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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-K

Commission File Number: 0-24701

Catapult Communications Corporation

160 South Whisman Road, Mountain View, California 94041

Registrant’s telephone number, including area code:

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

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

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

      Indicate by a check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     o

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

      The aggregate market value of the voting stock held by non-affiliates of the Registrant (based upon the closing price of the Registrant’s common stock on March 31, 2004 of $17.86 per share) was approximately $127,274,468. Shares of common stock held by each executive officer and director of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

      As of November 30, 2004, 14,616,050 shares of the Registrant’s common stock, $0.001 par value, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

      Part III incorporates information by reference from the definitive proxy statement for the Annual Meeting of Stockholders scheduled to be held on January 25, 2005.

TABLE OF CONTENTS

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FORWARD-LOOKING STATEMENTS

      THIS REPORT ON FORM 10-K CONTAINS STATEMENTS THAT ARE NOT HISTORICAL FACTS BUT ARE FORWARD-LOOKING STATEMENTS RELATING TO SUCH MATTERS AS ANTICIPATED FINANCIAL PERFORMANCE, BUSINESS PROSPECTS, TECHNOLOGICAL DEVELOPMENTS, NEW PRODUCTS, THE INTEGRATION OF THE BUSINESS ACQUIRED DURING THE PREVIOUS FISCAL YEAR AND SIMILAR MATTERS. SUCH STATEMENTS ARE GENERALLY IDENTIFIED BY THE USE OF FORWARD-LOOKING WORDS AND PHRASES, SUCH AS “INTENDED,” “EXPECTS,” “ANTICIPATES” AND “IS (OR ARE) EXPECTED (OR ANTICIPATED).” THESE FORWARD-LOOKING STATEMENTS INCLUDE BUT ARE NOT LIMITED TO THOSE IDENTIFIED IN THIS REPORT WITH AN ASTERISK (*) SYMBOL. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE DISCUSSED IN SUCH FORWARD-LOOKING STATEMENTS, AND OUR STOCKHOLDERS SHOULD CAREFULLY REVIEW THE CAUTIONARY STATEMENTS SET FORTH IN THIS REPORT ON FORM 10-K, INCLUDING THOSE SET FORTH UNDER THE CAPTION “FACTORS THAT MAY AFFECT FUTURE RESULTS.”

      WE MAY FROM TIME TO TIME MAKE ADDITIONAL WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS, INCLUDING STATEMENTS CONTAINED IN OUR FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION AND IN OUR REPORTS TO STOCKHOLDERS. WE DO NOT UNDERTAKE TO UPDATE ANY FORWARD-LOOKING STATEMENTS THAT MAY BE MADE FROM TIME TO TIME BY US OR ON OUR BEHALF.

PART I

The Company

      Catapult Communications Corporation (“we”, “Catapult,” the “Company” or the “Registrant”) designs, develops, manufactures, markets and supports advanced software-based test systems for the global telecommunications industry. Our DCT, MGTS and Chameleon products are digital communications test systems designed to enable equipment manufacturers and network operators to deliver complex digital telecommunications equipment and services more quickly and cost-effectively, while helping to ensure interoperability and reliability. Our advanced software and hardware assist customers in the design, integration, installation and acceptance testing of a broad range of digital telecommunications equipment and services by performing a variety of test functions, including:

	•	design and feature verification;
	•	conformance testing;
	•	interoperability testing;
	•	load and stress testing; and
	•	monitoring and analysis.

      We market our products through our direct sales force with offices in the United States, the United Kingdom, Germany, France, Finland, Canada, Japan and China. In other markets, we use distributors. Our end customers include industry leaders such as Alcatel, Cingular Wireless, Evolium SAS, Fujitsu Limited, LM Ericsson, Lucent Technologies, Inc., Motorola, Inc., NEC Corporation, Nippon Telephone and Telegraph, Nokia Corporation, Nortel Networks Limited, NTT DoCoMo, Inc., Siemens AG and Vodafone Group Plc.

      Catapult was incorporated in California in October 1985, reincorporated in Nevada in 1998, and has operations in the United States, Canada, the United Kingdom, Germany, France, Finland, Japan, China and

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      We are subject to the informational requirements of the Securities Exchange Act of 1934 (the Exchange Act) and hence file periodic reports, proxy statements and other information with the Securities and Exchange Commission (the SEC). Such reports, proxy statements and other information may be obtained by visiting the Public Reference Room of the SEC at 450 Fifth Street, NW, Washington, DC 20549 or by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically.

      Financial and other information can also be obtained at our web site, www.catapult.com, where we make available, free of charge, copies of our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after filing such material electronically or otherwise furnishing it to the SEC.

Recent Stock Offering

      In September 2004, we completed an underwritten stock offering that included 200,000 shares of Common Stock newly issued by us, 1,081,250 shares which Tekelec received upon conversion of $17.3 million in notes issued by our Irish subsidiary in connection with the acquisition of NDB, and an aggregate of 300,000 shares sold by Dr. Richard Karp, our Chairman and Chief Executive Officer, and by Nancy Karp, one of our directors. In October 2004, Dr. Karp and Ms. Karp sold an aggregate of 137,187 additional shares of our Common Stock pursuant to an over-allotment option they had granted to the underwriters. In November 2004, Dr. Karp and Ms. Karp sold a further 950,000 shares of Common Stock in an underwritten offering.

Our DCT, MGTS and Chameleon Products

      Our telecommunications test product line consists of three products: the DCT system, originally introduced in 1985 and since extensively enhanced; the MGTS system, acquired in connection with the acquisition of NDB; and the Chameleon protocol analyzer, announced in February 2004 and released for beta test in the fourth calendar quarter of 2004.

      The DCT and MGTS products perform a variety of test functions, including design and feature verification, conformance testing, interoperability testing, load and stress testing, and monitoring and analysis. We maintain an extensive library of software modules that provide test support for a large number of industry standard protocols and variants thereon. Our emphasis is on testing complex, high-level and emerging protocols, including:

	•	Third and Fourth Generation Cellular (3G and 4G), including UMTS and cdma2000;
	•	General Packet Radio Service (GPRS);
	•	Global Systems for Mobile Communications (GSM);
	•	Code Division Multiple Access (CDMA);
	•	IP Telephony (Voice over IP or VoIP);
	•	Asynchronous Transfer Mode (ATM); and
	•	Signaling System #7 (SS7).

      Our extensive technical know-how and proprietary software development tools enable us to implement test support for new protocols and protocol variants rapidly in response to customer needs. With their extensive libraries of software protocol test modules, large selection of proprietary hardware physical interfaces and versatile range of hardware platforms, the DCT and MGTS products are easily configured to support a wide variety of digital testing functions, thereby reducing a customer’s need for multiple test systems. In addition, the DCT and MGTS systems’ multi-protocol, multi-user capabilities allow multiple complex testing

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      DCT and MGTS systems consist of advanced proprietary software running on third-party Sun Microsystems Solaris^TM UNIX-based workstations or Linux-based computers together with our proprietary hardware interfaces. When acquiring a system, customers typically license one or more software modules and purchase hardware and ongoing software support. Customers may upgrade their systems by purchasing additional software protocol test modules and additional hardware interfaces to meet future testing needs. Prices for DCT and MGTS systems vary widely depending upon the overall system configuration, including the number and type of software protocol modules and the number of physical interfaces required by the customer. A DCT or MGTS system sale typically ranges in price from approximately $50,000 to over $250,000.

      The Chameleon protocol analyzer consists of advanced proprietary software running on a third-party Linux-based rack-mount or portable personal computer together with our proprietary hardware interfaces. A Chameleon protocol analyzer typically will range in price from approximately $30,000 to $45,000.

      The principal applications of the DCT and MGTS systems are feature verification, conformance testing, interoperability testing, load and stress testing, and monitoring and analysis. The principal application of Chameleon is monitoring and analysis.

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

      Conformance Testing. DCT and MGTS systems verify that network devices conform to industry standards. Because industry standards for protocols are constantly changing, we regularly develop new protocol test modules and update existing protocol test modules so that customers can validate the implementation of new features and the functionality of existing features against those standards.

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

      Load and Stress Testing. DCT and MGTS systems verify that a device under test can successfully handle its designed traffic capacity and that its performance will degrade gradually, rather than fail completely, when stressed beyond its specifications. The scalable architectures of the DCT and MGTS systems combined with the recently introduced m5000 hardware platform described below significantly improve our ability to address our customers’ growing need to generate and maintain high traffic volumes for load testing.

      Monitoring and Analysis. DCT and MGTS systems are used in development laboratories to monitor network links and store network activity information for future analysis, typically without affecting network traffic. By collecting and analyzing traffic, our systems help ensure that the links have been brought into service and that the devices connected by the links are functioning properly. DCT and MGTS systems can also provide notice of network device failure, set “traps” and “triggers,” count error messages and filter packets by address or selected field criteria. Our systems can simultaneously monitor multiple links, each of which may be using different protocols. Chameleon is intended to be used to perform these functions on a more cost-effective basis in operating and field test environments as well as in development labs.

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      Our test systems run under the Sun Microsystems Solaris^TM UNIX^TM or Linux^TM operating system and consist of proprietary test software, specialized programming languages and tools, graphical user interfaces and extensive libraries of proprietary test modules for a large number of protocols and variants. This enables the systems to be configured for many different applications. Test modules are developed in accordance with telecom industry standard specifications and may include protocol encoders and decoders, state machines, validation tests and conformance test suites.

      DCT and MGTS systems include a number of productivity tools. Using the DCT, customers may choose to program their tests by using our graphical user interface, CATTgen, or by writing their own code using our Digital Communication Programming Language, DCPL. DCPL is a fully featured, optimized communications language. DCT customers can also choose to integrate their own libraries of test subroutines written in industry standard programming languages such as C or C++. Using the MGTS system, customers may implement their tests using our Protocol Adaptable State Machine, PASM. PASM allows the user to construct custom tests in a graphical environment. The DCT and MGTS products also provide “Quick Start” applications to aid in training new users and provide a starting point for developing new test applications.

      Chameleon is an advanced protocol analyzer designed to assist in 3G wireless network development and deployment. Chameleon provides a rich set of monitoring and analysis tools that enable users to understand and resolve network protocol issues and to diagnose and troubleshoot complex interfaces. Chameleon provides both real-time and post-processing capabilities, including a trace feature that allows tracking individual calls at the protocol layer level. Chameleon provides decode analysis down to the bit level with a single mouse click, making it possible to understand protocol-related problems quickly and easily.

      Our products employ modular hardware architectures that support a wide variety of proprietary physical interfaces connecting the systems to devices under test.

      Until September, 2004 both the DCT and MGTS products utilized Sun Microsystems workstations for control purposes but each product used different proprietary hardware physical interfaces. The DCT2000 extends the processing power of the workstation by means of a family of interface cards, each of which includes a PowerPC processor. The MGTS i3000 system is based on a distributed-processor architecture with one central controller and up to 256 distributed link processors. The MGTS i3000 uses a high-speed bus architecture based on the PCI2 and CompactPCI3 (“cPCI”) standards and supports a family of Line Interface Cards for industry standard physical interfaces.

      When we acquired the MGTS product line from Tekelec in August 2002, we began to design a new generation of hardware which would support both the DCT and MGTS products. In October 2003, we introduced the first of these common hardware platforms, the high-performance m5000, which addressed the telecom industry’s need for higher 3G/ ATM load test performance. The m5000’s serial-mesh backplane architecture supports up to 18 interface cards and provides the advantages of scalability, data traffic management and computing resource flexibility. The m5000 platform already supports our new m5000-OC3/12 computing interface card that employs two IBM PowerPC RISC processors to provide high capacity computing power. Using the m5000 platform, the DCT system can support up to 26 PowerPCI co-processor cards, up to 72 m5000-OC3/12 Computing Interface cards or a combination of PowerPCI and m5000-OC3/12 cards, which are installed in the workstation and up to four expansion chassis. The m5000 also requires a Sun workstation.

      In September 2004, we announced a full range of five hardware common platforms that will allow the DCT and MGTS systems to target an even broader range of telecom test environments and applications. These new platforms meet an increasing demand for transportable, desktop and rack-mount form factors that provide greater price and performance scalability. The new range of platforms support both Catapult PowerPCI® and cPCI type network interface cards: the transportable and desktop platforms support up to four PowerPCI network interface cards; while small and medium rack-mount platforms support up to two and up

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Customers

      Catapult’s worldwide customer base includes both telecommunications equipment manufacturers and network operators.

      Revenues from our top five customers represented approximately 64%, 50% and 55% of total revenues in fiscal 2002, 2003 and 2004, respectively. In fiscal 2004, sales to Nortel, NTT DoCoMo, Ericsson and NEC accounted for approximately 13%, 12%, 12% and 11% of total revenues, respectively. In fiscal 2003, sales to NTT DoCoMo, Nortel and NEC accounted for approximately 13%, 12%, and 10% of total revenues, respectively. In fiscal 2002, sales to Nortel, NEC and NTT DoCoMo accounted for approximately 24%, 14%, and 12% of total revenues, respectively. Separate engineering groups of the same customer at different locations generally make independent decisions to purchase our products. For example, several divisions of one major customer have independently installed DCT systems at multiple locations in the United States as well as in Ireland, the United Kingdom, Israel, India and China.

      We expect that we will continue to depend upon a relatively limited number of customers for substantially all of our revenues in future periods, although no customer is presently obligated either to purchase a specific amount of products or to provide us with binding forecasts of purchases for any period. The loss of a major customer or the reduction, delay or cancellation of orders from one or more of our significant customers could materially adversely affect our business, financial condition and results of operations.

Sales and Marketing

      We market our products and services through our direct sales force, most of whom have technical degrees. As of September 30, 2004, our direct sales force consisted of 26 employees. This direct sales force is supported by applications engineering, administrative and marketing personnel. Our sales and marketing staff is located in North America, Europe, Japan and China. In addition, we sell our products through distributors in Europe, the Middle East, Africa, Australia and South America.

      Our sales strategy is to focus on the functional groups related to the customer’s product development cycle, including research and development, network integration and final test. Sales to a new customer have often led to additional sales at other facilities of that customer, because often a customer performs development at multiple sites. We intend to continue to leverage our existing customer base not only for follow-on and upgrade sales but also to gain access to new customers. For example, because users of similar test systems can benefit from sharing test scripts and results, an initial sale can facilitate a subsequent sale to other equipment manufacturers and network operators.

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

      Customers generally purchase on an as-needed basis, and none of our customers has entered into agreements that require minimum purchases. Our products generally are shipped within 15 to 30 days after orders are received. As a result, we generally do not have a significant backlog of orders, and revenues in any quarter are substantially dependent on orders booked and shipped in that quarter.

      A customer’s decision to purchase our products typically involves a significant technical evaluation and may also involve internal procedural delays associated with large capital expenditure approvals. For these and other reasons, the sales cycle associated with our products is typically lengthy and subject to a number of significant risks over which we have little or no control. Historically, the period between initial customer contact and purchase of our products has typically ranged from two to nine months, with sales to new

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International Sales

      International sales outside the United States constituted approximately 85%, 65% and 76% of our total revenues in fiscal 2002, 2003 and 2004, respectively. We expect that international sales will continue to account for a significant portion of our revenues in future periods. We sell our products worldwide through our direct sales force and distribution channels. We have sales staff outside the United States located in offices in Japan, the United Kingdom, Germany, France, Finland, Canada and China, and we plan to open new offices internationally from time to time.

      Information with respect to our revenues and identifiable long-lived assets by principal geographic area of operations is set forth in Note 15 of the Notes to Consolidated Financial Statements in Item 8 of this report.

Product Support

      Due to the complexity of our customers’ testing needs, we offer our customers support and training using our highly skilled technical personnel. As of September 30, 2004, we had 60 applications engineers worldwide who provide full-time technical assistance and development support to our customers. We provide ongoing training, generally at the customer’s site, and technical assistance from all of our offices. Support is generally offered during normal business hours applicable to each office. We also offer product warranties for various lengths of time, depending on the product and the country of purchase or operation.

      We provide periodic software releases that contain new features, new protocol variants and other improvements. Each new software release is carefully designed not only to enhance performance and flexibility, but also to maximize compatibility with our earlier software releases, enabling our products to continue to be used as customer needs and applications evolve. As part of our ongoing software support, we may occasionally develop protocol variants at the request of our customers.

Product Development

      Our development efforts are directed at improving the capability, performance and ease of use of the DCT, MGTS and Chameleon products. We intend to continue to devote a large portion of our engineering resources to the enhancement of our suite of software protocol test and analysis modules in order to meet current and projected customer requirements. We also intend to continue to develop and enhance our proprietary internal tools and techniques for supporting new protocols in the DCT, MGTS and Chameleon systems.

      We are continually seeking to make the DCT, MGTS and Chameleon products easier to use in order to expand our market to include a broader range of users. In order to run test scenarios, particularly on advanced telecommunications systems, users may need to create customized test scripts, a process that may require significant technical expertise. To assist this process, we plan to continue the expansion and refinement of our GUI and other script development tools. In addition, we will continue to support test suites specified by telecommunications standards bodies, such as ITU-T (International), ETSI (European) and EIA-TIA (North American), where appropriate.

      Most of our hardware development program is directed towards designing protocol co-processors and associated physical interfaces. We have initiated these projects to increase the performance and capabilities of the DCT, MGTS and Chameleon products and expand the range of devices to which these products can be directly connected for testing purposes.

      Our research and product development expenses were approximately $7.5 million, $13.5 million and $11.7 million in fiscal 2002, 2003 and 2004, respectively. In addition, in fiscal 2002 we recorded a $1.4 million in-process research and development expense in connection with the purchase of NDB. Our policy is to

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Manufacturing

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

      We have a computerized manufacturing inventory control system that is integrated with our financial accounting system. This manufacturing control system monitors purchasing, inventory control and production.

Competition

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

      We believe our principal competitors are Artiza Networks, Acterna Corporation, Agilent Technologies, Inc., ipNetfusion, Spirent plc, NetHawk Oyj, Radcom Ltd. and Tektronix, Inc. Many of our existing and potential competitors are large domestic and international companies that have substantially greater financial, manufacturing, technological, marketing, sales, distribution and other resources, larger installed customer bases, greater name recognition and longer-standing customer relationships than we have. Accordingly, such competitors or potential competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements or to devote greater resources to the development, promotion and sales of their products than we may be able to. We believe that the market for high-end testing systems is fragmented geographically. For example, Tektronix is our primary competitor in North America, while our primary competitors in Europe are Tektronix, Acterna, Spirent and NetHawk. Our primary competitor in Japan is Artiza. We also face competition from several relatively small private companies.

      We also compete with the internal test system groups of our customers and potential customers. Many of our existing and potential customers have the technical capability and financial resources to produce their own test systems and perform test services internally. These systems and services would be competitive with the test systems offered by us.

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

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Intellectual Property

      We rely on a combination of trademark, copyright and trade secret laws, as well as nondisclosure agreements and other contractual restrictions, to establish and protect our proprietary rights. We generally enter into nondisclosure and invention assignment agreements with our employees and consultants, and into nondisclosure agreements with our customers and suppliers. To date, we have generally not sought patent protection for our proprietary technology. We believe that, historically, because of the rapid pace of technological change in the telecommunications test system market, patent protection has been a less significant factor than the knowledge, ability and experience of our employees, the nature and frequency of product enhancement and the quality of our support services. However, there can be no assurance that patent protection will not become a more significant factor in our industry in the future. Likewise, there can be no assurance that the measures we undertake will be adequate to protect our proprietary technology. To date, we have federally registered certain of our trademarks or copyrights. Our practice is to affix copyright notices on software, hardware and product literature in order to assert copyright protection for these works. There can be no assurance that the lack of federal registration of all of our trademarks and copyrights would not have a material adverse effect on our intellectual property rights in the future. Additionally, we may be subject to further risks as we enter into transactions in countries where intellectual property laws are unavailable, do not provide adequate protection or are difficult to enforce.

      In connection with our acquisition of Tekelec’s Network Diagnostics Business, Catapult and Tekelec entered into license agreements with respect to certain technology and intellectual property that were used by Tekelec in NDB’s business but were not transferred outright to us. Under these agreements, Tekelec granted to us and our Irish subsidiary perpetual, royalty-free, worldwide (except as to the United States for the subsidiary) licenses to exploit the subject technology and intellectual property. These licenses are exclusive to us and our subsidiary for eight years from the date of the acquisition for products used in protocol analysis or simulating, diagnosing, analyzing or testing communications networks, or which are otherwise similar to the MGTS products, excluding products similar to Tekelec’s Sentinel product (the “Catapult Field”). However, during the first five years, we and our subsidiary may not use the licensed technology and intellectual property for products for signaling or network infrastructure, packet telephony networks, network maintenance, surveillance and revenue assurance, and planning, management and call routing and control tools for contact center environments, including products similar to Tekelec’s Sentinel product (the “Tekelec Field”). We also granted back to Tekelec a perpetual royalty-free, worldwide license to the technology and intellectual property that was transferred outright by Tekelec to us. This license is exclusive to Tekelec for five years within the Tekelec Field, and Tekelec may not use the licensed technology and intellectual property within the Catapult Field for eight years.

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

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

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Employees

      As of September 30, 2004, we employed 219 full-time employees, including 73 in research and development, 23 in application engineering customer support, 79 in sales, 12 in marketing, 19 in administration and 13 in manufacturing. Of these employees, 151 were employed in North America, where our head office and NDB office are both located, 33 in the United Kingdom and Europe, 18 in Japan, 14 in Australia and 3 in China. We are not subject to any collective bargaining agreement and have not experienced any work stoppages. We believe that our relations with our employees are good.

Our Executive Officers

      The following table sets forth certain information, as of September 30, 2004, with respect to our executive officers:

      Dr. Richard A. Karp founded Catapult in 1985 and has served as our Chief Executive Officer and Chairman of the Board since inception. In May 2000, Dr. Karp relinquished his title as President to David Mayfield, our Chief Operating Officer. Dr. Karp holds a Ph.D. in computer science from Stanford University, an M.S. in mathematics from the University of Wisconsin and a B.S. in science from the California Institute of Technology.

      Mr. David Mayfield joined Catapult in May 2000 as our President and Chief Operating Officer. Prior to joining Catapult, Mr. Mayfield served as interim General Manager at Scitex Digital Video, a manufacturer of non-linear digital video editing systems. Prior to 1998, Mr. Mayfield was Executive Vice President and General Manager of the Philips DVS organization in Salt Lake City, UT, a manufacturer of digital video systems. Mr. Mayfield holds a B.S. in Electrical Engineering from California Polytechnic State University and has completed selected courses towards MSEE at the University of Santa Clara.

      Mr. Glenn Stewart joined Catapult in 1992 as Vice President of Engineering and was promoted to the position of Chief Technology Officer in January 2003. Prior to joining Catapult, he was Director of Engineering at Tektronix/ LP Com, a manufacturer of telecommunications test products. Previously, he spent nine years at Bell Northern Research as a manager of development of telecommunications products and services. Mr. Stewart holds an M.Sc. and a B.Sc. in Computer Science from the University of Toronto.

      Mr. Chris Stephenson joined Catapult in July 2000 in a full-time consulting capacity and assumed the role of Chief Financial Officer in February 2001 upon approval of the required work visa. From 1985 to April 2000, he was Chief Financial Officer of Telco Research Corporation Limited and its predecessor, TSB

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      Mr. Sean Kelly joined Catapult in July 2003 as Vice President of Sales. From 1980 to 2002, Mr. Kelly held progressively more senior product management, marketing and sales management positions with Hewlett-Packard Company, most recently that of General Manager — Worldwide Business Customer Sales — Industry Standard Servers, PCs, Printers. Mr. Kelly holds a B.S. in Mathematics from the U.S. Naval Academy.

      Mr. Adam Fowler joined Catapult in August 2002 in connection with our acquisition of the Network Diagnostics Business from Tekelec and was promoted to the position of Vice President of Advanced Development in January 2003. From 1998 to 2002, Mr. Fowler held progressively more senior development management positions with Tekelec, most recently that of Assistant Vice President of Engineering with responsibility for the MGTS product line. Prior to 1998, he was employed by Nortel, Inc. for 14 years, where his last position was Senior Manager, Product Development and Verification. Mr. Fowler holds a B.S.E in Electrical Engineering from Duke University.

      Mr. Guy R. Simpson joined Catapult in 1989 and has held a number of technical and management positions with us since that time. Mr. Simpson has served as Deputy Chairman of Catapult Communications Ltd. (“CCL”), our UK subsidiary, since October 1996 and was appointed Vice President of Applications Development of Catapult in May 1998. Prior to joining Catapult, Mr. Simpson was employed for eight years by AT&T Bell Laboratories, where he held a variety of engineering and management positions in the area of advanced digital switching systems. Mr. Simpson holds a B.Sc. degree in Computer Science from Hatfield Polytechnic at the University of Hertfordshire, United Kingdom.

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

      Mr. Terry Eastham joined Catapult in 1999 as our first Vice President of Marketing. Prior to joining Catapult, he served as Chief Operating Officer for Sherwood Networks, a manufacturer of network computers and display terminals. Previously, he spent six years at Wyse Technology, a manufacturer of display terminals, as Vice President of Product Marketing and 17 years at Hewlett-Packard Company where he held a variety of marketing and sales development positions. Mr. Eastham holds both a M.B.A. degree and a M.S. in Physics degree from Washington University and a B.S. degree in Physics from Oklahoma State University.

      Ms. Kathy T. Omaye-Sosnow joined Catapult in 1997 as our Manager of Human Resources. She was promoted to the position of Director of Human Resources in June 1999 and to Vice President of Human Resources in November 2000. Prior to joining Catapult, she held a variety of human resources positions, most recently as Manager of Corporate Employment at McKesson HBOC Corporation, a pharmaceutical distributor and health management corporation. Ms. Omaye-Sosnow holds a B.S. degree in Human Resources from California State University, Sacramento.

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GLOSSARY

      Our executive offices, product development and primary support and production operations are located in Mountain View, California, where we occupy approximately 39,100 square feet pursuant to leases that expire in 2010. The annual rent for the property is approximately $420,000. In addition we lease approximately 31,000 square feet in Morrisville, North Carolina for product development and support operations, expiring in 2008. The annual rent for the property is approximately $270,000. We believe that these facilities will be adequate for our planned purposes.*

      In addition, we lease a total of approximately 30,000 square feet of professional services office space in the following 11 locations: Schaumburg, Illinois; Dallas, Texas; Ottawa, Canada; Chippenham, England; Gilching, Germany; Antony Cedex, France; Helsinki, Finland; Tokyo, Japan; Yokosuka Research Park, Japan; Melbourne, Australia and Shanghai, China.

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      A lawsuit was instituted in October 2002 against us and one of our subsidiaries, Catapult Communications International Limited, an Irish corporation, in the Antwerp Commercial Court, Antwerp, Belgium, by Tucana Telecom NV, a Belgian company. Tucana had been a distributor of products for Tekelec, the company from which we acquired NDB in August 2002. The writ alleges that the defendants improperly terminated an exclusive distribution agreement with Tucana following the acquisition of NDB and seeks damages of €12,461,000, plus costs. A trial date on the matter was scheduled for January 16, 2004 but Tucana did not appear. We strongly believe that we properly terminated any contract we had with Tucana and that Tucana is not entitled to any damages in this matter. We intend to defend ourselves vigorously. We may be able to seek indemnification from Tekelec for any damages assessed against us in this matter under the terms of the Asset Purchase Agreement we entered into with Tekelec, although there is no assurance that such indemnification would be available.

      No matters were submitted to a vote of security holders during the fourth quarter of fiscal 2004.

PART II

      Our common stock is quoted on the Nasdaq National Market System (“Nasdaq”) under the symbol “CATT.” The following table sets forth the range of high and low closing sales prices for each fiscal period indicated:

      We had seven stockholders of record as of November 30, 2004. We have not declared or paid any cash dividends on our common stock and presently intend to retain our future earnings, if any, to fund the development and growth of our business. Therefore, we do not anticipate paying cash dividends in the foreseeable future.

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

Consolidated Statements of Income Data:

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