================================================================================

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

                                    FORM 10-K

                  Annual Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934
                   For the fiscal year ended January 31, 2004


                         Commission File Number: 0-30121


                                  ULTICOM, INC.
             (Exact name of registrant as specified in its charter)


          NEW JERSEY                                           22-2050748
(State or other jurisdiction of                             (I.R.S. Employer
 incorporation or organization)                            Identification No.)


    1020 BRIGGS RD. MT. LAUREL, NJ                                     08054
(Address of principal executive offices)                            (Zip Code)


                                 (856) 787-2700
              (Registrant's telephone number, including area code)


                                 NOT APPLICABLE
              (Former name, former address and former fiscal year,
                          if changed since last report)

          Securities registered pursuant to Section 12 (b) of the Act:

Title of each class                                     Name of each exchange
-------------------                                     on which registered
                                                        -------------------

  Not applicable                                           Not applicable

           Securities registered pursuant to Section 12(g) of the Act:

                      COMMON STOCK, NO PAR VALUE PER SHARE
                                (Title of Class)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
                                                    [X] Yes     [ ] No

================================================================================
<PAGE>
         Indicate by 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. [X]

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


         The aggregate market value of the voting stock held by non-affiliates
of the registrant, computed by reference to the closing price as of the last
business day of the registrant's most recently completed second fiscal quarter,
July 31, 2003, was approximately $144,000,000.


           There were 42,230,318 shares of the registrant's common stock
outstanding on April 2, 2004.


                       DOCUMENTS INCORPORATED BY REFERENCE

         Portions of the registrant's Proxy Statement for the Annual Meeting of
Shareholders to be held on June 14, 2004, are incorporated by reference in Part
III.

                            -------------------------

           Signalware(R), Software Advancing Communications(R), and Ulticom(R)
are registered trademarks and Ulticom's logos are trademarks of the Company. All
other trademarks are the property of their respective owners.







                                     - ii -

<PAGE>
                           FORWARD-LOOKING STATEMENTS


         Certain statements discussed in Item 1 (Business), Item 3 (Legal
Proceedings), Item 7 (Management's Discussion and Analysis of Financial
Condition and Results of Operations), and elsewhere in this Form 10-K constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other important factors that could cause the
actual results, performance or achievements of results to differ materially from
any future results, performance or achievements expressed or implied by such
forward-looking statements. Important risks, uncertainties and other important
factors that could cause actual results to differ materially include, among
others: the successful implementation of Ulticom, Inc.'s business strategy;
changes in capital spending among the company's current and prospective
customers; risks associated with rapidly changing technology and the ability of
the company to introduce new products on a timely and cost-effective basis;
risks associated with international transactions including political decisions
affecting tariffs and trade conditions, rapid and unforeseen changes in economic
conditions in individual countries, turbulence in foreign currency and credit
markets, and increased costs resulting from lack of proximity to the customer;
risks associated with rapid technological changes in the telecommunications
industry; risks associated with dependence on sales of the company's Signalware
products; risks associated with future networks not utilizing signaling systems
and protocols that the company's products are designed to support; risks
associated with the development and acceptance of new products and product
features; risks associated with the integration of the company's products with
those of equipment manufactures and application developers and the company's
ability to establish and maintain channel and marketing relationships with
leading equipment manufacturers and application developers; risks associated
with the company's ability to retain existing personnel and recruit and retain
qualified personnel; and other risks described in filings with the Securities
and Exchange Commission. These risks and uncertainties, as well as other
factors, are discussed in greater detail at the end of Item 7 (Management's
Discussion and Analysis of Financial Condition and Results of Operations) of
this Form 10-K. The company makes no commitment to revise or update any
forward-looking statements in order to reflect events or circumstances after the
date any such statement is made.

                                     PART I

ITEM 1.    BUSINESS.

THE COMPANY

           Ulticom, Inc. ("Ulticom" and together with its subsidiary, the
"Company") is a provider of service enabling signaling software for wireline,
wireless and Internet communications. The Company's Signalware family of
products are used by equipment manufacturers, application developers and
communication service providers to deploy revenue generating infrastructure and
enhanced services within the mobility, messaging, payment and location markets.
Signalware products are also embedded in a range of packet softswitching
products to interoperate or converge voice and data networks and facilitate


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<PAGE>
services such as voice over IP ("VoIP"), hosted IP telephony, and virtual
private networks.

           The Company was incorporated in New Jersey on December 18, 1974 as
"Dale, Gesek, McWilliams & Sheridan, Inc.," and was formerly known as "DGM&S
Telecom, Inc." In May 1999, the Company changed its name to "Ulticom, Inc." The
Company completed an initial public offering of its common stock in April 2000
and its common stock is listed on the NASDAQ National Market System under the
symbol "ULCM". The Company is a subsidiary of Comverse Technology, Inc. ("CTI"),
which held approximately 70% of its outstanding common stock as of January 31,
2004. The Company's principal executive offices are located at 1020 Briggs Road,
Mount Laurel, New Jersey 08054, and its telephone number is (856) 787-2700.

         The Company's Internet address is www.ulticom.com. The information
contained on the Company's website is not included as a part of, or incorporated
by reference into, this Annual Report on Form 10-K. The Company makes available,
free of charge, on its Internet website, its annual report on Form 10-K, its
quarterly reports on Form 10-Q, its current reports on Form 8-K and amendments
to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 as soon as reasonably practicable after the
Company has electronically filed such material with, or furnished it to, the
United States Securities and Exchange Commission.


THE COMPANY'S PRODUCTS

BACKGROUND

        Traditionally, voice networks were based on a technology called "circuit
switching." In circuit switched networks, a dedicated line or circuit is
established for each telephone call and maintained for the duration of the call.
At the conclusion of a circuit switched call, the dedicated line or circuit is
disconnected.

        Separating the voice and signaling portions of a call improves network
utilization, reduces call setup times and provides transaction capabilities for
enhanced services. The signaling infrastructure processes, in real time, the
information needed to set up, connect, route, terminate and bill a call, while
also providing a foundation to develop and offer value-added services. The
signaling portion of a switching network that controls each call is based on a
globally accepted set of standards and protocols called signaling system #7
("SS7"). SS7 provides the speed and reliability required for processing complex
call control information.

        While SS7 was initially created to support signaling in a wireline or
fixed network, it also has become an essential element for connecting calls and
delivering services in wireless networks. In addition to providing the signaling
link between wireline and wireless networks, SS7 efficiently allows wireless
service providers to register and authenticate subscribers as they move between
mobile cell areas. SS7 signaling also is used as the foundation for enhanced
database services such as prepaid calling and voice and text messaging. SS7 is


                                       2
<PAGE>
designed to be robust, flexible and scalable, enabling service providers to
offer new services quickly and reliably.

        While circuit switching has offered dependable, high quality voice
communication, a newer technology called "packet switching" is inherently more
efficient and cost effective than circuit switching. In packet switched
networks, the voice or data transmission is formatted into a series of shorter
digital messages called "packets." These packets of voice or data information
travel over a shared line or circuit. The cost advantage in the initial
deployment, combined with significant ongoing operational savings, has led both
incumbent and new service providers to build packet networks to handle voice and
data traffic.

        Because SS7 is the globally accepted signaling standard protocol, it has
become the critical element needed to connect and interoperate packet networks
with the existing circuit network infrastructure. Wireline, wireless and
Internet service providers worldwide have implemented SS7 as an important
component to converge voice and data communications through signaling gateways
that interwork SS7 signaling and packet switching protocols.

SIGNALWARE

         Ulticom's Signalware product line provides the SS7 connectivity
required to offer value-added services. Signalware is embedded within wireline,
wireless and Internet networks to interconnect and interoperate voice and data
communication systems. In addition, Signalware plays a key role in the
convergence of disparate networks by providing a means to bridge circuit and
packet technology. Signalware offers many of the features that are crucial to
the connectivity of communication networks and the rapid delivery of revenue
generating services, including:

           o          open systems - running applications on multiple software
                      and hardware platforms;

           o          fault resiliency - insures the high availability
                      requirements of fixed and mobile voice service in circuit
                      and packet based networks with no single point of failure;

           o          high performance - processing calls at very high rates;

           o          standards conformance - complying to industry-accepted
                      standards including IETF, ANSI, ITU, ETSI, TTC, and MII;

           o          scalability - increasing computing and link capacity to
                      match varying application requirements; and

           o          network interoperability - providing an open development
                      environment, which enables users to develop an application
                      once and deploy globally, maximizing their return on
                      investment.

           Signalware supports a range of applications across multiple networks.
In wireline networks, Signalware has been deployed as part of services such as
voice messaging, calling name, 800 number, and calling card services. Signalware
enables wireless infrastructure applications such as global roaming and


                                       3
<PAGE>
emergency-911, and enhanced services such as text messaging and prepaid calling.
The Company's products are being used to enable new wireless data services such
as ones that enable Global System for Mobile Communications ("GSM") subscribers
to roam into wireless local area networks ("WLAN") "Hot Spots" and seamlessly
and securely access network based services from their own trusted service
provider. Signalware also is used to enable VoIP in wireline, wireless, and
cable service provider networks.

         Signalware works with multiple SS7 networks, supports a wide variety of
SS7 protocol elements, and enables analog or digital wireline and wireless
transmissions. It provides the functionality needed for call set-up/termination
and call routing/billing. Signalware products also include features that enable
the transition from SS7 signaling to emerging packet signaling standards as
defined by the Internet Engineering Task Force ("IETF"). These new standards
include Signaling Transport ("SIGTRAN"), which enables the transmission of SS7
signals over IP networks, and Session Initiation Protocol ("SIP"), which enables
interactive communications sessions in an IP network. New solutions include a
Signalware SIGTRAN Gateway for enabling circuit-packet network interoperability
and Signalware SIP for developing next generation services for all IP networks.

         Signalware solutions run on a range of hardware platforms and operating
systems, including Sun Solaris, IBM AIX and Red Hat Linux. These solutions can
be used in single or multiple computing configurations for fault resiliency and
reliability.

PRODUCTS

           Signalware includes interface boards to provide the physical
connection to a signaling network. Signalware boards are configured to support a
wide range of hardware platforms and network links. The bundling of Signalware
interface boards and software allows the Company to control product performance,
capacity and compliance with standards.

           New customers begin development of applications and services by
purchasing the appropriate Signalware development kit. A typical development kit
includes a development software license, an interface board, cables, one-year
development maintenance plan, training, and documentation. The annual
development maintenance plan provides access to customer support services,
service packs, and scheduled updates of the software. After the initial year,
the maintenance plan must be renewed for a fee in order to continue to receive
support and software updates.

         When the application is ready for deployment in a communication service
provider's network, the customer typically purchases one or more interface
boards per server to stage the application for deployment. On a per installation
basis, the customer also purchases a deployment license and an annual software
deployment maintenance and support plan, which typically renews annually for the
life of the installation.

                                       4
<PAGE>
SERVICES

           The Company believes that customer support, training and professional
services are integral to building and maintaining strong customer relationships.
Customer support is offered as part of the maintenance agreements.

           Customer Support. The Company provides comprehensive technical
support to help customers develop and deploy new services using Signalware.
Customer support representatives interface with customers' technical staff,
answering questions, resolving problems, and providing assistance. Services are
available 24 hours a day, 7 days a week. Customer support is managed through
corporate headquarters in Mount Laurel, New Jersey with remote service locations
to provide extended geographic and time zone coverage.

           Training Services. The Company offers customers a comprehensive
training program including courses covering topics such as Application
Development and Operations and Support. Courses are scheduled throughout the
year. Customized and/or on-site training programs also are provided for an
additional fee to meet the specific needs of customers. The Company also offers
computer-based training in an effort to provide added flexibility and
convenience to customers.

           Professional Services. The Company offers fee-based consulting and
development services to create customer-specific enhancements to its products
and assist with deployment of its products in service provider networks. An
experienced engineering staff provides such services. This service assists
customers by accelerating their time-to-market, and also hastens the point in
the development cycle when the Company begins to receive recurring deployment
license and board revenues.

MARKETS, SALES AND MARKETING

           The Company's sales organization operates from the United States,
Europe and Asia. Account teams comprised of account managers and sales engineers
work closely with product management and development organizations to provide
customers with a consultative sales approach. The consultative approach
facilitates the sale of development kits to enable customers to immediately
begin to build prototypes of their products.

           The Company actively strives to enhance market awareness and
acceptance of the Company and its products. The Company identifies market
opportunities in cooperation with customers and develops and enhances products
to seize those opportunities in a timely fashion. Based on market
considerations, the Company may port software products to additional operating
systems, develop new features and functionality, and engage in new strategic
alliances and partnerships.

           The Company's market strategy includes enhancing brand awareness for
its products through its web site, promotional literature, direct marketing to
current and prospective customers, advertising, continued participation in
industry relevant trade shows and conferences, and a public relations program
that includes public demonstrations of products and prototypes. Representatives


                                       5
<PAGE>
of the Company also are called upon to address industry symposia and
conferences, are quoted in industry publications, and may from time to time
author articles about developments in communications technology.

           Products are sold primarily to network equipment manufacturers and
application developers, who include the Company's products within their products
and sell them as an integrated solution to service providers. Service providers
will install the solution in their communication networks and offer the service
enabled by such solution to their subscribers. Since the Company and its
customers have a mutual interest in developing solutions that are widely
accepted by subscribers and profitable to service providers, the Company works
closely with customers to support their development efforts and produce
solutions that are unique, reliable, scalable and cost effective.

           The Company engages in joint promotion, sales efforts, training,
testing, design, integration and installation with Sun Microsystems and other
information systems providers who use Sun Microsystems' components. The Company
also engages in joint-marketing activities with IBM and Intel.

           The Company's products are currently used by approximately 50
customers and are deployed by more than 300 service providers in more than 100
countries. The Company markets its products and services primarily through a
direct sales organization and through distributors. The Company has entered into
distribution agreements with Beijing Futong Computerland Co., Ltd., Beijing
Teamsun Technology Co., and Macnica, Inc. that have resulted in deployments of
the Company's products in wireless and Internet services in China and Japan.
Customers include network equipment manufacturers, such as Alcatel, Ericsson and
Siemens; application developers, such as Comverse, Inc. ("Comverse"), LogicaCMG
and Sonus; and service providers, such as Orange Personal Communications,
Reliance Infocomm, and Telefonica.

           The Company currently derives a significant portion of its total
sales from customers outside of the United States. Financial information
regarding the Company's operations in these areas is presented in Note 12 to the
Consolidated Financial Statements included in Item 15 of this report on Form
10-K. International transactions involve particular risks, including political
decisions affecting tariffs and trade conditions, rapid and unforeseen changes
in economic conditions in individual countries, turbulence in foreign currency
and credit markets, and increased costs resulting from lack of proximity to the
customer.

           For fiscal year 2001, which ended January 31, 2002, Ericsson,
Comverse, Sonus and Siemens accounted for 18%, 16%, 11%, and 11%, respectively,
of the Company's sales. For fiscal year 2002, which ended January 31, 2003,
Siemens, Ericsson, and Comverse accounted for 23%, 19%, and 11%, respectively,
of the Company's sales. For fiscal year 2003, which ended January 31, 2004,
Siemens, Sonus, and Comverse accounted for 26%, 11%, and 11%, respectively, of
the Company's sales.

           The Company actively participates in industry activities to define
the technology to facilitate the convergence of telecommunication networks with
the Internet. For example, as a member of the IETF, Ulticom has worked to
develop SIGTRAN to enable communication service providers to cost effectively


                                       6
<PAGE>
and more easily implement services that span existing circuit switched networks
and packet networks using IP. In addition, the Company participates in the
standards activities of the Third Generation Partnership Project ("3GPP"), which
works with various standards bodies to produce globally acceptable technical
specifications for the evolution to a packet-based 3G broadband wireless
infrastructure.

RESEARCH AND DEVELOPMENT

           The Company continues to enhance the features and performance of
existing products and introduce new products. The Company believes that its
future success depends on a number of factors, which include the Company's
ability to:

           o          identify and respond to emerging technological trends in
                      its target markets;

           o          develop and maintain competitive solutions that meet
                      customers' changing needs; and

           o          enhance existing products by adding features and
                      functionality that differentiate the Company's products
                      from those of its competitors.

           As a result, the Company has made and intends to continue to make
investments in research and development. Research and development resources are
allocated in response to market research and customer demands for additional
features and products. The development strategy involves rolling out initial
releases of products and adding features over time. The Company continuously
incorporates feedback it receives from customers into the product development
process. While it is expected that new products will continue to be developed
internally, the Company may, based on timing and cost considerations, acquire or
license technologies, products or applications from third parties.

           The Company's research and development expenses were approximately
$14.2 million, $10.1 million, and $9.5 million for the years ended January 31,
2002, 2003, and 2004, respectively. Research and development activities are
located in the United States and France. As of January 31, 2004, there were 103
employees engaged in research and development activities. The Company believes
that recruiting and retaining highly skilled engineering personnel is essential
to its success.

INTELLECTUAL PROPERTY RIGHTS

           The Company has accumulated a significant amount of proprietary
know-how and expertise over the years in developing network signaling software
and SS7 protocol technology for communication services. The Company's continued
success is dependent, in part, upon its ability to protect proprietary rights to
the technologies used in its products. If the Company is not adequately
protected, competitors could use the intellectual property that it has developed
to enhance competing products and services, which could harm the Company's
business. To safeguard its proprietary technology, the Company relies on a


                                       7
<PAGE>
combination of technical innovation, trade secret, copyright, patent and
trademark laws, restricted licensing arrangements and non-disclosure agreements,
each of which affords only limited protection. The Company conducts periodic
reviews of new areas of technology with its patent attorneys as part of its
patent program.

           The Company licenses software from third parties that is incorporated
into certain versions of Signalware.

           Due to the value of intellectual property rights, the Company
generally does not make its proprietary software source code available to
customers. Exceptions to this principle are only made in limited circumstances
where adequate control mechanisms are in place to protect the Company's
intellectual property rights.

           The Company has granted Comverse, an affiliate, a perpetual,
royalty-free, non-exclusive license to use and operate software products for
incorporation into any of Comverse's products. This software is maintained by
Comverse at no cost to the Company.

           In January 2000, an affiliate, Comverse Patent Holding, Inc. ("CPH")
and Lucent Technologies GRL Corp. ("Lucent") entered into a non-exclusive
cross-licensing arrangement covering current and certain future patents issued
to CPH and its affiliates, including the Company, and a portfolio of current and
certain future patents in the area of telecommunications technology issued to
Lucent and its affiliates. The Company is entitled to utilize the licensed
patent rights, and is obligated to provide licenses under any patents it may
hold, pursuant to a royalty-free license agreement with CPH.


COMPETITION

           The market for network signaling software is intensely competitive,
both in the United States and internationally. The Company expects competition
to persist, intensify, and increase in the future, especially with the
convergence of voice and data networks.

           The Company's primary competition comes from internal development
organizations within equipment manufactures and application developers who seek,
in a build-versus-buy decision, to develop substitutes for the Company's
products. The Company also competes with a number of United States and
international suppliers that vary in size, scope, and breadth of the products
and services offered.

         Competitors include a number of companies ranging from SS7 software
solution providers, such as Hughes Software Systems and SS8 Networks, to vendors
of communication and network infrastructure equipment, such as Continuous
Computing Corporation and Hewlett-Packard Company. The Company believes it
competes principally on the basis of:

           o          product performance and functionality;

           o          product quality and reliability;


                                       8
<PAGE>
           o          customer service and support; and

           o          price.

           The Company believes its success will depend primarily on its ability
to provide technologically advanced and cost effective signaling solutions.
Furthermore, it is likely that as competition intensifies, and pricing pressure
continues within its customers markets, the Company may have to reduce prices or
offer product sales incentive programs.

MANUFACTURING

         The Company's Signalware products typically have two components:
software and interface boards. Software is duplicated in house and provided to
customers via several media, primarily CD-ROM. Each software shipment is
configured to provide the specific operating system version and features
requested by the customer. Each order is tracked by purchase order number and
documented according to internal quality standards.

         During 2002, the Company was certified in compliance with TL 9000, a
set of common quality system requirements and measurements designed specifically
for the telecommunications industry for the design, development, production,
delivery, installation and maintenance of products and services. TL 9000
encompasses International Standard Organization ("ISO") 9001:2000 and additional
requirements specific to the telecommunications industry. The Company is
periodically audited to ensure compliance with TL 9000 standards.

         Subcontractors, who are ISO certified, perform assembly of the
Company's printed circuit interface boards. Periodic audits of the Company's
subcontractors are performed to ensure adherence to quality standards.
Subcontractors are responsible for purchasing, inspecting, installing, and
assembling components of interface boards. Completed assemblies are burned-in,
inspected, tested, and packaged in the Company's facility according to TL 9000
and other industry standards. All inspection, test, repair, revision, and
shipping information is tracked by product type and serial number and maintained
in the Company's tracking database.

           The Company works closely with interface board component suppliers to
monitor component changes and availability. However, there are no long-term
supply agreements with these suppliers to ensure uninterrupted supply of
components. Under certain circumstances, the Company may place blanket orders to
ensure availability of discontinued components. In the event of a reduction or
an interruption in the supply of components, a significant amount of time could
be required to qualify alternate suppliers and to receive an adequate supply of
replacement components.

           The Company does not have any long-term agreements with any of its
manufacturers, some of whom are small, privately held companies. In the event
that these manufacturers experience financial, operational or quality assurance
difficulties, the Company's business could be adversely affected unless and
until an alternate manufacturer could be found. There is no assurance that an


                                       9
<PAGE>
alternate manufacturer will be able to meet the Company's requirements or that
existing or alternate sources for interface boards will continue to be available
at favorable prices.

EMPLOYEES

           As of January 31, 2004, the Company had approximately 240 employees.
The Company's employees are not covered by any collective bargaining agreement
and the Company considers its relationship with its employees to be good.
Employees of the Company's subsidiary are subject to French labor laws that
contain requirements regarding termination, severance payments, and other
obligations that are significantly greater than those in the United States.


ITEM 2.    PROPERTIES.

           The Company's headquarters and development facilities are located in
Mount Laurel, New Jersey where it leases approximately 54,000 square feet of
office space. The Company also leases approximately 5,000 square feet of office
space in Dallas, Texas, and sales offices in Chicago, Illinois, and Boston,
Massachusetts. The Company's subsidiary leases approximately 7,000 square feet
of office space in Sophia-Antipolis, France and a sales office in Singapore.

           The Company believes that its facilities currently under lease are
more than adequate for current operations, and may endeavor to selectively
reduce its existing facilities commitments.


ITEM 3.    LEGAL PROCEEDINGS.

           None.


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

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





                                       10
<PAGE>
                                     PART II

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

         The Company's common stock trades on the NASDAQ National Market System
under the symbol "ULCM". The following table sets forth the range of closing
prices of the Company's common stock as reported on NASDAQ for the period from
February 1, 2002 through January 31, 2004:

FISCAL YEAR            FISCAL QUARTER                    LOW           HIGH
-----------            --------------                    ---           ----

2003               02/1/03   -     04/30/03            $  5.50        $  7.28
                   05/1/03   -     07/31/03            $  7.08        $ 12.09
                   08/1/03   -     10/31/03            $  9.75        $ 12.93
                   11/1/03   -     01/31/04            $  8.68        $ 11.55

2002               02/1/02   -     04/30/02            $  5.65        $  8.55
                   05/1/02   -     07/31/02            $  5.69        $  6.98
                   08/1/02   -     10/31/02            $  4.90        $  6.85
                   11/1/02   -     01/31/03            $  5.70        $  7.79



           There were 29 holders of record of the Company's common stock on
April 2, 2004. Such record holders include a number who are nominees for an
undetermined number of beneficial owners. The Company believes that the number
of beneficial owners of the shares of common stock outstanding at such date was
approximately 2,900.

           The Company does not currently expect to pay any cash dividends on
its equity securities in the near future, but rather intends to retain its
earnings to finance the development and growth of its business. Any future
determination as to the declaration and payment of dividends will be made by the
Board of Directors in its discretion, and will depend upon the Company's
earnings, financial condition, capital requirements and other relevant factors.




                                       11
<PAGE>
ITEM 6.    SELECTED FINANCIAL DATA.

           The following tables present selected consolidated financial data for
the Company for each of the years in the five years ended January 31, 2004. Such
information has been derived from the Company's audited consolidated financial
statements and should be read in conjunction with the Company's consolidated
financial statements and the notes to the consolidated financial statements
included elsewhere in this report.

<TABLE>
<CAPTION>
                                                                                     YEARS ENDED JANUARY 31,
                                                          -----------------------------------------------------------------------
                                                               2000           2001             2002           2003          2004
                                                               ----           ----             ----           ----          ----
                                                                              (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                      <C>            <C>              <C>             <C>           <C>
 STATEMENT OF OPERATIONS DATA:
 Sales                                                     $ 25,831       $ 47,441         $ 58,156        $ 29,231      $ 38,378
 Cost of sales                                                8,883         15,489           19,536          11,233        11,158
                                                          ---------      ---------        ---------       ---------     ---------
 Gross profit                                                16,948         31,952           38,620          17,998        27,220
 Research and development                                     6,015         10,325           14,236          10,098         9,461
 Selling, general and administrative                          8,124         13,271           15,861          13,972        15,168
 Workforce reduction and restructuring charges (credits)          -              -                -           2,290          (233)
                                                          ---------      ---------        ---------       ---------     ---------
 Income (loss) from operations                                2,809          8,356            8,523          (8,362)        2,824
 Interest and other income (expense), net                      (271)         6,282            8,761           5,536         3,493
                                                          ---------      ---------        ---------       ---------     ---------
 Income (loss) before income tax provision (benefit)          2,538         14,638           17,284          (2,826)        6,317
 Income tax provision (benefit)                                 964          5,561            6,447          (1,091)        1,737
                                                          ---------      ---------        ---------       ---------     ---------
 Net income (loss)                                          $ 1,574        $ 9,077         $ 10,837        $ (1,735)      $ 4,580
                                                          =========      =========        =========       ==========    =========


 Earnings (loss) per share--diluted                         $  0.05        $  0.22         $   0.25        $  (0.04)      $  0.11


 Weighted average number of common and common equivalent
 shares outstanding - diluted                                33,759         40,715           43,246          41,399        43,261

</TABLE>


<TABLE>
<CAPTION>
                                                               JANUARY 31,
                                   -------------------------------------------------------------------------
                                    2000          2001            2002             2003              2004
                                    ----          ----            ----             ----              ----
                                                              (IN THOUSANDS)
<S>                               <C>         <C>             <C>              <C>               <C>
 BALANCE SHEET DATA:
 Working capital                  $   742      $ 195,369       $ 212,946        $ 215,945         $ 225,388
 Total assets                      17,364        232,187         240,675          237,102           242,817
 Long-term debt                     3,800              -               -                -                 -
 Shareholders' equity               1,120        207,049         224,024          223,152           231,847

</TABLE>

                                       12
<PAGE>
ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS.

INTRODUCTION

           Ulticom designs, develops, markets, licenses, and supports service
enabling signaling software for wireline, wireless, and Internet communications.
These products are sold through a direct sales force to network equipment
manufacturers, application developers, and service providers who include the
Company's products within their products. Signalware sales consist of software
licenses, interface boards, training, and support revenues. In certain limited
circumstances, the Company sells Signalware development services under fixed-fee
arrangements with its customers. New customers begin development of applications
and services by purchasing the appropriate Signalware development kit, which
includes a development software license, an interface board, cables, training, a
one-year development maintenance plan, and documentation. At deployment, the
customer generally purchases one or more deployment licenses, additional
interface boards and an annual deployment maintenance and support plan, which is
typically renewed annually for the life of the installation.


CRITICAL ACCOUNTING POLICIES

         Critical accounting policies are those that are both most important to
the portrayal of a company's financial position and results of operations, and
require management's most difficult, subjective or complex judgments. Although
not all of the Company's accounting policies require management to make
difficult, subjective or complex judgments or estimates, the following policies
and estimates are those that the Company deems most critical.

           In accordance with Statement of Position 97-2, "Software Revenue
Recognition," and related Interpretations; product revenues, which include
software license and hardware revenue, are generally recognized in the period in
which the products are delivered and accepted by the customer, the fee is fixed
and determinable, and collection is considered probable. When the Company has
significant obligations subsequent to shipment, revenues are not recognized
until the obligations are fulfilled. Revenues from arrangements that include
significant acceptance terms are not recognized until acceptance has occurred.
The Company provides its customers with post-contract support services, which
generally consist of bug-fixing and telephone access to the Company's technical
personnel, but may also include the right to receive product updates, upgrades,
and enhancements. Revenue from these services is recognized ratably over the
contract period. Post-contract support services included in the initial
licensing fee are allocated from the total contract amount based on the relative
fair value of vendor specific objective evidence ("VSOE"). For multi-element
arrangements, VSOE of fair value is determined based on the price charged when
the same element is sold separately or, for elements not yet being sold
separately, the price established by management having the relevant authority.
If VSOE of fair value does not exist for one or more delivered elements of a
multi-element arrangement and VSOE of fair value exists for all undelivered
elements, then revenue is recognized using the "residual method."


                                       13
<PAGE>
           Deferred revenue consists primarily of amounts billed to customers
pursuant to terms specified in contracts but for which revenue has not been
recognized.

           Revenues from providing customer training are recognized when
training is provided and historically has not been material.

           Revenues from fee-based consulting and development services are
recognized when services are provided in accordance with customer's
specification and historically have not been material.

           Cost of sales includes salary and related benefits, material costs,
depreciation and amortization, as well as other costs associated with cost of
sales activities. Research and development costs include salary and related
benefits as well as travel, depreciation and amortization of research and
development equipment, an overhead allocation, as well as other costs associated
with research and development activities. Selling, general and administrative
costs include salary and related benefits, travel, depreciation and
amortization, marketing and promotional materials, recruiting expenses,
professional fees, corporate services provided by CTI, facility costs, as well
as other costs associated with sales, marketing, finance, and administrative
departments.

         Expenses incurred in connection with research and development
activities and selling, general and administrative expenses are charged to
operations as incurred. Software development costs incurred after technological
feasibility has been established and prior to general release to the public are
capitalized and historically have not been material.

         The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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.


RELATED PARTY TRANSACTIONS

           The Company sells products and provides services to other
subsidiaries of CTI. Sales to related parties were approximately $9,026,000,
$3,352,000, and $4,234,000 for the years ended January 31, 2002, 2003, and 2004,
respectively.

           As of January 31, 2003 and 2004, amounts due from subsidiaries of CTI
were approximately $519,000 and $240,000, respectively.

           The Company has a corporate services agreement with CTI. Under this
agreement, CTI provides the Company with the following services:


                                       14
<PAGE>
           o          maintaining in effect general liability and other
                      insurance policies providing coverage for the Company;

           o          maintaining in effect a policy of directors' and officers'
                      insurance covering the Company's directors and officers;

           o          administration of employee benefit plans;

           o          routine legal services; and

           o          consulting services with respect to the Company's
                      corporate communications.


           The Company has agreed to pay to CTI a quarterly fee of $150,000,
payable in arrears at the end of each fiscal quarter, in consideration for all
services provided by CTI during such fiscal quarter. The Company was charged
$600,000 in each of the years ended January 31, 2002, 2003, and 2004 for
services provided by CTI. In addition, the Company has agreed to reimburse CTI
for any out-of-pocket expenses incurred, if any, by CTI in providing the
services. The agreement is currently in effect until January 31, 2005 and
extends for additional twelve-month periods unless terminated by either party.






                                       15
<PAGE>
RESULTS OF OPERATIONS

YEAR ENDED JANUARY 31, 2004 ("FISCAL YEAR 2003") COMPARED TO YEAR ENDED JANUARY
31, 2003 ("FISCAL YEAR 2002")

           Sales. Sales for fiscal year 2003 increased by approximately $9.1
million, or approximately 31%, to approximately $38.4 million when compared with
fiscal year 2002. The increase was attributable to an increase in product
revenues of approximately $8.5 million and an increase in service revenues of
approximately $0.7 million, due primarily to a higher volume of sales and
deployments of our Signalware products and services when compared with fiscal
year 2002. Sales to international customers represented approximately 72% of
sales in fiscal year 2003 and approximately 71% of sales in fiscal year 2002.

           Cost of Sales. Cost of sales decreased by approximately $0.1 million,
or approximately 1%, to approximately $11.2 million in fiscal year 2003 when
compared with fiscal year 2002. The dollar decrease is primarily attributable to
lower expenses of approximately $0.3 million in depreciation and amortization
costs and approximately $0.1 million in material and production costs, offset by
approximately $0.3 million increase in personnel-related and overhead costs for
fiscal year 2003 when compared with fiscal year 2002. Gross margins (expressed
as a percentage of sales) increased from approximately 62% in fiscal year 2003
to approximately 71% in fiscal year 2002.

           Research and Development Expenses. Research and development expenses
decreased in fiscal year 2003 by approximately $0.6 million, or approximately
6%, to approximately $9.5 million in fiscal year 2003 when compared with fiscal
year 2002, and as a percentage of sales, decreased to approximately 25% in
fiscal year 2003 from approximately 35% in fiscal year 2002. The dollar decrease
is primarily attributable to management's efforts to better align the Company's
cost structure with the business environment, which contributed to decreases of
approximately $0.3 million in personnel-related costs and $0.3 million in
depreciation and amortization expense.

           Selling, General & Administrative Expenses. Selling, general and
administrative expenses increased by approximately $1.2 million, or
approximately 9%, to approximately $15.2 million in fiscal year 2003 when
compared with fiscal year 2002, and as a percentage of sales decreased to
approximately 40% in fiscal year 2003 from approximately 48% in fiscal year
2002. The dollar increase is primarily attributable to management's continued
investment in sales and marketing activities, resulting in approximately $0.6
million increase in personnel-related costs, $0.5 million in professional
services and $0.1 million in travel and entertainment costs.

           Workforce Reduction and Restructuring Charges (Credits). During
fiscal year 2002, the Company took steps to better align its cost structure with
the business environment. These steps included a workforce reduction and
restructuring plan announced in April 2002. The plan included terminations of 47
employees in the United States and 18 employees in France, in the engineering
and administrative departments of the Company. As a result, the Company recorded
a charge of approximately $2.3 million to operations in fiscal year 2002, which


                                       16
<PAGE>
included severance and other related costs of approximately $1.6 million, the
elimination of excess facilities of approximately $0.6 million, and the
write-off of certain property and equipment of approximately $0.1 million.

           Severance and related costs consisted primarily of severance payments
to terminated employees, fringe related costs associated with severance
payments, other termination costs, and legal and consulting costs.

            Facilities and related costs consisted primarily of contractually
obligated lease liabilities and operating expenses related to facilities vacated
as a result of the restructuring.

           The write-off of property and equipment consisted primarily of
leasehold improvements and furnishings determined to be impaired at a facility
vacated in the United States.

         In June 2003, the Company entered into an agreement with the landlord
of the facility covered under the restructuring plan that terminates the current
lease obligations in exchange for a lump sum payment by the Company and the
execution of a lease for another smaller facility owned by the landlord,
resulting in the reversal of approximately $0.2 million of this previously taken
charge.

         Interest and Other Income, net. Interest income decreased by
approximately $2.0 million, or approximately 37%, to approximately $3.5 million
in fiscal year 2003 as when compared with fiscal year 2002. The decrease is a
result of lower interest income earned on the Company's cash investments of
approximately $1.3 million, primarily as a result of the decline in interest
rates when compared with the corresponding 2002 periods and an increase in
losses from investments of approximately $0.7 million.

           Income Tax Provision (Benefit). Provision for income taxes was
approximately $1.7 million for fiscal year 2003. For fiscal year 2002, the
Company had a benefit for income taxes of approximately $1.0 million due to
losses sustained on a pre-tax basis. The Company's overall effective tax rate
was approximately 28% for fiscal year 2003 and approximately (39)% for fiscal
year 2002.

           Net Income (Loss). Net income for fiscal year 2003 was approximately
$4.6 million when compared with net loss of approximately $1.7 million in fiscal
year 2002. Net income (loss) as a percentage of sales was approximately 12% in
fiscal year 2003 and approximately (6)% in fiscal year 2002. The changes are
primarily attributable to the factors described above.

YEAR ENDED JANUARY 31, 2003 COMPARED TO YEAR ENDED JANUARY 31, 2002 ("FISCAL
YEAR 2001")

           Sales. Sales for fiscal year 2002 decreased by approximately $28.9
million, or approximately 50%, to approximately $29.2 million when compared with
fiscal year 2001. The decrease was attributable to a decrease in product
revenues of approximately $25.9 million and a decrease in service revenues of
approximately $3.0 million, due primarily to a lower volume of sales and
deployments of our Signalware products and services when compared with fiscal


                                       17
<PAGE>
year 2001. Sales to international customers represented approximately 71% of
sales in fiscal year 2002 and approximately 62% of sales in fiscal year 2001.

           Cost of Sales. Cost of sales decreased by approximately $8.3 million,
or approximately 43%, to approximately $11.2 million in fiscal year 2002 when
compared with fiscal year 2001. The dollar decrease is primarily attributable to
lower costs related to a decrease in sales of our Signalware products and
services and a decrease in other costs due to management's efforts to better
align the Company's cost structure with the business environment, which
contributed to a decrease of approximately $4.8 million in personnel-related
costs, $2.6 million in material and production costs, and $1.2 million in
depreciation and amortization expense for fiscal year 2002 when compared with
fiscal year 2001. Gross margins (expressed as a percentage of sales) decreased
to approximately 62% in fiscal year 2002 from approximately 66% in fiscal year
2001.

           Research and Development Expenses. Research and development expenses
decreased in fiscal year 2002 by approximately $4.1 million, or approximately
29%, to approximately $10.1 million in fiscal year 2002 when compared with
fiscal year 2001, and as a percentage of sales increased to approximately 35% in
fiscal year 2002 from approximately 24% in fiscal year 2001. The dollar decrease
is primarily attributable to the impact of management's efforts to better align
the Company's cost structure with the business environment, which contributed to
a decrease in personnel-related costs of approximately $3.9 million.

           Selling, General & Administrative Expenses. Selling, general and
administrative expenses decreased by approximately $1.9 million, or
approximately 12%, to approximately $14.0 million in fiscal year 2002 when
compared with fiscal year 2001, and as a percentage of sales increased to
approximately 48% in fiscal year 2002 from approximately 27% in fiscal year
2001. The dollar decrease is primarily attributable to decreases of
approximately $0.9 million in depreciation and amortization expense, $0.9
million in bad debt expense, $0.9 million in professional services, $0.7 million
in general office expenses, and $0.3 million in travel and entertainment costs.
The decrease was offset by an increase in expenses of approximately $1.7 million
due to increased personnel-related and overhead costs, primarily in sales and
marketing

           Workforce Reduction and Restructuring Charges (Credits). During
fiscal year 2002, the Company took steps to better align its cost structure with
the business environment. These steps included a workforce reduction and
restructuring plan announced in April 2002. The plan included terminations of 47
employees in the United States and 18 employees in France, in the engineering
and administrative departments of the Company. As a result, the Company recorded
a charge of approximately $2.3 million to operations in fiscal year 2002, which
included severance and other related costs of approximately $1.6 million, the
elimination of excess facilities of approximately $0.6 million, and the
write-off of certain property and equipment of approximately $0.1 million.

           Severance and related costs consisted primarily of severance payments
to terminated employees, fringe related costs associated with severance
payments, other termination costs, and legal and consulting costs.


                                       18
<PAGE>
            Facilities and related costs consisted primarily of contractually
obligated lease liabilities and operating expenses related to facilities vacated
as a result of the restructuring.

           The write-off of property and equipment consisted primarily of
leasehold improvements and furnishings determined to be impaired at a facility
vacated in the United States.

           Interest and Other Income, net. Interest income decreased by
approximately $3.2 million, or approximately 37%, to approximately $5.5 million
in fiscal year 2002 when compared with fiscal year 2001. The decrease is
primarily attributable to lower interest income earned on the Company's cash
investments, primarily as a result of the decline in interest rates during
fiscal year 2002.

           Income Tax Provision (Benefit). Benefit for income taxes was
approximately $1.1 million, due to losses sustained on a pre-tax basis. The
Company's overall effective tax rate was approximately (39)% for fiscal year
2002 and 37% for fiscal year 2001.

           Net Income (Loss). Net loss for fiscal year 2002 was approximately
$1.7 million when compared with net income of approximately $10.8 million in
fiscal year 2001, while net income (loss) as a percentage of sales was
approximately (6)% in fiscal year 2002 and approximately 19% in fiscal year
2001. The changes are primarily attributable to the factors described above.

LIQUIDITY AND CAPITAL RESOURCES

           The Company had working capital at January 31, 2004 and 2003 of
approximately $225.4 million and $215.9 million, respectively. At January 31,
2004 and 2003, the Company had cash and cash equivalents and short-term
investments of approximately $224.5 million and $218.7 million, respectively.

           Operations for fiscal years 2003, 2002, and 2001, after adjusting for
non-cash items, provided cash of approximately $6.8 million, $2.3 million, and
$14.6 million, respectively. During such years, other changes in operating
assets and liabilities used cash of approximately $2.4 million, $1.5 million,
and $5.2 million, respectively. This resulted in net cash provided by operating
activities of approximately $4.4 million, $0.8 million, and $9.4 million during
the fiscal years 2003, 2002, and 2001, respectively.

           Investing activities for fiscal years 2003, 2002, and 2001 provided
(used) cash of approximately $19.6 million, $(39.8) million, and $(55.1)
million, respectively. These amounts include (i) purchases of property and
equipment of approximately $0.8 million, $0.6 million, and $3.8 million,
respectively; and (ii) net maturities and sales (purchases) of investments, of
approximately $20.3 million, $(39.2) million, and $(51.3) million, respectively.

           Financing activities for fiscal years 2003, 2002, and 2001 provided
cash of approximately $2.1 million, $1.4 million, and $2.7 million, respectively
relating to the proceeds from the issuance of common stock in connection with
the exercise of stock options and employee stock purchase plan.


                                       19
<PAGE>
            Although there are no present understandings, commitments or
agreements with respect to acquisitions of other businesses, products or
technologies, the Company may in the future consider such transactions, which
may require additional debt or equity financing. The issuance of debt or equity
securities could be expected to have a dilutive impact on the Company's
shareholders, and there can be no assurance as to whether or when any acquired
business would contribute positive operating results commensurate with the
associated investment.

           The Company may pursue acquisitions of businesses, products or
technologies in the future to expand its business and the products it offers.
Any material acquisition could result in a decrease in working capital depending
upon the amount, timing, and nature of the consideration paid.

           The Company believes that its existing cash balances will be
sufficient to meet anticipated cash needs for working capital, capital
expenditures, and other activities for the foreseeable future. Thereafter, if
current sources are not sufficient to meet the Company's needs, it may seek
additional debt or equity financing.

OFF-BALANCE SHEET ARRANGEMENTS AND AGGREGATE CONTRACTUAL OBLIGATIONS

           The Company does not participate in transactions that generate
relationships with unconsolidated entities or financial partnerships, such as
entities often referred to as structured finance or special purpose entities
("SPEs"), which would have been established for the purpose of faciliting
off-balance sheet arrangements or other contractually narrow or limited
purposes. As of January 31, 2004, the Company was not involved in any
unconsolidated SPE transactions.

           The following table summarizes the impact that the Company's January
31, 2004 aggregate contractual obligations are expected to have on liquidity and
cash flows in future periods:

<TABLE>
<CAPTION>
                                                                            Payments Due by Period
                                    ---------------------------------------------------------------------------------------------
                                                             (Less Than)                                              (More Than)
                                            Total              1 Year              1-3 Years          3-5 Years         5 Years
                                            -----              ------              ---------          ---------         -------
                                                                            (In thousands)
<S>                                     <C>                 <C>                   <C>                <C>              <C>
Operating lease obligations                 $2,046             $  946                $1,098             $    2           $   -
Purchase obligations (1)                     1,875              1,875                     -                  -               -
                                    -------------------------------------------------------------------------------------------

Total                                       $3,921             $2,821                $1,098             $    2           $   -
                                            ======             ======                ======             ======           =====
</TABLE>


(1) Purchase obligations include agreements to purchase goods or services that
are enforceable and legally binding on the Company and that specify all
significant terms, including: fixed or minimum quantities to be purchased;
fixed, minimum or variable price provisions; and the approximate timing of the
transaction. Purchase obligations exclude agreements that are cancelable without
penalty. The Company does not have material commitments for capital expenditures
as of January 31, 2004.

                                       20
<PAGE>
CERTAIN TRENDS AND UNCERTAINTIES

           The Company derives substantially all of its revenue from the
telecommunications industry, which is experiencing a challenging capital
spending environment. While there is some evidence that the capital spending
environment has improved, the spending by the Company's customers remains
uncertain. The Company's operating results and financial condition have been
adversely affected by declines in technology purchases and expenditures by its
customers, and the Company's operating results and financial condition will be
adversely affected in the event deterioration in expenditures resumes. For these
reasons and the risk factors outlined below, it has been and continues to be
very difficult for the Company to accurately forecast future revenues and
operating results.

           The Company's business is dependent on the strength of the
telecommunications industry. The telecommunications industry, including the
Company, has been negatively affected by, among other factors, the high costs
and large debt positions incurred by communication service providers to expand
capacity and enable the provisioning of future services (and the corresponding
risks associated with the development, marketing, and adoption of these services
as discussed below), including the cost of acquisitions of licenses to provide
future broadband services and reductions in actual and projected revenues and
deterioration in actual and projected operating results. Accordingly, these
entities have significantly reduced their actual and planned expenditures to
expand their networks and delayed and reduced the deployment of services. A
number of communication service providers have indicated the existence of
conditions of excess capacity in certain markets and have delayed the planned
introduction of new services. The Company's sales to equipment manufacturers and
application developers who supply the telecommunications industry are adversely
affected by the slowdown of infrastructure purchases by communication service
providers and by declines in technology expenditures. The continuation and/or
exacerbation of these trends may have an adverse effect on the Company's future
results. In addition to loss of revenue, weakness in the telecommunications
industry has affected and will continue to affect the Company's business by
increasing the risks of credit or business failures of suppliers, customers or
distributors, by delays and defaults in customer or distributor payments, and by
price reductions instituted by competitors to retain or acquire market share.

           The Company's current plan of operations is predicated, in part, on a
recovery in expenditures by equipment manufacturers, application developers and
communication service providers. In the absence of such recovery, the Company
would experience deterioration in its operating results, and may determine to
modify its plan for future operations accordingly, which may include, among
other things, additional reductions in its workforce.

           The Company intends to continue to make significant investment in its
business, and to examine opportunities for growth through acquisitions of
businesses, products or technologies and other strategic investments. These
activities may involve significant expenditures and obligations that cannot
readily be curtailed or reduced if anticipated growth in demand for the
associated products does not materialize or is delayed. The impact of these
decisions on future profitability cannot be predicted with assurance, and the
Company's commitment to growth may increase its vulnerability to downturns in


                                       21
<PAGE>
its markets, technology changes and shifts in competitive conditions. The
Company also may not be able to identify suitable merger or acquisition
candidates, and even if the Company does identify suitable candidates, it may
not be able to make these transactions on commercially acceptable terms, or at
all. If the Company does make acquisitions, it may not be able to successfully
incorporate the personnel, operations, and customers of these companies into the
Company's business. In addition, the Company may fail to achieve the anticipated
synergies from the combined businesses, including marketing, product
integration, distribution, product development and other synergies. The
integration process may further strain the Company's existing financial and
managerial controls and reporting systems and procedures. This may result in the
diversion of management and financial resources from the Company's core business
objectives. In addition, an acquisition or merger may require the Company to
utilize cash reserves, incur debt or issue equity securities, which may result
in a dilution of existing shareholders, and the Company may be negatively
impacted by the assumption of liabilities of the merged or acquired company. Due
to rapidly changing market conditions, the Company may find the value of its
acquired technologies and related intangible assets, such as goodwill as
recorded in the Company's financial statements, to be impaired, resulting in
charges to operations. The Company may also fail to retain the acquired or
merged company's key employees and customers.

           The telecommunications industry is subject to rapid technological
change. The introduction of new technologies in the telecommunications market,
including the delay in the adoption of such new technologies, and new
alternatives for the delivery of services are having, and can be expected to
continue to have, a profound effect on competitive conditions in the market and
the success of market participants, including the Company. The Company's success
will depend on the ability to correctly anticipate technological trends, to
react quickly and effectively to such trends and to enhance its existing product
line and to introduce new products on a timely and cost-effective basis. As a
result, the life cycle of the Company's product line is difficult to estimate.
In addition, changing industry and market conditions may dictate strategic
decisions to restructure some business units and discontinue others.
Discontinuing a business unit or product line may result in the Company
recording accrued liabilities for special charges, such as costs associated with
a reduction in workforce. These strategic decisions could result in changes to
determinations regarding a product's useful life and the recoverability of the
carrying basis of certain assets.

           The Company's products involve sophisticated technology that perform
critical functions to highly demanding standards. There can be no assurance that
the Company's current or future products will not develop operational problems,
which could have a material adverse effect on the Company. The Company offers
complex products that may contain undetected defects or errors, particularly
when first introduced or as new versions are released. The Company may not
discover such defects or errors until after a product has been released and used
by the customer. Significant costs may be incurred to correct undetected defects
or errors in the Company's products and these defects or errors could result in
future lost sales. In addition, defects or errors in the Company's products may
result in product liability claims, which could cause adverse publicity and
impair their market acceptance.

           The telecommunications industry continues to undergo significant
change as a result of deregulation and privatization worldwide, reducing
restrictions on competition in the industry. Unforeseen changes in the


                                       22
<PAGE>
regulatory environment also may have an impact on the Company's revenues and/or
costs in any given part of the world. The Company believes that existing
competitors will continue to present substantial competition, and that other
companies, many with considerably greater financial, marketing and sales
resources than the Company, may enter the markets for the Company's products. In
addition, the Company may lose sales to companies operating in regions such as
India and China as a result of pricing competition because of their lower
operating costs. Moreover, as the Company enters into new markets as a result of
its own research and development efforts or acquisitions, it is likely to
encounter new competitors.

           The Company's products are dependent upon their ability to operate on
new and existing hardware and operating systems of other companies. Any
modifications to the Company's software needed to adapt to these hardware and
operating systems may prove to be costly, time-consuming and may not be
successful. Undetected defects could result in lost sales, adverse publicity and
other claims against the Company. The Company's new product offerings may not
properly integrate into existing platforms and the failure of new product
offerings to be accepted by the market could have a material adverse effect on
the Company's business, results of operations, and financial condition.

           The Company's current products are designed to support signaling
system #7 ("SS7"). If future networks do not utilize this signaling system and
the Company is unable to adapt its products to work with other appropriate
signaling protocols, its products will become less competitive or obsolete. A
reduction in the demand for these products could adversely affect the Company's
business and operating results.

           The Company has made and continues to make significant investments in
the areas of sales and marketing, and research and development. The Company's
research and development activities include ongoing significant investment in
the development of additional features and functionality for its products,
including products based on emerging open standards for Internet protocols that
facilitate the convergence of voice and data networks. The success of these
initiatives will be dependent upon, among other things, the emergence of a
market for these types of products and their acceptance by existing and new
customers. The Company believes that expenditures on these initiatives are
necessary to enhance its products in order to remain competitive, provide future
growth opportunities and to maintain the Company's presence in the market. The
Company's product initiatives reflect the Company's continuing analysis of the
future demand for new products and services, and the Company from time to time
is required to reprioritize or otherwise modify its product plans based on such
analysis. The Company's business may be adversely affected by its failure to
correctly anticipate the emergence of a market demand for certain products or
services, or delays or changes in the evolution of market opportunities. If a
sufficient market does not emerge for new or enhanced products developed by the
Company, or the Company is not successful in marketing such products, the
Company's continued growth could be adversely affected and its investment in
those products may be lost.

           Historically, a limited number of customers have contributed a
significant percentage of the Company's revenues. The Company anticipates that
its operating results in any given period will continue to depend significantly
upon revenues from a small number of customers. The loss of any of these
customers could have a material adverse effect on the Company's business and
operating results.

                                       23
<PAGE>
           Geopolitical, economic and military conditions could directly affect
the Company's operations. The outbreak of severe acute respiratory syndrome
("SARS") curtailed travel to and from certain countries (primarily in the
Asia-Pacific region). Restrictions on travel to and from these and other regions
on account of additional incidents of SARS could have a material adverse effect
on the Company's business, results of operations, and financial condition. The
continued threat of terrorism and heightened security and military action in
response to this threat, or any future acts of terrorism, may cause further
disruptions to the Company's business. To the extent that such disruptions
result in delays or cancellations of customer orders, or the manufacture or
shipment of the Company's products, the Company's business, operating results
and financial condition could be materially and adversely affected. More
recently, the United States military involvement in overseas operations
including, for example, the war with Iraq, could have a material adverse effect
on the Company's business, results of operations, and financial condition.

           The Company currently derives a majority of its total sales from
customers outside of the United States. International transactions involve
particular risks, including political decisions affecting tariffs and trade
conditions, rapid and unforeseen changes in economic conditions in individual
countries, difficulty in enforcing intellectual property rights, turbulence in
foreign currency and credit markets, and increased costs resulting from lack of
proximity to the customer. Recent world events may have an adverse effect on the
Company's international transactions, including political and economic
instability in certain countries in which the Company currently transacts
business and may transact business in the future.

           International sales are predominately denominated in United States
dollars and the Company has not been exposed to material fluctuations in foreign
currency exchange rates related to sales. However, the Company expects that in
future periods, a greater portion of international sales may be denominated in
currencies other than the United States dollar, which could expose it to losses
and gains on foreign currency transactions. The Company does have certain
expenses denominated in foreign currency. From time to time, the Company may
choose to limit its exposure by utilizing hedging strategies. There can be no
assurance that any such hedging strategies that the Company undertakes would be
successful in avoiding exchange rate losses.

           In order to increase the Company's revenues, the Company will need to
attract additional customers on an ongoing basis. In addition, since the
Company's products have long sales cycles that typically range from six to
twelve months, the Company's ability to forecast the timing and amount for
specific sales is limited. The loss or deferral of one or more significant sales
could have a material adverse effect on the Company's operating results in any
fiscal quarter, especially if there are significant sales and marketing expenses
associated with the deferred or lost sales. The Company's software products are
primarily sold to equipment manufacturers and application developers, who
integrate its products with their products and sell them to communications
service providers. The success of the Company's business and operating results
is dependent upon its channel and marketing relationships with these
manufacturers and developers and the successful development and deployment of
their products. If the Company cannot successfully establish channel and
marketing relationships with leading equipment manufacturers and application
developers or maintain these relationships on favorable terms, or the Company's


                                       24
<PAGE>
sales channels are affected by economic weakness, the Company's business and
operating results may be adversely affected.

           Because the Company relies on a limited number of independent
manufacturers to produce boards for its products, if these manufacturers
experience financial, operational or other difficulties, the Company may
experience disruptions to its product supply. The Company may not be able to
find alternate manufacturers that meet its requirements and existing or
alternative sources for boards may not continue to be available at favorable
prices. The Company also relies on a limited number of suppliers for its board
components and it does not have any long term supply agreements. Thus, if there
is a shortage of supply for these components, the Company may experience an
interruption in its product supply.

           The Company's success is dependent on recruiting and retaining key
management and highly skilled technical, managerial, sales, and marketing
personnel. The Company's ability to attract and retain employees also may be
affected by cost control actions, including reductions in the Company's
workforce and the associated reorganization of operations.

           The occurrence or perception of security breaches within the Company
could harm the Company's business, financial condition and operating results.
While the Company implements sophisticated security measures, third parties may
attempt to breach the Company's security through computer viruses, electronic
break-ins and other disruptions. If successful, confidential information,
including passwords, financial information, or other personal information may be
improperly obtained and the Company may be subject to lawsuits and other
liability. Even if the Company is not held liable, a security breach could harm
the Company's reputation, and even the perception of security risks, whether or
not valid, could inhibit market acceptance of the Company's products.

           While the Company generally requires employees, independent
contractors and consultants to execute non-competition and confidentiality
agreements, the Company's intellectual property or proprietary rights could be
infringed or misappropriated, which could result in expensive and protracted
litigation. The Company relies on a combination of patent, copyright, trade
secret and trademark law to protect its technology. Despite the Company's
efforts to protect its intellectual property and proprietary rights,
unauthorized parties may attempt to copy or otherwise obtain and use its
products or technology. Effectively policing the unauthorized use of the
Company's products is time-consuming and costly, and there can be no assurance
that the steps taken by the Company will prevent misappropriation of its
technology, particularly in foreign countries where in many instances the local
laws or legal systems do not offer the same level of protection as in the United
States.

           If others claim that the Company's products infringe their
intellectual property rights, the Company may be forced to seek expensive
licenses, reengineer its products, engage in expensive and time-consuming
litigation or stop marketing its products. The Company attempts to avoid
infringing known proprietary rights of third parties in its product development
efforts. The Company does not regularly conduct comprehensive patent searches to
determine whether the technology used in its products infringes patents held by
third parties. There are many issued patents as well as patent applications in
the fields in which the Company is engaged. Because patent applications in the
United States are not publicly disclosed until the patent is issued,


                                       25
<PAGE>
applications may have been filed which relate to the Company's software and
products. If the Company were to discover that its products violated or
potentially violated third-party proprietary rights, it might not be able to
obtain licenses to continue offering those products without substantial
reengineering. Any reengineering effort may not be successful, nor can the
Company be certain that any licenses would be available on commercially
reasonable terms.

           Substantial litigation regarding intellectual property rights exists
in the telecommunications industry, and the Company expects that its products
may be increasingly subject to third-party infringement claims as the number of
competitors in its industry segments grows and the functionality of software
products in different industry segments overlaps. In addition, the Company has
agreed to indemnify customers in certain situations should it be determined that
its products infringe on the proprietary rights of third parties. Any
third-party infringement claims could be time consuming to defend, result in
costly litigation, divert management's attention and resources, cause product
and service delays or require the Company to enter into royalty or licensing
agreements. Any royalty or licensing arrangements, if required, may not be
available on terms acceptable to the Company, if at all. A successful claim of
infringement against the Company and its failure or inability to license the
infringed or similar technology could have a material adverse effect on its
business, financial condition and results of operations.

           The Company holds a large proportion of its net assets in cash
equivalents and short-term investments. Such investments subject the Company to
the risks inherent in the capital markets generally, and to the performance of
other businesses over which it has no direct control. Given the relatively high
proportion of the Company's liquid assets relative to its overall size, the
results of its operations are materially affected by the results of the
Company's capital management and investment activities and the risks associated
with those activities. In addition, reduction in prevailing interest rates due
to economic conditions or government policies has had and may continue to have
an adverse impact on the Company's results of operations.

           CTI beneficially owns a majority of the Company's outstanding shares
of common stock. Consequently, CTI effectively controls the outcome of all
matters submitted for stockholder action, including the composition of the
Company's board of directors and the approval of significant corporate
transactions. Through its representation on the Company's board of directors,
CTI has a controlling influence on the Company's management, direction and
policies, including the ability to appoint and remove officers. As a result, CTI
may cause the Company to take actions that may not be aligned with the Company's
interests or those of its other stockholders. For example, CTI may prevent or
delay any transaction involving a change in control of the Company or in which
the Company's stockholders might receive a premium over the prevailing market
price for their shares.

           The Company benefited from the rise in the public trading price of
its shares in various ways, including its ability to use equity incentive
arrangements as a means of attracting and retaining the highly qualified
employees necessary for its business and its ability to raise capital on
relatively attractive conditions. The decline in the price of the Company's
shares, and the overall decline in equity prices generally, and in the shares of
technology companies in particular, can be expected to make it more difficult
for the Company to rely on equity incentive arrangements as a means to recruit
and retain talented employees.

                                       26
<PAGE>
           The Company's operating results have fluctuated in the past and may
do so in the future. The trading price of the Company's shares has been affected
by the factors disclosed herein as well as prevailing economic and financial
trends and conditions in the public securities markets. Share prices of
companies in technology-related industries, such as the Company, tend to exhibit
a high degree of volatility, which at times is unrelated to the operating
performance of a company. The announcement of financial results that fall short
of the results anticipated by the public markets could have an immediate and
significant negative effect on the trading price of the Company's shares in any
given period. Such shortfalls may result from events that are beyond the
Company's immediate control, can be unpredictable and, since a significant
proportion of the Company's sales during each fiscal quarter tend to occur in
the latter stages of the quarter, may not be discernible until the end of a
financial reporting period. These factors may contribute to the volatility of
the trading value of its shares regardless of the Company's long-term prospects.
The trading price of the Company's shares may also be affected by developments,
including reported financial results and fluctuations in trading prices of the
shares of other publicly-held companies in the telecommunications industry in
general, and the Company's business segment in particular, which may not have
any direct relationship with the Company's business or prospects.

           The Company's board of directors' ability to designate and issue up
to 10,000,000 shares of undesignated stock and to change the designations,
numbers, relative rights, preferences, and limitations of any authorized but
unissued shares of preferred stock adversely could affect the voting power of
the holders of common stock, and could have the effect of making it more
difficult for a person to acquire, or could discourage a person from seeking to
acquire, control of the Company. If this occurs, investors could lose the
opportunity to receive a premium on the sale of their shares in a change of
control transaction.

EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS

           In August 2001, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 143 "Accounting
for Asset Retirement Obligations." SFAS No. 143 establishes accounting standards
for recognition and measurement of a liability for an asset retirement
obligation and the associated asset retirement cost. SFAS No. 143 applies to
legal obligations associated with the retirement of a tangible long-lived asset
that result from the acquisition, construction, development and/or normal
operation of a long-lived asset. This Statement is effective for fiscal years
beginning after June 15, 2002. The adoption of SFAS No. 143 did not have a
material effect on the Company's consolidated financial statements.

           In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." SFAS No. 145, among other things, rescinds SFAS No. 4, which
required all gains and losses from the extinguishments of debt to be classified
as an extraordinary item and amends SFAS No. 13 to require that certain lease
modifications that have economic effects similar to sale-leaseback transactions
be accounted for in the same manner as sale-leaseback transactions. The
rescission of SFAS No. 4 is effective for fiscal years beginning after May 15,
2002. The remainder of the statement is generally effective for transactions


                                       27
<PAGE>
occurring after May 15, 2002. The adoption of SFAS No. 145 did not have a
material effect on the Company's consolidated financial statements.

           In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 149 is generally effective for derivative instruments, including derivative
instruments embedded in certain contracts, entered into or modified after June
30, 2003 and for hedging relationships designated after June 30, 2003. The
adoption of SFAS No. 149 did not have a material effect on the Company's
consolidated financial statements.

           In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." SFAS
No. 150 establishes standards for how to classify and measure certain financial
instruments with characteristics of both liabilities and equity. The statement
is effective for financial instruments entered into or modified after May 31,
2003. The adoption of SFAS No. 150 did not have a material effect on the
Company's consolidated financial statements.


FORWARD-LOOKING STATEMENTS

           From time to time, the Company makes forward-looking statements.
Forward-looking statements include financial projections, statements of plans
and objectives for future operations, statements of future economic performance,
and statements of assumptions relating thereto. Forward-looking statements are
often identified by future or conditional words such as "will," "plans,"
"expects," "intends," "believes," "seeks," "estimates," or "anticipates" or by
variations of such words or by similar expressions.

           The Company may include forward-looking statements in its periodic
reports to the Securities and Exchange Commission on Forms 10-K, 10-Q, and 8-K,
in its annual report to shareholders, in its proxy statements, in its press
releases, in other written materials, and in statements made by employees to
analysts, investors, representatives of the media, and others.

           By their very nature, forward-looking statements are subject to
uncertainties, both general and specific, and risks exist that predictions,
forecasts, projections and other forward-looking statements will not be
achieved. Actual results may differ materially due to a variety of factors
including, without limitation, those discussed under "Certain Trends and
Uncertainties" and elsewhere in this report. Investors and others should
carefully consider these factors and other uncertainties and events, whether or
not the statements are described as forward-looking.

           Forward-looking statements made by the Company are intended to apply
only at the time they are made, unless explicitly stated to the contrary.
Moreover, whether or not stated in connection with a forward-looking statement,
the Company undertakes no obligation to correct or update a forward-looking
statement should the Company later become aware that it is not likely to be
achieved. If the Company were in any particular instance to update or correct a


                                       28
<PAGE>
forward-looking statement, investors and others should not conclude that the
Company will make additional updates or corrections thereafter.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

         The Company is exposed to market risk from changes in interest rates.
Various financial instruments held by the Company are sensitive to changes in
interest rates. Interest rate changes could result in an increase or decrease in
interest income as well as in gains or losses in the market value of the
Company's debt security investments due to differences between the market
interest rates and rates at the date of purchase of these investments.

         The Company places its cash investments with high credit-quality
financial institutions and currently invests primarily in money market funds
placed with major banks and financial institutions, corporate commercial paper,
corporate and municipal short-term notes, corporate medium-term notes, asset
backed securities, and United States government and United States government
corporation and agency obligations and/or mutual funds investing in the like.
The Company has investment guidelines relative to diversification and maturities
designed to maintain safety and liquidity. As of January 31, 2004, the Company
had cash and cash equivalents, which generally have a maturity of three months
or less, totaling approximately $128,713,000 and had short-term investments,
which generally have a maturity up to three years, totaling approximately
$95,817,000. If, during the year ended January 31, 2005, average short-term
interest rates increase or decrease by 50 basis points relative to average rates
realized during the year ended January 31, 2004, the Company's projected
interest income from cash and cash equivalents and short-term investments would
increase or decrease by approximately $1,123,000, assuming a similar level of
investments in the year ended January 31, 2005.

           Due to the short-term nature of the Company's cash and cash
equivalents, the carrying values approximates market value and are not generally
subject to price risk due to fluctuations in interest rates. The Company's
short-term investments are subject to price risk due to fluctuations in interest
rates. Neither a 10% increase nor decrease in prices would have a material
effect on the Company's consolidated financial statements. All short-term
investments are considered to be available-for-sale, accounted for at fair
value, with resulting unrealized gains or losses reported as a separate
component of shareholders' equity. If these available-for-sale securities
experience declines in fair value that are considered other-than-temporary, an
additional loss would be reflected in net income (loss) in the period when the
subsequent impairment becomes apparent. See Note 2 of the financial statements
for more information regarding short-term investments.


ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

           The financial information required by Item 8 is in the "Financial
Statements" included in Item 15 of this report on Form 10-K.


                                       29
<PAGE>
ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
           FINANCIAL DISCLOSURE.

           None.


ITEM 9A.   CONTROLS AND PROCEDURES

           (a) The Company's management evaluated, with the participation of the
Company's principal executive and principal financial officers, the
effectiveness of the Company's disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), as of January 31, 2004. Based on their
evaluation, the Company's principal executive and principal financial officers
concluded that the Company's disclosure controls and procedures were effective
as of January 31, 2004.

           (b) There has been no change in the Company's internal control over
financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) that occurred during the Company's fiscal quarter ended January
31, 2004, that has materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial reporting.












                                       30
<PAGE>
                                    PART III

ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

           Information required by this item is incorporated by referenced to
the information in the Company's Notice of Annual Meeting of Shareholders and
Proxy Statement relating to the Annual Meeting of Shareholders to be held on
June 14, 2004 (the "Proxy Statement") under the captions "Codes of Business
Conduct and Ethics", "Background of Directors and Executive Officers", "Audit
Committee", and "Section 16(a) Beneficial Ownership Reporting Compliance".


ITEM 11.   EXECUTIVE COMPENSATION

           Information required by this Item is incorporated by reference to
"Executive Compensation" and "Compensation of Directors" in the Proxy Statement.


ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
           RELATED STOCKHOLDER MATTERS

           Information required by this Item is incorporated by reference to
"Security Ownership of Management and Principal Shareholders" and "Equity
Compensation Plan Information" in the Proxy Statement.


ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

           Information required by this Item is incorporated by reference to
"Certain Relationships and Related Transactions" in the Proxy Statement.


ITEM 14.   PRINCIPAL ACCOUNTING FEES AND SERVICES

           Information required by this Item is incorporated by reference to
"Independent Accounting Firm Fees" and "Policy for Audit, Audit Related and
Non-Audit Services" in the Proxy Statement.



                                       31
<PAGE>
                                     PART IV

ITEM 15.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

                                                                         Page(s)

         (a) Documents filed as part of this report.

             (1) Financial Statements.

                 Index to Consolidated Financial Statements               F-1

                 Independent Auditors' Report                             F-2

                 Consolidated Balance Sheets as of January 31, 2003       F-3
                         and 2004

                 Consolidated Statements of Operations                    F-4
                         for the years ended January 31, 2002,
                         2003 and 2004

                 Consolidated Statements of Shareholders'                 F-5
                         Equity for the years ended
                         January 31, 2002, 2003 and 2004

                 Consolidated Statements of Cash Flows for the            F-6
                         years ended January 31, 2002, 2003 and 2004

                 Notes to Consolidated Financial Statements               F-7

             (2) Financial Statement Schedules.

                 None

             (3) Exhibits.

                                 The Index of Exhibits commences on the
                      following page. Exhibits numbered 10.1 through 10.6 and
                      10.8 through 10.10 comprise material compensatory plans
                      and arrangements of the registrant.


                                       32
<PAGE>
(b)      Reports on Form 8-K

         Item 12. Results of Operations and Financial Condition:

         This report attached the Company's press release dated December 3,
         2003, announcing the financial results for the fiscal quarter ended
         October 31, 2003.

(c)      Index of Exhibits

         Exhibits
No.      Description
---      -----------

3          Articles of Incorporation and By-Laws:

           3.1*       Amended and Restated Certificate of Incorporation of
                      Ulticom, Inc. (Incorporated by reference from the
                      Registrant's Registration Statement on Form S-1 under the
                      Securities Act of 1933, Registration No. 333-94873)

           3.2*       Amended and Restated Bylaws of Ulticom, Inc. (Incorporated
                      by reference from the Registrant's Registration Statement
                      on Form S-1 under the Securities Act of 1933, Registration
                      No. 333-94873)

4          Instruments defining the rights of security holders including
           indentures:

           4.1*       Specimen Common Stock certificate. (Incorporated by
                      reference from the Registrant's Registration Statement on
                      Form S-1 under the Securities Act of 1933, Registration
                      No. 333-94873)

           4.2*       See Exhibit 3.1 for provisions defining the rights of
                      holders of common stock of the Registrant.

10         Material Contracts:

           10.1*      Services Agreement, dated as of February 1, 1998, between
                      Comverse Technology, Inc. and Ulticom, Inc. (Incorporated
                      by reference from the Registrant's Registration Statement
                      on Form S-1 under the Securities Act of 1933, Registration
                      No. 333-94873)

           10.2*      Federal Income Tax Sharing Agreement, dated as of December
                      21, 1999, between Comverse Technology, Inc. and Ulticom,
                      Inc. (Incorporated by reference from the Registrant's
                      Registration Statement on Form S-1 under the Securities
                      Act of 1933, Registration No. 333-94873)

           10.3*      Patent License Agreement, dated January 12, 2000, between
                      Comverse Patent Holding Company, Inc. and Ulticom, Inc.
                      (Incorporated by reference from the Registrant's
                      Registration Statement on Form S-1 under the Securities
                      Act of 1933, Registration No. 333-94873)


                                       33
<PAGE>
           10.4*      License Agreement, dated as of February 1, 2000, between
                      Comverse Technology, Inc. and Ulticom, Inc. (Incorporated
                      by reference from the Registrant's Registration Statement
                      on Form S-1 under the Securities Act of 1933, Registration
                      No. 333-94873)

           10.5*      Registration Rights Agreement, dated as of January 1,
                      2000, between Comverse Technology, Inc. and Ulticom, Inc.
                      (Incorporated by reference from the Registrant's
                      Registration Statement on Form S-1 under the Securities
                      Act of 1933, Registration No. 333-94873)

           10.6*      Business Opportunities Agreement, dated as of January 1,
                      1999, between Comverse Technology, Inc. and Ulticom, Inc.
                      (Incorporated by reference from the Registrant's
                      Registration Statement on Form S-1 under the Securities
                      Act of 1933, Registration No. 333-94873)

           10.7*      Form of Indemnification Agreement. (Incorporated by
                      reference from the Registrant's Registration Statement on
                      Form S-1 under the Securities Act of 1933, Registration
                      No. 333-94873)

           10.8*      1998 Stock Incentive Compensation Plan (Incorporated by
                      reference from the Registrant's Registration Statement on
                      Form S-1 under the Securities Act of 1933, Registration
                      No. 333-94873)

           10.9*      Employment Agreement, dated as of February 1, 2000 between
                      Shawn Osborne and Ulticom, Inc. (Incorporated by reference
                      from the Registrant's Registration Statement on Form S-1
                      under the Securities Act of 1933, Registration No.
                      333-94873)

           10.10*     2000 Employee Stock Purchase Plan (Incorporated by
                      reference from the Registrant's Registration Statement on
                      Form S-8 under the Securities Act of 1933, Registration
                      No. 333-56522)

           21.1**     Subsidiaries of Ulticom, Inc.


           23.1**     Consent of Deloitte and Touche LLP, Independent Auditors

           24.1**     Powers of Attorney (see signature page to this report)

           31.1**     Certification of Chief Executive Officer pursuant to
                      Section 302 of the Sarbanes-Oxley Act of 2002.

           31.2**     Certification of Chief Financial Officer pursuant to
                      Section 302 of the Sarbanes-Oxley Act of 2002.


                                       34
<PAGE>
           32***      Certification of Chief Executive Officer and Chief
                      Financial Officer pursuant to Section 906 of the
                      Sarbanes-Oxley Act of 2002.

-------------------------

*       Incorporated by reference
**      Filed with this report on Form 10-K
***     Furnished herewith pursuant to Item 601(b)(32) of SEC Regulation S-K



















                                       35
<PAGE>
                                   SIGNATURES

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

                                  Ulticom, Inc.

                                  By: /s/ Shawn K. Osborne
                                  ---------------------------------------------
                                  Name: Shawn K. Osborne
                                  Date: April 14, 2004
                                  Title: President and Chief Executive Officer


           KNOW ALL THESE PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Shawn Osborne and Mark Kissman
and each of them, jointly and severally, his attorneys-in-fact, each with full
power of substitution, for him in any and all capacities, to sign any and all
amendments to this 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 each said attorneys-in-fact
or his substitutes, may do or cause to be done by virtue hereof.

           Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
and in the capacities on the dates indicated:

<TABLE>
<CAPTION>
    Signature                                     Title                                  Date
    ---------                                     -----                                  ----
<S>                                <C>                                              <C>
/s/ Kobi Alexander                 Chairman of the Board of Directors               April 08, 2004
---------------------------        and Director
Kobi Alexander


/s/ Shawn K. Osborne               President and Chief Executive Officer            April 08, 2004
---------------------------        and Director
Shawn K. Osborne                   (Principal Executive Officer)


/s/ Mark A. Kissman                Chief Financial Officer                          April 08, 2004
---------------------------        (Principal Financial Officer)
Mark A. Kissman


/s/ David Kreinberg                Director                                         April 08, 2004
---------------------------
David Kreinberg


/s/ William F. Sorin               Director                                         April 13, 2004
---------------------------
William F. Sorin


/s/ Paul D. Baker                  Director                                         April 13, 2004
---------------------------
Paul D. Baker


/s/ Yaacov Koren                   Director                                         April 13, 2004
---------------------------
Yaacov Koren


                                       36
<PAGE>
/s/ Ron Hiram                      Director                                         April 08, 2004
---------------------------
Ron Hiram


/s/ Rex A. Mc Williams             Director                                         April 08, 2004
---------------------------
Rex A. McWilliams


/s/ Zvi Bar-On                     Director                                         April 07, 2004
---------------------------
Zvi Bar-On

</TABLE>














                                       37
<PAGE>
                          ULTICOM, INC. AND SUBSIDIARY
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



                                                                           Page

Independent Auditors' Report............................................... F-2

Consolidated Balance Sheets as of January 31, 2003 and 2004................ F-3

Consolidated Statements of Operations for the
         years ended January 31, 2002, 2003 and 2004....................... F-4

Consolidated Statements of Shareholders' Equity for the
         years ended January 31, 2002, 2003 and 2004....................... F-5

Consolidated Statements of Cash Flows for the
         years ended January 31, 2002, 2003 and 2004....................... F-6

Notes to Consolidated Financial Statements................................. F-7













                                      F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT



To the Board of Directors and Shareholders of Ulticom, Inc.
Mt. Laurel, New Jersey



We have audited the accompanying consolidated balance sheets of Ulticom, Inc.
and subsidiary (the "Company") as of January 31, 2003 and 2004, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended January 31, 2004. 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 in accordance with auditing standards generally accepted
in the United States of America. Those standards 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. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of January 31, 2003
and 2004, and the results of their operations and their cash flows for each of
the three years in the period ended January 31, 2004, in conformity with
accounting principles generally accepted in the United States of America.

/s/ Deloitte & Touche LLP

Jericho, New York
March 24, 2004




                                      F-2
<PAGE>
                          ULTICOM, INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS
                        (IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
                                                                                      JANUARY 31,         JANUARY 31,
                                                                                          2003               2004
                                                                                          ----               ----
<S>                                                                                  <C>                 <C>
                                             ASSETS
 CURRENT ASSETS:
       Cash and cash equivalents                                                       $ 102,672           $ 128,713
       Short-term investments                                                            116,074              95,817
       Accounts receivable, net                                                            4,212               6,417
       Inventories, net                                                                      695                 762
       Prepaid expenses and other current assets                                           3,194               2,676
       Deferred tax assets                                                                 1,201                 624
                                                                                     -----------         -----------
             Total current assets                                                        228,048             235,009
       Property and equipment, net                                                         3,333               2,182
       Investments                                                                         5,550               5,463
       Other assets                                                                          171                 163
                                                                                     -----------         -----------
             Total assets                                                              $ 237,102           $ 242,817
                                                                                     ===========         ===========

                                LIABILITIES AND SHAREHOLDERS' EQUITY

 CURRENT LIABILITIES:
       Accounts payable and accrued expenses                                           $   8,510           $   5,914
       Deferred revenue                                                                    3,593               3,707
                                                                                     -----------         -----------
             Total current liabilities                                                    12,103               9,621

 LONG-TERM LIABILITIES:
       Deferred tax liabilities                                                            1,597               1,349
       Other liabilities                                                                     250                   -
                                                                                     -----------         -----------
             Total liabilities                                                            13,950              10,970
                                                                                     -----------         -----------

 COMMITMENTS AND CONTINGENCIES  (Note 13)

 SHAREHOLDERS' EQUITY:
       Undesignated stock, no par value, 10,000,000 shares authorized,
          no shares issued and outstanding                                                     -                   -
       Common stock, no par value, 200,000,000 shares authorized,
          41,530,874 and 42,150,857 shares issued and outstanding                              -                   -
       Additional paid-in capital                                                        204,388             208,576
       Accumulated other comprehensive loss                                                 (525)               (598)
       Retained earnings                                                                  19,289              23,869
                                                                                     -----------         -----------
             Total shareholders' equity                                                  223,152             231,847
                                                                                     -----------         -----------
             Total liabilities and shareholders' equity                                $ 237,102           $ 242,817
                                                                                     ===========         ===========
</TABLE>
                 See notes to consolidated financial statements


                                      F-3
<PAGE>
                          ULTICOM, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                                  YEARS ENDED JANUARY 31,
                                                             ------------------------------------------------------------
                                                                2002                        2003                   2004
                                                                ----                        ----                   ----
<S>                                                          <C>                        <C>                    <C>
 Sales:
   Product revenues:
    Sales to third parties                                    $ 39,692                   $ 19,325               $ 26,905
    Sales to related parties                                     8,921                      3,342                  4,231
                                                             ---------                  ---------              ---------
   Total product revenues                                       48,613                     22,667                 31,136
                                                             ---------                  ---------              ---------
   Service revenues:
    Sales to third parties                                       9,438                      6,554                  7,239
    Sales to related parties                                       105                         10                      3
                                                             ---------                  ---------              ---------
   Total service revenues                                        9,543                      6,564                  7,242
                                                             ---------                  ---------              ---------
 Total sales                                                    58,156                     29,231                 38,378
                                                             ---------                  ---------              ---------

 Cost of sales:
   Product costs                                                12,785                      5,930                  5,892
   Service costs                                                 6,751                      5,303                  5,266
                                                             ---------                  ---------              ---------
 Total cost of sales                                            19,536                     11,233                 11,158
                                                             ---------                  ---------              ---------

 Gross profit                                                   38,620                     17,998                 27,220

 Operating expenses:
 Research and development                                       14,236                     10,098                  9,461
 Selling, general and administrative                            15,861                     13,972                 15,168
 Workforce reduction and restructuring charges (credits)             -                      2,290                   (233)
                                                             ---------                  ---------              ---------
 Income (loss) from operations                                   8,523                     (8,362)                 2,824
 Interest and other income, net                                  8,761                      5,536                  3,493
                                                             ---------                  ---------              ---------
 Income (loss) before income tax provision (benefit)            17,284                     (2,826)                 6,317
 Income tax provision (benefit)                                  6,447                     (1,091)                 1,737
                                                             ---------                  ---------              ---------
 Net income (loss)                                            $ 10,837                   $ (1,735)              $  4,580
                                                             =========                  ==========             =========

 Earnings (loss) per share:
 Basic                                                        $   0.26                   $  (0.04)              $   0.11
                                                             =========                  ==========             =========
 Diluted                                                      $   0.25                   $  (0.04)              $   0.11
                                                             =========                  ==========             =========
</TABLE>
                 See notes to consolidated financial statements


                                      F-4
<PAGE>
                          ULTICOM, INC. AND SUBSIDIARY
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                   YEARS ENDED JANUARY 31, 2002, 2003 AND 2004
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                                      Accumulated Other
                                                                                 Comprehensive Income (Loss)
                                   Common Stock                                  ---------------------------
                                   ------------      Additional                   Unrealized       Cumulative            Total
                                Number of    Par      Paid-in         Retained      Gains          Translation        Shareholders'
                                 Shares     Value     Capital         Earnings     (Losses)        Adjustment            Equity
                                 ------     -----     -------         --------     --------        ----------            ------
<S>                           <C>         <C>        <C>             <C>          <C>             <C>                <C>
BALANCE, FEBRUARY 1, 2001       40,511       $  -     $196,862        $ 10,187      $    -           $    -             $ 207,049
Comprehensive income:
Net income                                                              10,837                                             10,837
Unrealized gain on
  available-for-sale
  securities, net                                                                      287                                    287
Translation adjustment                                                                                  156                   156
                                                                                                                        ---------
Total comprehensive income                                                                                                 11,280
Common stock issued for
  employee stock purchase plan      60                     769                                                                769
Exercise of stock options          551                   1,927                                                              1,927
Tax benefit of dispositions of
  stock options                                          2,999                                                              2,999
------------------------------------------------------------------------------------------------------------------------------------

BALANCE, JANUARY 31, 2002       41,122          -      202,557          21,024         287              156               224,024

Comprehensive loss:
Net loss                                                                (1,735)                                            (1,735)
Unrealized loss on
  available-for-sale
  securities, net                                                                     (721)                                  (721)
Translation adjustment                                                                                 (247)                 (247)
                                                                                                                        ---------
Total comprehensive loss                                                                                                   (2,703)
Common stock issued for
  employee stock purchase plan     107                     633                                                                633
Exercise of stock options          302                     815                                                                815
Tax benefit of dispositions of
  stock options                                            383                                                                383

------------------------------------------------------------------------------------------------------------------------------------

BALANCE, JANUARY 31, 2003       41,531          -      204,388          19,289        (434)             (91)              223,152

Comprehensive income:
Net income                                                               4,580                                              4,580
Unrealized gain on
  available-for-sale
  securities, net                                                                      124                                    124
Translation adjustment                                                                                 (197)                 (197)
                                                                                                                        ---------
Total comprehensive income                                                                                                  4,507
Common stock issued for
  employee stock purchase plan     112                     548                                                                548
Exercise of stock options          508                   1,537                                                              1,537
Tax benefit of dispositions of
  stock options                                          2,103                                                              2,103
------------------------------------------------------------------------------------------------------------------------------------

BALANCE, JANUARY 31, 2004       42,151      $   -     $208,576         $23,869       $(310)          $ (288)            $ 231,847
                                ======      =====     ========         =======       ======         ========            =========
</TABLE>
                 See notes to consolidated financial statements


                                      F-5
<PAGE>
                          ULTICOM, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                            YEARS ENDED JANUARY 31,
                                                                            -------------------------------------------------------
                                                                                2002                2003                   2004
                                                                                ----                ----                   ----
<S>                                                                         <C>                 <C>                    <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)                                                             $  10,837          $  (1,735)            $   4,580
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
   Depreciation and amortization                                                  4,612              2,502                 1,933
   Deferred income tax provision (benefits)                                        (864)             1,547                   329
  Changes in operating assets and liabilities:
   Accounts receivable, net                                                          61              4,210                (2,205)
   Inventories, net                                                               1,179               (249)                  (67)
   Prepaid expenses and other current assets                                     (1,826)              (265)                2,621
   Accounts payable and accrued expenses                                          1,948             (4,462)               (2,596)
   Deferred revenue                                                              (6,969)               (86)                  114
   Other                                                                            402               (686)                 (315)
                                                                             ----------         ----------            ----------
           Net cash provided by operating activities                              9,380                776                 4,394
                                                                             ----------         ----------            ----------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of property and equipment                                           (3,819)              (565)                 (782)
   Maturities and sales (purchases) of investments, net                         (51,300)           (39,247)               20,344
                                                                             ----------         ----------            ----------
         Net cash provided by (used in) investing activities                    (55,119)           (39,812)               19,562
                                                                             ----------         ----------            ----------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from issuance of common stock in connection with exercise of
   stock options and employee stock purchase plan                                 2,696              1,448                 2,085
                                                                             ----------         ----------            ----------
          Net cash provided by financing activities                               2,696              1,448                 2,085
                                                                             ----------         ----------            ----------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                            (43,043)          ( 37,588)               26,041
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                    183,303            140,260               102,672
                                                                             ----------         ----------            ----------
CASH AND CASH EQUIVALENTS, END OF YEAR                                        $ 140,260          $ 102,672             $ 128,713
                                                                             ==========         ==========            ==========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest                                        $       -          $       -             $       -
                                                                             ==========         ==========            ==========
Cash paid during the year for income taxes                                    $   7,464          $     813             $   1,247
                                                                             ==========         ==========            ==========

</TABLE>
                 See notes to consolidated financial statements


                                      F-6
<PAGE>
                          ULTICOM, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                   YEARS ENDED JANUARY 31, 2002, 2003 AND 2004

1.         BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

           COMPANY BUSINESS AND BACKGROUND - Ulticom, Inc. (together with its
subsidiary, the "Company"), a New Jersey corporation and a majority-owned
subsidiary of Comverse Technology, Inc. ("CTI"), designs, develops, markets,
licenses, and supports service enabling signaling software for wireline,
wireless and Internet communications software and hardware for use in the
communications industry.

           PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of Ulticom, Inc. and its wholly-owned subsidiary. All
material intercompany balances and transactions have been eliminated.

           CASH AND CASH EQUIVALENTS - The Company considers all highly liquid
investments purchased with original maturities of three months or less to be
cash equivalents.

           SHORT-TERM INVESTMENTS - The Company classifies all of its short-term
investments as available-for-sale, accounted for at fair value, with resulting
unrealized gains or losses reported as a separate component of shareholders'
equity.

           FAIR VALUE OF FINANCIAL INSTRUMENTS - The estimated fair value
amounts have been determined by the Company, using available market information
and appropriate valuation methodologies. However, considerable judgment is
necessarily required in interpreting market data to develop the estimates of
fair value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that the Company could realize in a current market
exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.

           CONCENTRATION OF CREDIT RISK - Financial instruments, which
potentially expose the Company to a concentration of credit risk, consist
primarily of cash investments and accounts receivable. The Company places its
cash investments with high credit-quality financial institutions and currently
invests primarily in money market funds placed with major banks and financial
institutions, corporate commercial paper, corporate and municipal short-term
notes, corporate medium-term notes, asset backed securities, and United States
government and United States government corporation and agency obligations
and/or mutual funds investing in the like. The Company believes no significant
concentration of credit risk exists with respect to these cash investments. The
Company sells its products to customers who are dispersed across many geographic
regions and who are principally in the communications industry. The Company had
three customers that represented approximately 56% of gross accounts receivable
as of January 31, 2004. The Company had three customers that represented
approximately 58% of gross accounts receivable as of January 31, 2003. The net
carrying amounts of these financial instruments are a reasonable estimate of
their fair value.

                                      F-7
<PAGE>
           A roll forward of the allowance for doubtful accounts is a follows:

<TABLE>
<CAPTION>
                                                            YEARS ENDED JANUARY 31,
                                                            -----------------------
                                               2002                   2003                     2004
                                               ----                   ----                     ----
                                                                 (IN THOUSANDS)
<S>                                          <C>                     <C>                    <C>
       Balance, beginning of year             $ 425                   $ 849                   $ 636
       Charges to costs and expenses            850                       -                       -
       Deductions                               426                     213                     120
                                              -----                   -----                   -----
       Balance, end of year                   $ 849                   $ 636                   $ 516
                                              =====                   =====                   =====
</TABLE>

           INVENTORIES - Inventories are stated at the lower of cost or market
and consist entirely of finished goods, net of reserve for obsolescence. Cost is
determined by the first-in, first-out method.

           PROPERTY AND EQUIPMENT - Property and equipment are recorded at cost
less accumulated depreciation and amortization. The Company depreciates its
furniture and equipment using straight-line depreciation over periods ranging
from three to seven years. Leasehold improvements are amortized over the lesser
of the term of the respective lease or the estimated useful lives of the
improvements (7 years). The cost of maintenance and repairs are charged to
operations as incurred. Significant renewals and improvements are capitalized.

           During the year ended January 31, 2002, the Company changed its
accounting estimates relating to depreciation of certain equipment. The
estimated service lives for these assets were reduced from 5 years to 3 years.
As a result of this change, net income was reduced by approximately $0.8
million, or $0.02 per diluted share.

           INVESTMENTS - The Company's long-term investments consist of common
stock and warrants to purchase common stock of a company and are stated at cost,
adjusted for declines in fair value that are considered other-than-temporary.

           INCOME TAXES - The Company accounts for income taxes using the asset
and liability method. Under this method, deferred tax assets and liabilities are
determined based on differences between the financial reporting and the tax
bases of assets and liabilities, and are measured using the enacted tax rates
and laws that are expected to be in effect when the differences are expected to
reverse.

           REVENUE AND EXPENSE RECOGNITION - In accordance with Statement of
Position 97-2, "Software Revenue Recognition," and related Interpretations;
product revenues, which include software license and hardware revenue, are
generally recognized in the period in which the products are delivered and
accepted by the customer, the fee is fixed and determinable, and collection is
considered probable. When the Company has significant obligations subsequent to
shipment, revenues are not recognized until the obligations are fulfilled.
Revenues from arrangements that include significant acceptance terms are not
recognized until acceptance has occurred. The Company provides its customers
with post-contract support services, which generally consist of bug-fixing and


                                      F-8
<PAGE>
telephone access to the Company's technical personnel, but may also include the
right to receive product updates, upgrades, and enhancements. Revenue from these
services is recognized ratably over the contract period. Post-contract support
services included in the initial licensing fee are allocated from the total
contract amount based on the relative fair value of vendor specific objective
evidence ("VSOE"). For multi-element arrangements, VSOE of fair value is
determined based on the price charged when the same element is sold separately
or, for elements not yet being sold separately, the price established by
management having the relevant authority. If VSOE of fair value does not exist
for one or more delivered elements of a multi-element arrangement and VSOE of
fair value exists for all undelivered elements, then revenue is recognized using
the "residual method."

           Deferred revenue consists primarily of amounts billed to customers
pursuant to terms specified in contracts but for which revenue has not been
recognized.

           Included in product revenues are license revenues amounting to
approximately $16,287,000, $6,873,000, and $11,517,000 for the years ended
January 31, 2002, 2003, and 2004, respectively. The related costs of sales
associated with these license revenues include various personnel, duplication,
and shipping costs, which were not material in each of the periods presented.

           Revenues from providing customer training are recognized when
training is provided and historically has not been material.

           Revenues from fee-based consulting and development services are
recognized when services are provided in accordance with customer's
specification and historically have not been material.

           Cost of sales includes salary and related benefits, material costs,
depreciation and amortization, as well as other costs associated with cost of
sales activities. Research and development costs include salary and related
benefits as well as travel, depreciation and amortization of research and
development equipment, an overhead allocation, as well as other costs associated
with research and development activities. Selling, general and administrative
costs include salary and related benefits, travel, depreciation and
amortization, marketing and promotional materials, recruiting expenses,
professional fees, corporate services provided by CTI, facility costs, as well
as other costs associated with sales, marketing, finance, and administrative
departments.

           Expenses incurred in connection with research and development
activities and selling, general and administrative expenses are charged to
operations as incurred. Software development costs incurred after technological
feasibility has been established and prior to general release to the public are
capitalized and historically have not been material.

           FUNCTIONAL CURRENCY AND FOREIGN CURRENCY TRANSACTION GAINS AND
LOSSES- The Company's sales and materials purchased for manufacturing are
denominated in or linked to the United States dollar. Certain operating costs of
foreign operations, principally salaries and related benefits, are denominated
in local currencies and any transaction gains or losses are recorded in the
Company's consolidated statements of operations. The Company records any


                                      F-9
<PAGE>
necessary foreign currency translation adjustment, reflected in a separate
component of shareholders' equity, at the end of each reporting period. As of
January 31, 2003 and 2004, the Company had no outstanding foreign exchange
contracts.

           LONG-LIVED ASSETS - The Company reviews for the impairment of
long-lived assets whenever events change, or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. An impairment loss
would be recognized when estimated future undiscounted cash flows expected to
result from the use of an asset and its proceeds from its eventual disposition
are less than its carrying amount. Impairment is measured at fair value. In
conjunction with the Company's restructuring plan during the year ended January
31, 2003, the Company identified impairment losses of approximately $130,000
that are included in "Workforce reduction and restructuring charges (credits)"
in the Company's consolidated statements of operations.

            STOCK-BASED EMPLOYEE COMPENSATION - The Company accounts for stock
options under the recognition and measurement principles of Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations. Accordingly, no stock-based employee
compensation cost is reflected in net income (loss) for any periods, as all
options granted have an exercise price at least equal to the market value of the
underlying common stock on the date of grant.

           The Company estimated the fair value of employee stock options
utilizing the Black-Scholes option valuation model, using appropriate
assumptions, as required under accounting principles generally accepted in the
United States of America. The Black-Scholes model was developed for use in
estimating the fair value of traded options and does not consider the non-traded
nature of employee stock options, vesting and trading restrictions, lack of
transferability or the ability of employees to forfeit the options prior to
expiry. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of the Company's employee stock options.



                                      F-10
<PAGE>
           The following table illustrates the effect on net income (loss) and
earnings (loss) per share if the Company had applied the fair value recognition
provisions of Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation," to stock-based employee compensation
for all periods:

<TABLE>
<CAPTION>
                                                                                    YEARS ENDED JANUARY 31,
                                                                                    -----------------------
                                                                   2002                      2003                        2004
                                                                   ----                      ----                        ----
                                                                              (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                             <C>                       <C>                         <C>
Net income (loss), as reported                                  $ 10,837                  $ (1,735)                  $  4,580

Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards,
net of related tax effects                                        (4,039)                   (3,319)                    (4,695)
                                                                --------                  --------                   --------

Pro forma net income (loss)                                     $  6,798                  $ (5,054)                  $   (115)
                                                                ========                  ========                   ========

Earnings (loss) per share:
Basic - as reported                                             $   0.26                  $  (0.04)                  $   0.11
Basic - pro forma                                               $   0.17                  $  (0.12)                  $   0.00

Diluted - as reported                                           $   0.25                  $  (0.04)                  $   0.11
Diluted - pro forma                                             $   0.16                  $  (0.12)                  $   0.00

</TABLE>

           The fair value of these options was estimated using the Black-Scholes
option pricing model with the following weighted-average assumptions:

                                               YEARS ENDED JANUARY 31,
                                               -----------------------
                                       2002             2003           2004
                                       ----             ----           ----

       Risk-free interest rate          4.7%            4.0%            2.5%
       Dividend yield                   -                -              -
       Volatility                        95%             59%             60%
       Expected option life          5 years         5 years         5 years

                     The weighted-average fair value of options granted for the
years ended January 31, 2002, 2003, and 2004 is estimated at $12.09, $3.64,
and $5.09 per share, respectively.

           PERVASIVENESS OF ESTIMATES - The preparation of financial statements
in conformity with accounting principles generally accepted in the United States
of America 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.

           RECENT ACCOUNTING PRONOUNCEMENTS - In August 2001, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 143 "Accounting for Asset
Retirement Obligations." SFAS No. 143 establishes accounting standards for
recognition and measurement of a liability for an asset retirement obligation


                                      F-11
<PAGE>
and the associated asset retirement cost. SFAS No. 143 applies to legal
obligations associated with the retirement of a tangible long-lived asset that
result from the acquisition, construction, development and/or normal operation
of a long-lived asset. This Statement is effective for fiscal years beginning
after June 15, 2002. The adoption of SFAS No. 143 did not have a material effect
on the Company's consolidated financial statements.

           In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." SFAS No. 145, among other things, rescinds SFAS No. 4, which
required all gains and losses from the extinguishments of debt to be classified
as an extraordinary item and amends SFAS No. 13 to require that certain lease
modifications that have economic effects similar to sale-leaseback transactions
be accounted for in the same manner as sale-leaseback transactions. The
rescission of SFAS No. 4 is effective for fiscal years beginning after May 15,
2002. The remainder of the statement is generally effective for transactions
occurring after May 15, 2002. The adoption of SFAS No. 145 did not have a
material effect on the Company's consolidated financial statements.

           In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 149 is generally effective for derivative instruments, including derivative
instruments embedded in certain contracts, entered into or modified after June
30, 2003 and for hedging relationships designated after June 30, 2003. The
adoption of SFAS No. 149 did not have a material effect on the Company's
consolidated financial statements.

           In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." SFAS
No. 150 establishes standards for how to classify and measure certain financial
instruments with characteristics of both liabilities and equity. The statement
is effective for financial instruments entered into or modified after May 31,
2003. The adoption of SFAS No. 150 did not have a material effect on the
Company's consolidated financial statements.

           RECLASSIFICATIONS - Certain prior year amounts have been reclassified
to conform to the manner of presentation in the current year.




                                      F-12
<PAGE>
2.         SHORT-TERM INVESTMENTS

           The Company classifies all of its short-term investments as
available-for-sale securities. The following is a summary of available-for-sale
securities as of January 31, 2004:

<TABLE>
<CAPTION>
                                                                      GROSS                 GROSS              ESTIMATED
                                                                   UNREALIZED             UNREALIZED             FAIR
                                               COST                   GAINS                 LOSSES               VALUE
                                               ----                   -----                 ------               -----
                                                                           (IN THOUSANDS)
<S>                                        <C>                     <C>                    <C>                 <C>
         United States Government
             agency bonds                  $    65,000             $         -            $       311         $    64,689
                                           -----------             -----------            -----------         -----------
         Total debt securities                  65,000                       -                    311              64,689
                                           -----------             -----------            -----------         -----------

         Mutual funds (1)                       31,128                       -                      -              31,128
                                           -----------             -----------            -----------         -----------
          Total equity securities               31,128                       -                      -              31,128
                                           -----------             -----------            -----------         -----------
                                           $    96,128             $         -            $       311         $    95,817
                                           ===========             ===========            ===========         ===========
</TABLE>

(1)        Investing in all or some of United States Government and United
           States Government corporation and agency obligations, corporate debt
           securities and commercial paper and asset-backed securities.

           The following is a summary of available-for-sale securities as of
January 31, 2003:

<TABLE>
<CAPTION>
                                                                       GROSS                    GROSS               ESTIMATED
                                                                    UNREALIZED               UNREALIZED               FAIR
                                                 COST                  GAINS                   LOSSES                 VALUE
                                                 ----                  -----                   ------                 -----
                                                                              (IN THOUSANDS)
<S>                                          <C>                    <C>                      <C>                   <C>
         United States Government
             agency bonds                    $    60,138            $         7              $         -           $    60,145
                                             -----------            -----------              -----------           -----------
         Total debt securities                    60,138                      7                        -                60,145
                                             -----------            -----------              -----------           -----------

         Mutual funds (2)                         56,370                      -                      441                55,929
                                             -----------            -----------              -----------           -----------
          Total equity securities                 56,370                      -                      441                55,929
                                             -----------            -----------              -----------           -----------
                                             $   116,508            $         7              $       441           $   116,074
                                             ===========            ===========              ===========           ===========
</TABLE>

(2)        Investing in all or some of United States Government and United
           States Government corporation and agency obligations, corporate debt
           securities and commercial paper and asset-backed securities.

           As of January 31, 2004, all of the Company's debt securities have a
contractual maturity between one year and three years. For the years ended
January 31, 2002, 2003, and 2004, the Company had gross realized gains of
approximately $0, $0, and $346,000, respectively, and gross realized losses of
approximately $0, $190,000, and $1,227,000, respectively.


                                      F-13
<PAGE>
3.        PROPERTY AND EQUIPMENT

           Property and equipment consists of the following:

<TABLE>
<CAPTION>
                                                                     JANUARY 31,
                                                                     -----------
                                                            2003                      2004
                                                            -----                     ----
                                                                    (IN THOUSANDS)
<S>                                                        <C>                     <C>
       Furniture and equipment                              $ 11,922                $  7,105
       Transportation equipment                                   17                       -
       Leasehold improvements                                    469                     499
                                                           ---------               ---------
                                                              12,408                   7,604
       Less accumulated depreciation and amortization          9,075                   5,422
                                                           ---------               ---------
                                                            $  3,333                $  2,182
                                                           =========               =========
</TABLE>


4.         WORKFORCE REDUCTION AND RESTRUCTURING ACCRUAL - During the year ended
January 31, 2003, the Company took steps to better align its cost structure with
the business environment. These steps included a workforce reduction and
restructuring plan announced in April 2002. The plan included terminations of 47
employees in the United States and 18 employees in France, in the engineering
and administrative departments of the Company. In connection with these actions,
the Company charged approximately $2,290,000 to operations in the year ended
January 31, 2003.

           In June 2003, the Company entered into an agreement with the landlord
of the facility covered under the restructuring plan that terminates the current
lease obligations in exchange for a lump sum payment by the Company and the
execution of a lease for another smaller facility owned by the landlord,
resulting in the reversal of approximately $214,000 of this previously taken
charge. The workforce reduction and restructuring accrual was fully utilized by
January 31, 2004. An analysis of the total charges of approximately $2,290,000
incurred during the year ended January 31, 2003 as well as a roll forward of
workforce reduction and restructuring accrual for that period is as follows:

<TABLE>
<CAPTION>
                                   WORKFORCE
                                 REDUCTION AND                                                          ACCRUAL BALANCE
                                 RESTRUCTURING               CASH                  NON-CASH                AT JANUARY
                                    CHARGE                 PAYMENTS                 CHARGE                  31, 2003
                                    ------                 --------                 ------                  --------
                                                        (IN THOUSANDS)
<S>                             <C>                      <C>                     <C>                       <C>
  Severance and related            $ 1,593                  $ 1,559                $     -                   $    34
  Property and equipment               130                       -                     130                         -
  Facilities and related               567                      150                      -                       417
                                  --------                 --------               --------                  --------
  Outstanding at end of period     $ 2,290                  $ 1,709                $   130                   $   451
                                  ========                 ========               ========                  ========
</TABLE>

                                      F-14
<PAGE>

           A roll-forward of the workforce reduction and restructuring accrual
from January 31, 2003 to January 31, 2004 is as follows:

<TABLE>
<CAPTION>
                                          ACCRUAL BALANCE                                             ACCRUAL BALANCE
                                             AT JANUARY            CASH             NON-CASH             AT JANUARY
                                              31, 2003           PAYMENTS           CREDITS               31, 2004
                                              --------           --------           -------               --------
                                                              (IN THOUSANDS)
<S>                                       <C>                <C>                 <C>                       <C>
  Severance and related                        $   34             $   15            $   (19)                $   -
  Facilities and related                          417                203               (214)                    -
                                              -------            -------           --------                ------
  Outstanding at end of period                 $  451             $  218            $  (233)                $   -
                                              =======            =======           ========                ======
</TABLE>


           Severance and related costs consisted primarily of severance payments
to terminated employees, fringe related costs associated with severance
payments, other termination costs, and legal and consulting costs.

            Facilities and related costs consisted primarily of contractually
obligated lease liabilities and operating expenses related to facilities vacated
as a result of the restructuring.

           The write-off of property and equipment consisted primarily of
leasehold improvements and furnishings determined to be impaired at a facility
vacated in the United States.


5.          ACCOUNTS PAYABLE AND ACCRUED EXPENSES

            Accounts payable and accrued expenses consist of the following:

                                                        JANUARY 31,
                                                        -----------
                                                2003                   2004
                                                ----                   ----
                                                       (IN THOUSANDS)

       Accounts payable                       $   994                $   718
       Accrued compensation and benefits        4,020                  4,034
       Other accrued expenses                   3,496                  1,162
                                              -------                -------
                                              $ 8,510                $ 5,914
                                              =======                =======


6.          RELATED PARTY TRANSACTIONS

           The Company sells products and provides services to other
subsidiaries of CTI. Sales to related parties were approximately $9,026,000,
$3,352,000, and $4,234,000 for the years ended January 31, 2002, 2003, and 2004,
respectively.

           As of January 31, 2003 and 2004, amounts due from subsidiaries of CTI
were approximately $519,000 and $240,000, respectively.


                                      F-15
<PAGE>
           The Company has a corporate services agreement with CTI. Under this
agreement, CTI provides the Company with the following services:

           o          maintaining in effect general liability and other
                      insurance policies providing coverage for the Company;

           o          maintaining in effect a policy of directors' and officers'
                      insurance covering the Company's directors and officers;

           o          administration of employee benefit plans;

           o          routine legal services; and

           o          consulting services with respect to the Company's
                      corporate communications.


           The Company has agreed to pay to CTI a quarterly fee of $150,000,
payable in arrears at the end of each fiscal quarter, in consideration for all
services provided by CTI during such fiscal quarter. The Company was charged
$600,000 in each of the years ended January 31, 2002, 2003, and 2004 for
services provided by CTI. In addition, the Company has agreed to reimburse CTI
for any out-of-pocket expenses incurred, if any, by CTI in providing the
services. The agreement is currently in effect until January 31, 2005 and
extends for additional twelve-month periods unless terminated by either party.







                                      F-16
<PAGE>
7.         STOCK OPTIONS

           EMPLOYEE STOCK COMPENSATION - At January 31, 2004, 4,189,018 shares
of common stock were reserved for issuance upon exercise of options then
outstanding and 901,416 shares of common stock were available for future grant
under the Company's stock option plan. Options under the plan may be granted to
key employees, directors, and other persons rendering services to the Company.
Options, which are designated as "incentive stock options" under the option
plan, may be granted with an exercise price not less than the fair market value
of the underlying shares at the date of grant and are subject to certain
quantity and other limitations specified in Section 422 of the Internal Revenue
Code. Options, which are not intended to qualify as incentive stock options, may
be granted at any price and without restriction as to amount. The options and
the underlying shares are subject to adjustment in accordance with the terms of
the plan in the event of stock dividends, recapitalizations, and similar
transactions.

           The changes in the number of options were as follows:

<TABLE>
<CAPTION>
                                                                    YEARS ENDED JANUARY 31,
                                                                    -----------------------
                                                     2002                     2003                    2004
                                                     ----                     ----                    ----
<S>                                              <C>                       <C>                      <C>
       Outstanding at beginning of period          3,802,471                 3,917,363                4,131,679
       Granted during the period                     913,591                 1,261,500                  611,500
       Exercised during the period                  (550,987)                 (302,454)                (508,218)
       Canceled, terminated, and expired            (247,712)                 (744,730)                 (45,943)
                                                 -----------               -----------              -----------
       Outstanding at end of period                3,917,363                 4,131,679                4,189,018
                                                 ===========               ===========              ===========
</TABLE>


           Substantially all of the options outstanding as of January 31, 2004
vest in four equal annual increments from the date of grant, or for the options
issued before the Company completed the initial public offering of its common
stock, in four equal annual increments on the anniversary of Company's initial
public offering, up to a maximum term of ten years for all options granted. At
January 31, 2004, options to purchase an aggregate of 1,575,222 shares were
vested and currently exercisable and options to purchase an additional 2,613,796
shares vest at various dates extending through the year ending January 31, 2008.

           Weighted average option exercise price information was as follows:

<TABLE>
<CAPTION>
                                                                        YEARS ENDED JANUARY 31,
                                                                        -----------------------
                                                         2002                     2003                    2004
                                                         ----                     ----                    ----
<S>                                                    <C>                     <C>                      <C>
       Outstanding at beginning of period               $  5.49                 $  8.06                  $  7.49
       Granted during the period                          16.76                    6.53                     9.65
       Exercised during the period                         3.52                    2.68                     3.02
       Canceled, terminated, and expired                  10.78                   10.81                     9.47
       Outstanding at end of period                        8.06                    7.49                     8.33
       Exercisable at the end of the period                7.55                    7.76                     8.34

</TABLE>

                                      F-17
<PAGE>

            Significant option groups outstanding at January 31, 2004 and
related weighted average price and life information were as follows:

<TABLE>
<CAPTION>
                                                   WEIGHTED AVERAGE       WEIGHTED                                   WEIGHTED
        RANGE OF                   NUMBER             REMAINING           AVERAGE              NUMBER                 AVERAGE
     EXERCISE PRICE              OUTSTANDING       CONTRACTUAL LIFE    EXERCISE PRICE       EXERCISABLE           EXERCISE PRICE
     --------------              -----------       ----------------    --------------       -----------           --------------
<S>                            <C>               <C>                  <C>                  <C>                   <C>
 $  1.99    -   $  1.99               860,938             4.01             $ 1.99                493,578               $ 1.99
 $  2.75    -   $  3.97               440,705             5.05               3.16                249,251                 3.12
 $  6.49    -   $  7.64             1,185,363             8.49               6.53                234,113                 6.57
 $  9.38    -   $ 19.56             1,574,762             7.90              13.17                520,155                14.95
 $ 22.56    -   $ 27.47               112,250             6.68              25.58                 63,125                25.78
 $ 29.25    -   $ 29.25                15,000             7.10              29.25                 15,000                29.25
                                 ------------          -------           --------            -----------            ---------

                                    4,189,018             6.93             $ 8.33              1,575,222               $ 8.34
                                 ============          =======           ========            ===========            =========
</TABLE>


8.        EMPLOYEE STOCK PURCHASE PLAN

           Upon completion of the Company's initial public offering, the Company
adopted the 2000 Employee Stock Purchase Plan. Under the terms of this plan, all
employees who have completed at least three months of employment are entitled,
through payroll deductions of amounts up to 10% of their base salary, to
purchase shares of the Company's common stock at 85% of the lesser of the market
price at the offering commencement date or the offering termination date. The
number of shares available under the plan is 600,000, of which approximately
279,000 had been issued as of January 31, 2004.

9.         EARNINGS (LOSS) PER SHARE ("EPS")

           Basic earnings (loss) per share is determined by using the weighted
average number of shares of common stock outstanding during each period. Diluted
earnings (loss) per share further assumes the issuance of common shares for all
dilutive potential shares outstanding. The calculation for earnings (loss) per
share for the years ended January 31, 2002, 2003, and 2004 was as follows:

<TABLE>
<CAPTION>
                              JANUARY 31, 2002                    JANUARY 31, 2003                       JANUARY 31, 2004
                              ----------------                    ----------------                       ----------------
                                               PER SHARE                            PER SHARE                              PER SHARE
                         INCOME        SHARES    AMOUNT      LOSS          SHARES     AMOUNT        INCOME       SHARES      AMOUNT
                         ------        ------    ------      ----          ------     ------        ------       ------      ------
                                                           (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                     <C>          <C>       <C>         <C>            <C>      <C>             <C>          <C>        <C>
 BASIC EPS
 Net income (loss)      $ 10,837       40,929     $0.26     $ (1,735)      41,399     $(0.04)       $ 4,580      41,860       $0.11
                                                  =====                               ======                                  =====
 Effect of dilutive
 securities - options         -         2,317                     -            -                         -        1,401
                        --------     --------              ---------      -------                  --------     -------
 DILUTED EPS            $ 10,837       43,246     $0.25     $ (1,735)      41,399     $(0.04)       $ 4,580      43,261       $0.11
                        ========     ========     =====    =========      =======     ======       ========     =======       =====
</TABLE>

                                      F-18
<PAGE>
           The diluted earnings (loss) per share computation for the year ended
January 31, 2003 excludes incremental shares of approximately 1,158,000 related
to employee stock options. These shares are excluded due to their anti-dilutive
effect as a result of the Company's loss during the period.

 10.       INTEREST AND OTHER INCOME, NET

           Interest and other income, net consists of the following:

<TABLE>
<CAPTION>
                                                                                         YEARS ENDED JANUARY 31,
                                                                                         -----------------------
                                                                          2002                    2003                    2004
                                                                          ----                    ----                    ----
                                                                                             (IN THOUSANDS)
<S>                                                                    <C>                      <C>                     <C>
        Interest and dividend income                                     $ 8,761                  $ 5,726                 $ 4,374
        Gains (losses) on investments, net                                     -                     (190)                   (881)
                                                                        --------                 --------                --------
                                                                         $ 8,761                  $ 5,536                 $ 3,493
                                                                        ========                 ========                ========

11.        INCOME TAXES

            The provision (benefit) for income taxes consists of the following:

                                                                                          YEARS ENDED JANUARY 31,
                                                                                          -----------------------
                                                                          2002                      2003                    2004
                                                                          ----                      ----                    ----
         Current provision (benefit):                                                          (IN THOUSANDS)
             Federal                                                     $ 6,729                 $ (2,370)                 $  678
             Foreign                                                           7                      150                     104
             State                                                           575                     (418)                    626
                                                                        --------                 --------                --------
                   Total current                                           7,311                   (2,638)                  1,408
                                                                        --------                 --------                --------
       Deferred provision (benefit):
             Federal                                                        (736)                   1,315                     581
             State                                                          (128)                     232                    (252)
                                                                        --------                 --------                --------
                   Total deferred                                           (864)                   1,547                     329
                                                                        --------                 --------                --------

                                                                         $ 6,447                 $ (1,091)                $ 1,737
                                                                        ========                 ========                ========

         The reconciliation of the United States federal statutory income tax
(benefit) rate to the Company's effective rate is as follows:
                                                                                            YEARS ENDED JANUARY 31,
                                                                                            -----------------------
                                                                             2002                     2003                 2004
                                                                             ----                     ----                 ----

       U. S. federal statutory expense (benefit) rate                            35%                     (35)%                  34%
       State taxes, net of federal income tax effect                              3                        7                     4
       Foreign income taxed at different rate                                     -                       (1)                   (3)
       Research and development credits                                           -                       (6)                   (5)
       Tax exempt income                                                         (2)                      (7)                   (4)
       Other                                                                      1                        3                     2
                                                                           --------                 --------              --------
       Company's effective tax rate                                              37%                     (39)%                  28%
                                                                           ========                 ========              ========
</TABLE>

                                      F-19
<PAGE>
        Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The tax effects
of significant items comprising the Company's deferred tax asset and liability
at January 31, 2003 and 2004 are as follows:

<TABLE>
<CAPTION>
                                                                              JANUARY 31,
                                                                              -----------
                                                                      2003                 2004
                                                                      ----                 ----
                                                                            (IN THOUSANDS)
<S>                                                                 <C>                  <C>
       Deferred tax asset:
             Accrued liabilities and other                          $   956                $   415
             Allowance for doubtful accounts                            245                    209
                                                                   --------               --------
                   Total deferred tax asset                         $ 1,201                $   624
                                                                   ========               ========
       Deferred tax liability:
             Depreciation and other                                 $ 1,597                $ 1,349
                                                                   --------               --------
                   Total deferred tax liability                     $ 1,597                $ 1,349
                                                                   ========               ========
</TABLE>


12.        BUSINESS SEGMENT INFORMATION

             The Company is engaged in one business segment: the design,
development, manufacture, marketing, and support of software and hardware for
use in the communications industry.

             Sales by country, as a percentage of total sales, is as follows:

                                         YEARS ENDED JANUARY 31,
                                         -----------------------
                              2002                2003                 2004
                              ----                ----                 ----

       United States            38%                 29%                  28%
       Germany                   9                  21                   25
       Sweden                   12                  16                    3
       Israel                   16                  12                   11
       Other                    25                  22                   33
                              ----                ----                 ----
             Total             100%                100%                 100%
                              ====                ====                 ====


           For the year ended January 31, 2002, four customers accounted for
approximately 18%, 16%, 11%, and 11% of the Company's sales. For the year ended
January 31, 2003, three customers accounted for approximately 23%, 19%, and 11%
of the Company's sales. For the year ended January 31, 2004, three customers
accounted for approximately 26%, 11%, and 11% of the Company's sales.

           The Company had long-lived assets of approximately $6,868,000 in the
United States and $940,000 in France at January 31, 2004. The Company had
long-lived assets of approximately $8,041,000 in the United States and
$1,013,000 in France at January 31, 2003.


                                      F-20
<PAGE>
13.        COMMITMENTS AND CONTINGENCIES

           LEASES - The Company leases office space under non-cancelable
operating leases. Rent expense for all leased premises approximated $1,169,000,
$1,145,000, and $1,054,000 for the years ended January 31, 2002, 2003, and 2004,
respectively.

         As of January 31, 2004, the minimum annual rent obligations of the
Company were approximately as follows:

    YEARS ENDING JANUARY 31,                                    AMOUNT
    ------------------------                                    ------
                                                            (IN THOUSANDS)

             2005                                              $   886
             2006                                                  903
             2007                                                  159
                                                               -------
                                                               $ 1,948
                                                               =======














                                      F-21
<PAGE>
14.      QUARTERLY INFORMATION (UNAUDITED)

The following table shows selected results of operations of each of the fiscal
quarters during the years ended January 31, 2003 and 2004:


<TABLE>
<CAPTION>
                                                                    FISCAL QUARTER ENDED
                         ----------------------------------------------------------------------------------------------------------
                         APR. 30,      JULY 31,      OCT. 31,       JAN. 31,      APR. 30,      JULY 31,      OCT. 31,     JAN. 31,
                           2002          2002          2002           2003          2003          2003          2003         2004
                           ----          ----          ----           ----          ----          ----          ----         ----
                                                           (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                     <C>           <C>           <C>            <C>           <C>            <C>           <C>         <C>
Sales                    $ 7,097       $6,103         $7,764         $8,267       $9,129         $9,434        $9,691      $10,124
Gross profit               3,869        3,565          4,947          5,617        6,362          6,689         6,900        7,269
Net income (loss)         (1,079)      (2,094)           579            859          981          1,273         1,104        1,222

Diluted earnings (loss)
  per share              $(0.03)       $(0.05)        $ 0.01         $ 0.02       $ 0.02         $ 0.03        $ 0.03      $  0.03
                         =======       =======        ======         ======       ======         ======        ======      =======

</TABLE>










                                      F-22