                       ------------            ------------            ------------
Operating income ...........................................                  5,400                   7,590                  14,424
Interest income ............................................                    380                     594                   1,294
Other expense, net .........................................                     (6)                   (263)                   (107)
                                                                       ------------            ------------            ------------
Income before income taxes .................................                  5,774                   7,921                  15,611
Provision for income taxes .................................                  2,436                   3,396                   6,706
                                                                       ------------            ------------            ------------
Net income .................................................           $      3,338            $      4,525            $      8,905
                                                                       ============            ============            ============
Earnings per share:
     Basic .................................................           $       0.35            $       0.44            $       0.75
                                                                       ============            ============            ============
     Diluted ...............................................           $       0.31            $       0.41            $       0.73
                                                                       ============            ============            ============
Shares used in per share calculation:
     Basic .................................................              9,630,000              10,369,000              11,874,000
                                                                       ============            ============            ============
     Diluted ...............................................             10,605,000              10,940,000              12,217,000
                                                                       ============            ============            ============

<FN>
                       The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>

                                                                 33
<PAGE>

<TABLE>
                                             CATAPULT COMMUNICATIONS CORPORATION
                                       CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                              (in thousands, except share data)

<CAPTION>
                                                                                    Additional
                                                            Common Stock              Paid-in        Deferred         Retained
                                                        Shares          Amount        Capital      Compensation       Earnings
                                                     --------------------------------------------------------------------------
<S>                                                   <C>            <C>            <C>            <C>              <C>
Balance at September 30, 1996 .................       9,629,281      $      10      $      48      $      --        $   6,828
Issuance of common stock ......................             162             --             --             --              --
Deferred stock compensation ...................            --               --            216           (216)             --
Amortization of deferred stock
     compensation .............................            --               --             --             20              --
Currency translation adjustment ...............            --               --             --             --              --
Net income ....................................            --               --             --             --            3,338
                                                     --------------------------------------------------------------------------
Balance at September 30, 1997 .................       9,629,443             10            264           (196)          10,166
Issuance of common stock ......................         862,874              1            211             --              --
Deferred stock compensation ...................            --               --            589           (589)             --
Amortization of deferred stock
     compensation .............................            --               --             --            176              --
Redeemable common stock .......................        (500,000)            (1)        (1,064)            --           (3,935)
Currency translation adjustment ...............            --               --             --             --              --
Net income ....................................            --               --             --             --            4,525
                                                     --------------------------------------------------------------------------
Balance at September 30, 1998 .................       9,992,317             10             --           (609)          10,756
Issuance of stock from public
     offering .................................       2,100,000              3         19,154             --              --
Redeemable common stock .......................         500,000             --          1,065             --            3,935
Issuance of common stock from
     exercise of stock options ................         147,077             --            130             --              --
Purchase of treasury stock ....................         (50,000)            --             --             --              --
Amortization and adjustments to
     stock compensation .......................            --               --           (309)           477              --
Currency translation adjustment ...............            --               --             --             --              --
Tax benefit from exercise of stock
     options ..................................            --               --             --             --              200
Net income ....................................            --               --             --             --            8,905
                                                     --------------------------------------------------------------------------
Balance at September 30, 1999 .................      12,689,394      $      13      $  20,040      $    (132)       $  23,796
                                                     ==========      =========      =========      =========       ==========

</TABLE>


<TABLE>
<CAPTION>
                                                     Accumulated
                                                       Other
                                                   Comprehensive                      Total
                                                       Income        Treasury     Stockholders' Comprehensive
                                                       (Loss)          Stock         Equity         Income
                                                     -------------------------------------------------------
<S>                                                   <C>            <C>              <C>              <C>
Balance at September 30, 1996 .................      $      (54)     $      --      $   6,832             --
Issuance of common stock ......................            --               --             --             --
Deferred stock compensation ...................            --               --             --             --
Amortization of deferred stock
     compensation .............................            --               --             20             --
Currency translation adjustment ...............             (20)            --            (20)     $     (20)
Net income ....................................            --               --          3,338          3,338
                                                     -------------------------------------------------------
Balance at September 30, 1997 .................             (74)            --         10,170      $   3,318
                                                                                                   =========
Issuance of common stock ......................            --               --            212             --
Deferred stock compensation ...................            --               --             --             --
Amortization of deferred stock
     compensation .............................            --               --            176             --
Redeemable common stock .......................            --               --         (5,000)            --
Currency translation adjustment ...............              67             --             67      $      67
Net income ....................................            --               --          4,525          4,525
                                                     -------------------------------------------------------
Balance at September 30, 1998 .................              (7)            --         10,150      $   4,592
                                                                                                   =========
Issuance of stock from public
     offering .................................            --               --         19,157             --
Redeemable common stock .......................            --               --          5,000             --
Issuance of common stock from
     exercise of stock options ................            --               --            130             --
Purchase of treasury stock ....................            --             (300)          (300)            --
Amortization and adjustments to
     stock compensation .......................            --               --            168             --
Currency translation adjustment ...............             179             --            179      $     179
Tax benefit from exercise of stock
     options ..................................            --               --            200             --
Net income ....................................            --               --          8,905          8,905
                                                     -------------------------------------------------------
Balance at September 30, 1999 .................      $      172      $    (300)     $  43,589      $   9,084
                                                     ==========      =========      =========      =========

<FN>
  The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>

                                                     34
<PAGE>

<TABLE>
                                              CATAPULT COMMUNICATIONS CORPORATION
                                             CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                        (in thousands)
<CAPTION>
                                                                               Year ended September 30,
                                                                           --------------------------------
                                                                             1997        1998        1999
                                                                           --------    --------    --------
<S>                                                                        <C>         <C>         <C>
Cash flows from operating activities:
   Net income ..........................................................   $  3,338    $  4,525    $  8,905
   Adjustments to reconcile net income to net cash provided by operating
   activities:
     Depreciation and amortization .....................................        121         226         393
     Amortization of deferred stock compensation .......................         20         176         169
     Deferred income taxes .............................................        (51)        122        (512)
     Gain on sale of property and equipment ............................         (7)       --            (4)
     Change in assets and liabilities:
       Accounts receivable .............................................       (397)     (1,115)     (3,845)
       Inventories .....................................................        171        (191)        (93)
       Prepaid expenses ................................................       (959)        897        (254)
       Other assets ....................................................        (26)       (308)        149
       Accounts payable ................................................        (34)        632        (338)
       Accrued liabilities .............................................        989        (381)      2,443
       Deferred revenue ................................................        189         257         630
                                                                           --------    --------    --------
         Net cash provided by operating activities .....................      3,354       4,840       7,643
                                                                           --------    --------    --------
Cash flows from investing activities:
     Sale and maturities of short-term investments .....................        402        --        17,844
     Purchase of short-term investments ................................       --          --       (50,886)
     Purchase of property and equipment ................................       (242)       (562)       (514)
     Proceeds from sale of property and equipment ......................          7        --             4
                                                                           --------    --------    --------
         Net cash provided (used) by investing activities ..............        167        (562)    (33,552)
                                                                           --------    --------    --------
Cash flows from financing activities:
     Proceeds from public offering, net ................................       --          --        19,157
     Proceeds from exercise of stock options ...........................       --           212         130
     Purchase of treasury stock ........................................       --          --          (300)
                                                                           --------    --------    --------
         Net cash provided by financing activities .....................       --           212      18,987
Effect of exchange rate changes ........................................        (20)         67         179
                                                                           --------    --------    --------
Net increase (decrease) in cash and cash equivalents ...................      3,501       4,557      (6,743)
Cash and cash equivalents, beginning of year ...........................      7,171      10,672      15,229
                                                                           --------    --------    --------
Cash and cash equivalents, end of year .................................   $ 10,672    $ 15,229    $  8,486
                                                                           ========    ========    ========

Supplemental disclosures of cash flow information:
     Cash paid during the period for:
       Income taxes ....................................................   $  3,291    $  2,400    $  4,033
                                                                           ========    ========    ========
<FN>
                       The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>

                                                                 35
<PAGE>

                       CATAPULT COMMUNICATIONS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1- THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company

         The Company designs,  develops,  manufactures,  markets and supports an
advanced  software-based  test system  offering an  integrated  suite of testing
applications for the global telecommunications  industry. The Company's advanced
test systems assist its customers in the design,  integration,  installation and
acceptance testing of a broad range of digital telecommunications  equipment and
services.  The Company was  incorporated  in  California in October 1985 and has
operations in the United States,  Canada, the United Kingdom,  Europe and Japan.
The Company conducts its business within one industry segment.

Reincorporation in Nevada and Recapitalization

         On June 19, 1998, the Company  reincorporated  in Nevada. In connection
with the  reincorporation,  the Company authorized  45,000,000 shares of capital
stock,  consisting of 40,000,000  shares of common stock,  $0.001 par value, and
5,000,000 shares of undesignated preferred stock, $0.001 par value. In addition,
stockholders of the California corporation received three shares of common stock
of the Nevada corporation for every two shares of common stock of the California
corporation.  All  share  and per  share  amounts  have  been  restated  to give
retroactive  effect to the changes in authorized shares and par values,  and the
three-for-two stock exchange.

Basis of Consolidation

         The  consolidated  financial  statements  include  the  accounts of the
Company and its wholly-owned  subsidiaries,  CCL, Catapult  Communications K.K.,
and  ISDN  Technologies,   Ltd.  All  significant   inter-company  accounts  and
transactions have been eliminated in consolidation.

Use of Estimates

         The  preparation of financial  statements in conformity  with generally
accepted  accounting  principles  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 financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

         The Company maintains its cash in bank deposit accounts at high credit,
quality financial  institutions in the United States,  Japan, United Kingdom and
Canada.

         Cash  equivalents  are  investments in the portfolios  with an original
maturity of 90 days or less.  This type of investment  consists  principally  of
U.S.  treasury  securities,  commercial paper and money market funds with a fair
value that approximates cost.

                                       36
<PAGE>

Short-Term Investments

         Short-term  investments are investments with original  maturity between
91 days and one  year.  The  Company's  short-term  investments  are  placed  in
portfolios  managed by two professional money management firms. At September 30,
1999, the portfolios consisted primarily of commercial paper, investment quality
corporate bonds,  collateralized  mortgage  obligations,  U.S. government agency
securities and money market funds.

         At  September  30,  1999,  the  Company's  short-term  investments  are
classified as available for sale and are carried at their  estimated  fair value
in the accompanying  consolidated balance sheet with unrealized gains and losses
included in  stockholder's  equity.  Such amounts were not material at September
30, 1999. Realized gains and losses are included in other income or expenses.

Revenue Recognition

         Product sales are recognized upon shipment provided that no significant
vendor obligations remain and collection is considered probable.

         Services revenue consists primarily of post-contract  customer support,
training,  consulting and installation services.  Post-contract customer support
revenues are recognized ratably over the support period,  which is generally one
year.   Revenues  from  training,   consulting  services  and  installation  are
recognized as the services are performed.

Foreign Currency Translations

         The functional currencies of the Company's foreign subsidiaries are the
respective  local  currencies.  In  consolidation,  assets and  liabilities  are
translated at year-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.  Gains and losses  resulting  from foreign
currency transactions are included in the consolidated statement of income.

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 could 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 for  revaluation  of foreign  currency  denominated
inter-company  receivable  balances  which  otherwise  would be charged to other
income (expense).

         At  September  30,  1999,  the Company had forward  exchange  contracts
maturing in fiscal  2000 to sell  approximately  $7 million in Japanese  Yen and
$1.9 million in Pounds  Sterling  designed to hedge against future  movements in
foreign  exchange rates. At September 30, 1998, the Company had forward exchange
contracts  maturing  in fiscal 1999 to sell  approximately  $560,000 in Japanese
Yen. In addition, at September 30, 1999, the Company had a foreign currency call
option  contract for $2 million in Japanese Yen maturing on June 30, 2000.  This
option, redeemable at maturity, was in the money at September 30, 1999. The fair
market value of the contracts at September  30, 1999 was not material.  The cost
associated  with foreign  exchange  contracts  has been included in other

                                       37
<PAGE>

income (expense) and was not material to the Company's operations.

Fair Value

         The carrying  value of the Company's  financial  instruments  including
cash and cash equivalents, short-term investments, accounts receivable, accounts
payable  and  accrued  liabilities  approximate  their fair  values due to their
relatively short maturity.

Concentration of Credit Risk

         Financial  instruments  that  potentially  subject  the  Company  to  a
concentration  of credit risk consist of cash and cash  equivalents,  short-term
investments and accounts  receivable.  Substantially  all of the company's cash,
cash  equivalents  and  short-term  investments  are  managed  or held by  three
financial  institutions.  The  Company's  accounts  receivable  are derived from
revenue  earned  from  customers  located in Japan,  North  America,  the United
Kingdom and Europe.  The Company  performs  ongoing  credit  evaluations  of its
customers'  financial condition and, generally,  requires no collateral from its
customers.  The Company  maintains an allowance for doubtful accounts based upon
the expected collection of its outstanding receivable balance.

         The following table summarizes the revenues from customers in excess of
10% of total revenues:

                                                     Year ended September 30,
                                                     ------------------------
                                                     1997      1998      1999
                                                     ----      ----      ----
       Customer A.................................    --        24%       58%
       Customer B.................................    28%       15%       15%
       Customer C.................................    17%       21%       12%
       Customer D.................................    --        12%        3%

         At September 30, 1998,  four customers  accounted for 39%, 13%, 13% and
10% of total  accounts  receivable,  respectively.  At September  30, 1999, four
customers  account  for  26%,  19%,  19% and 11% of  total  accounts receivable,
respectively.

Inventories

         Inventories  are  stated  at the  lower of cost or  market,  using  the
first-in first-out ("FIFO") method.

Capitalized Software Development Costs

         Software  development  costs  not  qualifying  for  capitalization  are
included  in research  and  development  and are  expensed  as  incurred.  After
technological  feasibility is established,  material software  development costs
are capitalized. The capitalized cost is then amortized on a straight-line basis
over the  greater  of the  estimated  product  life or on the  ratio of  current
revenues to total projected product revenues.  The Company defines technological
feasibility as the establishment of a working model, which typically occurs upon
completion  of the first beta version.  To date,  the period  between  achieving
technological feasibility and the general availability of such software has been
short and software  development  costs qualifying for  capitalization  have been
insignificant.  Accordingly,  the  Company  has  not  capitalized  any  software
development costs.

                                       38
<PAGE>

Property and Equipment

         Property and equipment, including leasehold improvements' are stated at
cost.  Depreciation  is computed using the  straight-line  method over estimated
useful lives, generally four years, or the lease term of the respective assets.

Warranty

         The Company provides a limited  warranty for its products.  A provision
for the  estimated  warranty  cost is recorded at the time revenue is recognized
based on the Company's historical experience.

Income Taxes

         The Company accounts for income taxes under the liability method, which
requires  recognition of deferred tax assets and  liabilities for the future tax
consequences  of  temporary  differences  between  the tax bases of  assets  and
liabilities and their reported amounts.

Stock-based Compensation

         The Company accounts for stock-based employee compensation arrangements
in accordance  with  provisions of Accounting  Principles  Board Opinion No. 25,
"Accounting  for Stock Issued to  Employees,"  ("APB 25") and complies  with the
disclosure provisions of SFAS No. 123 ("SFAS 123"),  "Accounting for Stock-Based
Compensation."  Under APB 25,  compensation  cost is recognized over the vesting
period based on the  difference,  if any, on the date of grant  between the fair
value of the Company's  stock and the amount an employee must pay to acquire the
stock.

<TABLE>
Earnings per Share

         The  Company  has  presented  earnings  per  share for all  periods  in
accordance  with SFAS No. 128  ("SFAS  128"),  "Earnings  per  Share."  SFAS 128
requires  the  presentation  of 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 includes the
effect of dilutive  potential common share  equivalents  (options) issued (using
the treasury stock method).

<CAPTION>
                                                                                           Year ended September 30,
                                                                           ---------------------------------------------------------
                                                                               1997                  1998                   1999
                                                                           -----------            -----------            -----------
                                                                                (in thousands, except share and per share data)

<S>                                                                        <C>                    <C>                    <C>
Net income ....................................................            $     3,338            $     4,525            $     8,905
                                                                           ===========            ===========            ===========

Weighted average shares outstanding ...........................              9,630,000             10,369,000             11,874,000
Dilutive options ..............................................                975,000                571,000                343,000
                                                                           -----------            -----------            -----------
Weighted average shares assuming dilution .....................             10,605,000             10,940,000             12,217,000
                                                                           -----------            -----------            -----------

Earnings per share:
Basic .........................................................            $      0.35            $      0.44            $      0.75
Diluted .......................................................            $      0.31            $      0.41            $      0.73
</TABLE>

                                       39
<PAGE>

Comprehensive Income

         As of October 1, 1998,  the Company  adopted SFAS No. 130 ("SFAS 130"),
"Reporting  Comprehensive  Income."  SFAS 130  requires  separate  reporting  of
comprehensive  income  which is "the  change in equity of a business  enterprise
during a period  from  transactions  and other  events  and  circumstances  from
non-owner sources."

Recently Issued Accounting Standards

         In June 1998, the Financial  Accounting Standards Board ("FASB") issued
Financial  Accounting  Statement  ("FAS") No. 133 ("FAS 133"),  "Accounting  for
Derivative Instruments and Hedging Activities." The Company is required to adopt
FAS 133 in fiscal 2000. FAS 133 established methods of accounting for derivative
financial  instruments and hedging  activities  related to those  instruments as
well as other hedging activities.  The Company has not yet determined the effect
FAS 133 will have on the operations and financial position of the Company.

<TABLE>
NOTE 2 - BALANCE SHEET COMPONENTS

<CAPTION>
                                                                                                        Year ended September 30,
                                                                                                    --------------------------------
                                                                                                     1998                    1999
                                                                                                    -------                 --------
                                                                                                             (in thousands)
<S>                                                                                                 <C>                     <C>
Inventories:
  Raw materials ....................................................................                $   391                 $   554
  Work-in-process ..................................................................                     39                      79
  Finished goods ...................................................................                    182                      72
                                                                                                    -------                 -------
                                                                                                    $   612                 $   705
                                                                                                    =======                 =======

Property and equipment:
  Equipment ........................................................................                $ 1,348                 $ 1,789
  Leasehold improvements ...........................................................                    329                     456
                                                                                                    -------                 -------
                                                                                                      1,677                   2,245
  Less accumulated depreciation and amortization ...................................                   (899)                 (1,247)
                                                                                                    -------                 -------
                                                                                                    $   778                 $   998
                                                                                                    =======                 =======

Accrued liabilities:
  Payroll and related expenses .....................................................                $   961                 $ 1,402
  Income taxes .....................................................................                    668                   2,388
  Other ............................................................................                    712                     992
                                                                                                    -------                 -------
                                                                                                    $ 2,341                 $ 4,782
                                                                                                    =======                 =======
</TABLE>

NOTE 3 - RELATED PARTY TRANSACTIONS

         In fiscal 1997,  1998 and 1999,  the  Company's  principal  stockholder
earned  compensation for his duties as President and Chief Executive  Officer of
approximately $1,410,000, $611,000 and $332,000, respectively.

         On June 10,  1998 the Company  settled a claim by an officer,  director
and  stockholder of the Company.  The  settlement  required the Company to enter
into  a  three-year   consulting  agreement  with  the  officer,   director  and
stockholder  at the rate of $1,500 per day, with a minimum  obligation of $4,500
per month.  In fiscal 1998 and 1999, the Company paid the officer,  director and
stockholder approximately $13,500 and $55,500, respectively.

                                       40
<PAGE>

NOTE 4 - INCOME TAXES

         Consolidated  income before income taxes  includes  non-U.S.  income of
approximately $1,260,000, $1,723,000 and $227,000 in fiscal 1997, 1998 and 1999,
respectively.

<TABLE>
         The provision for income taxes consists of the following:

<CAPTION>
                                                                                           Year ended September 30,
                                                                        -----------------------------------------------------------
                                                                          1997                     1998                      1999
                                                                        -------                   ------                    -------
                                                                                                 (in thousands)

<S>                                                                     <C>                       <C>                       <C>
Current:
  U.S. federal .......................................                  $ 1,591                   $ 1,853                   $ 6,024
  State ..............................................                      311                       490                       793
  Foreign ............................................                      585                       931                       401
                                                                        -------                   -------                   -------
                                                                          2,487                     3,274                     7,218
                                                                        -------                   -------                   -------

Deferred:

  U.S. federal .......................................                      (21)                      230                      (282)
  State ..............................................                     --                        --                         (80)
  Foreign ............................................                      (30)                     (108)                     (150)
                                                                        -------                   -------                   -------
                                                                            (51)                      122                      (512)
                                                                        -------                   -------                   -------
                                                                        $ 2,436                   $ 3,396                   $ 6,706
                                                                        =======                   =======                   =======
</TABLE>

<TABLE>
A reconciliation of the U.S. federal income tax rate to the Company's  effective
tax rate is as follows:

<CAPTION>
                                                                                                  Year ended September 30,
                                                                                        --------------------------------------------
                                                                                        1997                1998                1999
                                                                                        ----                ----                ----
<S>                                                                                      <C>                 <C>                 <C>
Tax at federal rate ....................................................                 34%                 34%                 35%
State taxes, net of federal benefit ....................................                  5                   5                   5
Excess foreign tax rate ................................................                  2                   3                   1
Other ..................................................................                  1                   1                   2
                                                                                         --                  --                  --
                                                                                         42%                 43%                 43%
                                                                                         ==                  ==                  ==
</TABLE>

                                       41
<PAGE>

<TABLE>
Deferred tax assets and liabilities consist of the following:

<CAPTION>
                                                                                                           September 30,
                                                                                                ------------------------------------
                                                                                                  1998                        1999
                                                                                                -------                     --------
                                                                                                          (in thousands)
<S>                                                                                             <C>                         <C>
Deferred Tax Assets:
     Accruals and reserves .................................................                    $   209                     $   852
     Net operating losses ..................................................                       --                           186
     Other .................................................................                        197                          64
                                                                                                -------                     -------
         Total .............................................................                        406                       1,102
     Valuation allowance ...................................................                       --                          (186)
                                                                                                -------                     -------
                                                                                                    406                         916
Deferred Tax Liabilities:
     Excess tax depreciation ...............................................                         (2)                       --
                                                                                                -------                     -------
         Net deferred tax assets ...........................................                    $   404                     $   916
                                                                                                =======                     =======
</TABLE>

         In fiscal 1999, the Company recorded a valuation  allowance against its
foreign net operating loss carryforward.

NOTE 5 - STOCKHOLDERS' EQUITY

Redeemable Securities

         In  connection  with the  settlement  on June 10,  1998 of claims by an
officer and director for compensation for past services rendered to the Company,
the Company  agreed  that,  if it did not complete  its planned  initial  public
offering by December 31,  1998,  it would  repurchase  common stock held by this
individual at a rate of up to 50,000 shares per annum, in quarterly installments
of up to 12,500  shares,  beginning  on March 31,  1999,  until the  earliest of
certain events, including the cumulative receipt of $5 million by the individual
from sales of the individual's stock, an initial public offering of stock by the
Company,  an  acquisition  of the Company or 12 years from March 31,  1999.  The
repurchase  price was the fair market value of the shares as  determined  by the
Board of Directors.

         As a result of this  agreement,  500,000  shares of common stock with a
fair market  value of $5 million,  based on the assumed fair market value at the
date of the agreement of $10 per share,  are reflected as redeemable  securities
beginning  as of the  date of this  settlement.  As a  result  of the  Company's
initial  public  offering,  such shares are no longer  redeemable  and have been
reclassified as stockholders' equity.

Initial Public Offering

         On  February  11,  1999,  the  Company  consummated  an initial  public
offering  of  3,352,500  shares of its common  stock at a price to the public of
$10.00 per share, of which 2,100,000  shares were issued and sold by the Company
and  1,252,500  shares were sold by certain  stockholders  of the  Company.  The
proceeds,  net of fees and other expenses, to the Company from the offering were
approximately  $19.2 million.  During the quarter ended  September 30, 1998, the
Company expensed $769,000 of costs related to its delayed public offering.

Stock Option Plans

         At September 30, 1997,  1,800,000  shares and 154,500  shares of common
stock had been reserved for issuance to employees under the 1989 Incentive Stock
Option Plan (the "1989 Plan") and the UK Executive  Share Option

                                       42
<PAGE>

Scheme (the "UK  Scheme"),  respectively.  In June 1998,  the Board of Directors
adopted the 1998 Stock Plan (the "1998 Plan") which provided for the issuance of
an additional  1,800,000 stock options. The Board of Directors has the authority
to determine  optionees,  the number of shares,  the term of each option and the
exercise  price.  Options  under  the  1989  and  1998  Plans  generally  become
exercisable  at a rate of 1/8th of the option shares six months after the option
grant date and then at a rate of 1/48th per month thereafter.  Options under the
UK Scheme  become  exercisable  at the rate of 1/36th of the  option  shares per
month following twelve months after the option grant date.  Options will expire,
if not exercised, upon the earlier of 10 years from the date of grant or 30 days
after termination as an employee of the Company.

         In the years ended  September 30, 1997 and 1998,  the Company  recorded
deferred   compensation   expense  of   approximately   $216,000  and  $589,000,
respectively,  related to the issuance of stock  options at prices  subsequently
determined to be below fair market  value.  These  expenses are being  amortized
over a period of four years from the date of option  issuance.  Amortization  of
deferred compensation expense related to these options of approximately $20,000,
$176,000 and $169,000 was included in general and administrative expenses in the
years ended September 30, 1997, 1998 and 1999, respectively.

<TABLE>
         Information  with respect to stock option  activity from  September  30, 1996 through  September 30, 1999 is set forth
below:
<CAPTION>
                                                                                              Number of             Weighted Average
                                                                                                Shares               Exercise Price
                                                                                              ---------             ----------------
<S>                                                                                            <C>                      <C>
Balance, September 30, 1996 .............................................                      1,156,500                $ 0.27
  Options granted .......................................................                        296,475                  0.99
  Options exercised .....................................................                           (162)                 0.46
  Options canceled ......................................................                        (94,713)                 0.85
                                                                                               ---------

Balance, September 30, 1997 .............................................                      1,358,100                  0.39
  Options granted .......................................................                        206,100                  2.01
  Options exercised .....................................................                       (862,874)                 0.25
  Options canceled ......................................................                           (876)                 1.12
                                                                                               ---------

Balance, September 30, 1998 .............................................                        700,450                  1.04
  Options granted .......................................................                        273,014                 16.14
  Options exercised .....................................................                       (147,077)                 0.88
  Options canceled ......................................................                       (117,435)                 2.31
                                                                                               ---------

 Balance, September 30, 1999 ............................................                        708,952                  6.68
                                                                                               =========
</TABLE>

         As of September  30, 1999,  1,961,905  options  remained  available for
grant.

                                       43
<PAGE>

<TABLE>
         As of September 30, 1999, the options  outstanding  and exercisable are
presented below:

<CAPTION>
                                                        Options Outstanding                         Options Exercisable
                                                       at September 30, 1999                       at September 30, 1999
                                       ---------------------------------------------------    ---------------------------------
                                                             Weighted
                                                              Average
                                                             Remaining        Weighted                             Weighted
                                            Number          Contractual       Average              Number          Average
Range of Exercise Price                   Outstanding          Life        Exercise Price       Outstanding     Exercise Price
----------------------------------     ------------------ ---------------- ---------------    ----------------- ---------------
<S>                                            <C>              <C>             <C>                <C>                 <C>
$0.00 - $2.07........................          423,064          6.2             $0.69              331,070             $0.60
$2.08 - $4.14........................           10,087          8.5              2.40                1,178              2.40
$4.15 - $6.22........................           37,625          9.0              6.00                8,099              6.00
$10.34 - $12.41......................           15,212          9.4             11.38                2,220             11.38
$14.48 - $16.55......................            5,494          9.6             15.80                 --                --
$16.56 - $18.62......................          177,470          9.8             17.49                 --                --
$18.63 - $20.69......................           40,000          9.7             20.69                 --                --
                                       ------------------                                     -----------------
                                               708,952                           6.68              342,567              0.80
                                       ------------------                                     -----------------
</TABLE>

Fair Value Disclosures

         The Company  calculated the fair value of each option grant on the date
of grant using the Black-Scholes model with the following assumptions:  dividend
yield at 0%;  weighted  average  expected  option life of five years;  risk free
interest rate of 5.5% and expected  volatility of 50% for options granted during
the fiscal year ended September 30, 1999 for options granted after the Company's
initial public offering.  Prior to the Company's  initial public  offering,  the
Company  used the  minimum  value  method in  determining  the fair value of its
options.  For years ended  September 30, 1997 and 1998,  the following  range of
assumptions  were used:  dividend yield at 0%; weighted  average expected option
life of five years; risk free interest rate of 6.2% and 5.6%, respectively,  and
expected  volatility of zero. The weighted average fair value of options granted
during 1999 was $12.87 per share.

                                       44
<PAGE>

<TABLE>
         The weighted  average fair values of options  granted during 1997, 1998
and 1999 were as follows:

<CAPTION>
        Year Ended September 30, 1997                                                   Weighted Average        Weighted Average
        -----------------------------                                                    Exercise Price            Fair Value
                                                                                         --------------            ----------
<S>                                                                                          <C>                     <C>
        Exercise price equal to market value.......................................          $0.83                   $0.22
        Exercise price less than market value......................................           1.27                    2.37

        Year Ended September 30, 1998                                                   Weighted Average        Weighted Average
        -----------------------------                                                    Exercise Price            Fair Value
                                                                                         --------------            ----------
        Exercise price equal to market value.......................................          $7.51                   $1.50
        Exercise price less than market value......................................           1.39                    3.46

        Year Ended September 30, 1999                                                   Weighted Average        Weighted Average
        -----------------------------                                                    Exercise Price            Fair Value
                                                                                         --------------            ----------
        Exercise price equal to market value.......................................         $16.14                  $12.87
</TABLE>


         Had  compensation  cost been determined  based on the fair value at the
grant  dates for the awards  under these  plans  using the  Black-Scholes  model
prescribed  by SFAS No.  123,  the  Company's  net  income  would  not have been
materially different in fiscal 1997 and 1998. The Company's pro forma net income
and pro forma  basic and diluted  earnings  per share for fiscal 1999 would have
been $8,670,000, $0.73 per share and $0.70 per share, respectively.

Employee Stock Purchase Plan

         In June 1998, the Company adopted the 1998 Employee Stock Purchase Plan
(the  "Purchase  Plan").  A total of  750,000  shares of common  stock have been
reserved  for  issuance  under the  Purchase  Plan.  The  Purchase  Plan permits
eligible  employees to purchase common stock through payroll deductions of up to
7% of an  employee's  total  compensation.  The price of the  common  stock will
generally be 85% of the lower of the fair market  value at the  beginning of the
offering period or the end of the relevant  purchase period.  The maximum number
of shares a  participant  may purchase  during a single  offering  period is 200
shares.

NOTE 6 - PROFIT-SHARING PLAN

         The  Company  maintains a qualified  profit-sharing  plan for  eligible
employees.  Contributions to the  profit-sharing  plan are discretionary and are
determined by the Board of Directors.  There were no  contributions  to the plan
for the years ended September 30, 1997, 1998 and 1999.

NOTE 7 - COMMITMENTS

         The Company  leases its facility in Mountain View,  California  under a
non-cancelable  operating lease agreement  expiring in 2002. The lease agreement
provides for minimum annual rent of $168,000.  Under this agreement, the Company
pays certain shared operating  expenses of the facility.  The agreement provides
for rent increases at scheduled  intervals.  The Company leases other facilities
in Illinois,  Texas,  Canada, Japan and the United Kingdom under leases with the
longest term expiring in 2009.

         Rent expense for all facilities for the years ended September 30, 1997,
1998 and 1999 was approximately $197,000, $287,000 and $426,000, respectively.

                                       45
<PAGE>

         Future minimum annual rental  payments under  non-cancelable  operating
leases as of September 30, 1999 are as follows (in thousands):

2000................................................................      $  555
2001................................................................         484
2002................................................................         260
2003................................................................         187
2004................................................................         137
Thereafter..........................................................         470
                                                                          ------
                                                                          $2,093
                                                                          ======

NOTE 8 - SEGMENT REPORTING

         In June 1997,  the FASB issued SFAS No. 131 ("SFAS 131"),  "Disclosures
About Segments of an Enterprise and Related Information." The statement requires
the Company to report certain financial information about operating segments. It
also requires that the Company  report certain  information  about its services,
the geographic  areas in which it operates and its major  customers.  The method
specified in SFAS 131 for determining  what information to report is referred to
as the "management  approach." The management  approach is based on the way that
management  organizes the segments  within the enterprise  for making  operating
decisions and assessing performance.

         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.

<TABLE>
         The Company's  sales,  income and assets by region for each fiscal year
end were as follows (in thousands):

<CAPTION>
                                                              United         UK &                            Consolidated
                                                              States        Europe         Japan                 Total
                                                              ------        ------         -----                 -----
1997
----
<S>                                                           <C>           <C>            <C>                  <C>
Sales to unaffiliated customers......................        $ 6,261        $2,716        $ 4,375               $13,352
Net income...........................................          2,642           405            291                 3,338
Total assets.........................................          9,714         2,669          1,652                14,035

1998
----
Sales to unaffiliated customers......................        $ 5,020        $3,649        $ 9,537               $18,206
Net income...........................................          3,626           400            499                 4,525
Total assets.........................................         14,905         1,447          3,143                19,495

1999
----
Sales to unaffiliated customers......................        $ 6,383        $3,024        $19,548               $28,955
Net income...........................................          8,929          (287)           263                 8,905
Total assets.........................................         42,423         2,185          6,059                50,667
</TABLE>

         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.  Transfers to other  geographic  regions from the
United States for the years ended  September  30, 1997,  1998 and 1999 were $4.1
million, $9.6 million and $15.6 million, respectively.

                                       46
<PAGE>

                                                 Supplementary Financial Data

<TABLE>
Quarterly Financial Data (unaudited)

<CAPTION>
                                                                                          Quarter Ended
                                                                                          -------------
                                                                                (in thousands, except per share data)
Consolidated Statements of Income Data:                       Dec. 31,             Mar. 31,             June 30,           Sept. 30,
                                                                1997                 1998                 1998               1998
                                                                ----                 ----                 ----               ----
<S>                                                            <C>                  <C>                  <C>                 <C>
Revenues .......................................               $3,446               $5,013               $4,621              $5,126
Gross profit ...................................                3,026                4,505                3,902               4,357
Operating income ...............................                1,492                2,760                1,972               1,366
Net income .....................................               $  860               $1,632               $1,125              $  908

Earnings per share:
  Basic ........................................               $ 0.08               $ 0.16               $ 0.11              $ 0.09
  Diluted ......................................               $ 0.08               $ 0.15               $ 0.10              $ 0.08

                                                              Dec. 31,             Mar. 31,             June 30,           Sept. 30,
                                                                1998                 1999                 1999               1999
                                                                ----                 ----                 ----               ----
Revenues .......................................               $5,229               $9,752               $6,707              $7,267
Gross profit ...................................                4,429                8,762                5,962               6,156
Operating income ...............................                2,105                5,982                2,982               3,355
Net income .....................................               $1,191               $3,584               $1,959              $2,171

Earnings per share:
  Basic ........................................               $ 0.11               $ 0.31               $ 0.16              $ 0.17
  Diluted ......................................               $ 0.11               $ 0.30               $ 0.15              $ 0.17
</TABLE>

                                       47
<PAGE>

ITEM 9.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
         FINANCIAL DISCLOSURE

         Not applicable.

                                    PART III

         Certain  information  required by Part III is omitted  from this Annual
Report  on Form  10-K  because  the  Registrant  will  file a  definitive  proxy
statement  within one hundred twenty (120) days after the end of its fiscal year
pursuant to Regulation  14A (the "Proxy  Statement")  for its Annual  Meeting of
Stockholders  currently  scheduled  for February 11, 2000,  and the  information
included in the Proxy Statement is incorporated herein by reference.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         Information  regarding the directors of the Company is  incorporated by
reference to the  information  under the heading  "Election of Directors" in the
Registrant's Proxy Statement.

         Information   regarding  the  executive  officers  of  the  Company  is
incorporated by reference to the section of Part I of this Annual Report on Form
10-K entitled "Item 1 -- Business -- Executive Officers of the Company."

         Information  regarding  compliance  with  Section 16 of the  Securities
Exchange  Act  of  1934,  as  amended,  is  incorporated  by  reference  to  the
information  under the heading  "Section 16(a)  Beneficial  Ownership  Reporting
Compliance" in the Registrant's Proxy Statement.

ITEM 11. EXECUTIVE COMPENSATION

         Information  regarding  the  compensation  of  executive  officers  and
directors of the Company is incorporated by reference from the information under
the  headings  "Executive   Compensation"  and  "Certain  Transactions"  in  the
Registrant's Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         Incorporated  by  reference  to  the  information   under  the  heading
"Security   Ownership  of  Principal   Stockholders   and   Management"  in  the
Registrant's Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Incorporated by reference to the information under the caption "Certain
Transactions" in the Registrant's Proxy Statement.

                                       48
<PAGE>

                                     PART IV

ITEM 14.      EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)  The  following  documents  are filed as part of this Annual  Report on Form
     10-K:

1.       FINANCIAL STATEMENTS

         Consolidated Financial Statements:  See Index to Consolidated Financial
Statements at Item 8 on page 30 of this report.

2.       FINANCIAL STATEMENT SCHEDULES

         Financial  Statement  Schedule:  See  Index to  Consolidated  Financial
Statements at Item 8 on page 30 of this report.

3.       EXHIBITS

         The  following  exhibits  are  incorporated  herein by reference or are
filed with this reports as indicated below (numbered in accordance with Item 601
of Regulation S-K):

Exhibit
Number                             Description
------                             -----------
2.1(1)   Agreement  and Plan of Merger  dated  June 10,  1998  between  Catapult
         Communications Corporation, a California corporation, and Registrant.

3.1(1)   Articles of Incorporation of Registrant.

3.2(1)   Bylaws of Registrant.

4.1(1)   Specimen Common Stock Certificate of Registrant.

9.1(1)   Voting  Trust  Agreement  dated June 8, 1998  between  Nancy Hood Karp,
         Richard A. Karp, the Registrant and a depositary.

10.1(1)  Form of Indemnification  Agreement entered into by Registrant with each
         of its directors and executive officers.

10.2(1)  Form of Restricted Stock Purchase Agreement.

10.3(1)  1989 Stock Option Plan and related agreements.

10.4(1)  UK Executive Share Option Scheme and related agreements.

10.5(1)  1998 Stock Plan and related agreements.

10.6(1)  1998 Employee Stock Purchase Plan and related agreements.

10.7(1)  Fiscal 1999 Officer and Key Employee Profit Sharing Plan.

10.8(1)  Lease for office space located at 160 Whisman Road, Mountain View, CA.

10.9(1)  Form of Software Support Agreement.

10.10(1) Severance Agreement and Mutual Release of All Claims dated June 8, 1998
         between Nancy Hood Karp and Registrant.

10.11(1) Consulting  and  Non-Competition  Agreement  dated June 9, 1998 between
         Nancy Hood Karp and Registrant.

11.1     Calculation  of Earnings per Common Share  (contained  in Note 1 of the
         Notes to Financial Statements).
----------
(1)  Incorporated  by  reference  to  exhibits  filed in response to Item 16(a),
     "Exhibits,"  of the  Registrant's  Registration  Statement  on Form S-1, as
     amended (File No. 333-56627),  which was declared effective on February 10,
     1999.

                                       49
<PAGE>

21.1(1)  Subsidiaries of the Registrant.

23.1     Consent of  PricewaterhouseCoopers  LLP,  Independent  Accountants (see
         page 52)

24.1     Power of Attorney (see page 51)

27.1     Financial Data Schedule

(b)      REPORTS ON FORM 8-K

         No report on Report Form 8-K was filed  during the last  quarter of the
fiscal year ended September 30, 1999.

                                       50
<PAGE>

                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934,  the Registrant has duly caused the report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                       CATAPULT COMMUNICATIONS CORPORATION

Date: December 30, 1999              By:     /s/      RICHARD A. KARP
                                        ----------------------------------------
                                        Richard A. Karp
                                        President, Chief Executive Officer &
                                        Chairman of the Board

                                POWER OF ATTORNEY

         KNOW ALL PERSONS BY THESE  PRESENTS,  that each person whose  signature
appears below  constitutes and appoints  Richard A. Karp, his  attorney-in-fact,
with the power of Substitution,  for him in any and all capacities,  to sign any
amendments  to this  Report on Form 10-K,  and to file the same,  with  Exhibits
thereto and other  documents in connection  therewith  with the  Securities  and
Exchange   Commission,   hereby   ratifying   and   confirming   all  that  said
attorney-in-fact,  or substitute or substitutes  may do, or cause to be done, by
virtue hereof.

<TABLE>
         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  Report  has been  signed  below by the  following  person on behalf of the
Registrant and in the capacities and on the dates indicated:

<CAPTION>
                            Signature                                        Title                                  Date
                            ---------                                        -----                                  ----
<S>                                                      <C>                                                 <C>
          /s/      RICHARD A. KARP                       President, Chief Executive Officer, Chairman        December 30, 1999
          ------------------------------------------     of the Board and Acting Chief Financial
          (Richard A. Karp)                              Officer
                                                         (Principal Executive Officer, Principal
                                                         Financial and Principal Accounting Officer)


          /s/      CHARLES L. WAGGONER                   Director                                            December 23, 1999
          ------------------------------------------
          (Charles L. Waggoner)


          /s/      JOHN M. SCANDALIOS                    Director                                            December 23, 1999
          ------------------------------------------
          (John M. Scandalios)


          /s/      NANCY H. KARP                         Director                                            December 23, 1999
          ------------------------------------------
          (Nancy H. Karp)
</TABLE>

                                       51