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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A
AMENDMENT NO. 1
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FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

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

FOR THE FISCAL YEAR ENDED APRIL 30, 2000

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

FOR THE TRANSITION PERIOD FROM __________ TO __________ .

COMMISSION FILE NUMBER 0-21488

CATALYST SEMICONDUCTOR, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 77-0083129
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

1250 BORREGAS AVENUE, SUNNYVALE, CALIFORNIA 94089
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (408) 542-1000

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, $.001
PAR VALUE

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

Indicate by 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. [ ]

The aggregate market value of voting stock held by non-affiliates of
Registrant, as of June 9, 2000, was approximately $106 million (based upon the
average of the closing bid and asked price for shares of Registrant's Common
Stock as reported by the OTC Bulletin Board for the last trading date prior to
that date). Shares of Common Stock held by each officer, director and holder of
5% or more of the outstanding Common Stock (including shares with respect to
which a holder has the right to acquire beneficial ownership within 60 days)
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.

The number of shares of Registrant's Common Stock outstanding as of July
14, 2000 was 16,291,308.

DOCUMENTS INCORPORATED BY REFERENCE

Part III incorporates information by reference from the definitive Proxy
Statement for Registrant's 2000 Annual Meeting of Stockholders.
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2

CATALYST SEMICONDUCTOR, INC.

PAGE
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PART I
Item 1. Business.................................................... 3
Item 2. Properties.................................................. 11
Item 3. Legal Proceedings........................................... 11
Item 4. Submission of Matters to a Vote of Security Holders......... 11

PART II

Item 5. Market for Registrant's Common Stock and Related Stockholder
Matters..................................................... 12
Item 6. Selected Consolidated Financial Data........................ 13
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 14
Item 7A. Quantitative and Cumulative Disclosures about Market Risk... 24
Item 8. Financial Statements and Supplementary Data................. 25
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 25

PART III

Item 10. Directors and Executive Officers of Registrant.............. 26
Item 11. Executive Compensation...................................... 26
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 26
Item 13. Certain Relationships and Related Transactions.............. 26

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 27
Signatures............................................................ 30
Index to Consolidated Financial Statements............................ F-2

Items 1 through 14 and the Consolidated Financial Statements contained in
the Company's Form 10-K for the fiscal year ended April 30, 2000 are amended in
their entirety to read as follows:

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CATALYST SEMICONDUCTOR, INC.

PART I

ITEM 1. BUSINESS

Catalyst Semiconductor Inc. (Catalyst, the Company or Registrant) designs,
develops and markets a broad range of programmable IC products serving the
micro-controller applications market. Such applications include communication,
computing, industrial automation, consumer and automotive. The Company's product
portfolio includes serial and parallel Flash/electrically erasable programmable
read only memories (EEPROM), programmable micro-controller supervisory and
voltage reference circuits and mixed signal devices. The Company was formed as a
California corporation in October 1985 and was reincorporated in Delaware in May
1993. The Company's principal offices are located at 1250 Borregas Avenue,
Sunnyvale, California 94089 and its telephone number at that address is (408)
542-1000.

The Company has sought to enhance its internal design and process
technology expertise through strategic relationships with leading semiconductor
manufacturers and currently subcontracts the fabrication of its semiconductor
wafers through Oki Electric Industry Co., Ltd. (Oki) in Japan and X-Fab Texas,
Inc. (Xfab) in Lubbock, Texas. These relationships enable the Company to draw
upon its foundries' expertise in high volume semiconductor manufacturing. For
example, the Company has integrated the designs and processes for the
manufacture of its Flash memory products with Oki's fine line-width, high
density CMOS processes used for high volume Dynamic Random Access Memory (DRAM)
manufacture.

The Company's business is highly cyclical and has been subject to
significant downturns at various times which have been characterized by reduced
product demand, production overcapacity, and significant erosion of average
selling prices. As recently as fiscal 1999, the market for certain Flash and
EEPROM devices, which comprise the majority of Catalyst's business, experienced
an excess market supply relative to demand which resulted in a significant
downward trend in prices. More recently, the market demand for some of the
Company's products has been greater than the supply available resulting in price
stability and, for certain products, price increases. In the future, the Company
could experience a resumption of the downward trend in product pricing which
could adversely affect the Company's operating results.

During fiscal 2000, the Company's operations improved significantly,
primarily due to an improvement in market conditions. The semiconductor market
has rebounded from a cyclical decline which has had a favorable impact on the
Company's revenues and gross margins. Further, reductions in product costs and
operating expenses, which were realized due to a cost reduction program by
management, has had a favorable impact on profitability.

Total revenues for the quarter and the fiscal year ended April 30, 2000
were $17.1 million and $49.5 million, respectively, compared to revenues of $8.1
million and $32.0 million for the comparable periods of the prior year. In
addition, the Company earned net profits for the quarter and for the year ended
April 30, 2000 of $4.9 million and $10.0 million respectively, compared to net
income of $0.9 million and $0.2 million for the comparable periods in the prior
year. During fiscal 2000, the Company benefited from an $0.8 million credit from
a vendor in return for the successful payment of a settlement agreement in the
second fiscal quarter and a credit of $0.4 million from the sale of previously
reserved inventory in the first quarter. During fiscal 1999, the Company
received the benefit of an aggregate of $1.7 million in credits and adjustments
as the result of various negotiations and settlements with vendors including the
following three adjustments: (i) in the first fiscal quarter, renegotiation of
amounts due under a licensing agreement resulted in $0.5 million reduction to
cost of sales; (ii) in the second quarter, $0.7 million was credited to the
Company in return for payment of $7.0 million due under an inventory purchasing
arrangement; and (iii) in the fourth quarter, $0.5 million benefit was
recognized as the result of successful payment of amounts due under the terms of
a licensing agreement settlement. The Company's last previous profitable year
was the fiscal year ended April 30, 1996.

The Company has taken many steps to reduce its operating expenses including
negotiation of reduced costs from vendors, developing more efficient methods of
manufacture and reducing its number of full time

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equivalent employees from 71 in December 1996 to 55 in April 2000. This
reduction in employees has in part been accomplished by subcontracting certain
engineering activities to Lxi Corporation (see Certain Relationships and Related
Transactions) and certain other operations and manufacturing activities to NS
Electronics Bangkok (1993) Ltd. (NSEB) and Trio-Tech International (Trio-Tech)
in Bangkok. There can be no assurance that the Company will be able to sustain
the profitability it has experienced in the last six quarters.

As of April 30, 2000, the Company had approximately $2.0 million of secured
loans owed to its bank. As of April 30, 2000, under the terms of its borrowing
agreement, the Company was eligible to borrow approximately $3.0 million
additional cash and had cash on hand of $6.2 million. For the period from
January 1998 through March 1999, as a result of the Company's financial
condition and results of operations, the bank had determined that the Company
was in default under various provisions of the loan agreement that would have
entitled the bank to terminate the loan agreement and declare the loans
immediately due and payable. During that period, the Company obtained letters of
forbearance from the bank taking any action with respect to the existing
conditions of default. In April 1999, various terms and conditions of the
agreement were renegotiated, reducing the borrowing limit from $13.5 million to
$5.0 million, reducing the interest rate and changing the covenant requiring a
minimum net worth such that the Company has been in compliance since April 30,
1999. The Company is currently also indebted to other creditors in the amount of
approximately $6.7 million and is current with all vendors. This amount is
comprised of approximately $5.6 million for wafer production and inventory
processing and approximately $1.1 million for other goods and services.

The Company markets its products through a direct sales force and a
worldwide network of independent distributors and sales representatives. For the
year ended April 30, 2000, international sales represented 60% of product sales.
End user customers of the Company's products include Cisco, Compaq, Fujitsu,
Hewlett Packard, IBM, Matsushita Communications, Motorola, Quantum, Siemens and
Sony.

INDUSTRY BACKGROUND

There are two general classes of semiconductor memories incorporated into
electronic systems, volatile memory and nonvolatile memory. The principal
distinguishing characteristic between the two classes is that volatile memory
devices require a continuous application of power to retain data, while
nonvolatile memory devices do not. Among volatile memory devices, DRAMs are the
most prevalent, because they are capable of high-speed data transfer, feature
high density circuitry and can be manufactured at relatively low cost. DRAMs are
used primarily as the main memory in computers for temporary storage of
application program data while the system is operating. Nonvolatile memory (NVM)
devices, in contrast, are used by computers and electronic systems primarily to
store system-critical data when the power to the system is turned off. The
continuous memory capability of NVM renders these devices well-suited for a wide
range of applications in the computer, consumer electronics, telecommunications,
automotive, industrial control and instrumentation markets. NVM devices are used
to store essential data such as PC BIOS software, which regulates the flow of
data to and from system peripherals such as the keyboard and monitor and disk
drives. In addition, NVM devices that can be programmed and reprogrammed in the
system are used to store user-selected system configurations in consumer
electronics devices such as preset stations in automobile radios and to store
numbers in cellular telephones. NVM devices have generally not been used for
computer main memory applications because historically they have been more
expensive, provided slower performance and were more costly to produce than
volatile memory such as DRAMs.

The different NVM semiconductor devices that the Company sells are
reprogrammable NVM devices such as electrically erasable programmable read only
memory (EEPROM), nonvolatile random access memory (NVRAM) and Flash memory. Each
successive generation of NVM memory offers increasing functionality, flexibility
and performance.

The following NVM devices are currently available from various suppliers in
the industry:

EEPROMs. EEPROMs can be erased and reprogrammed electrically within the
system, eliminating the need for physical removal, as required by erasable
programmable read only memories (EPROMs). On "full-featured" EEPROMs, which have
on-chip error correction capabilities that enhance system reliability,
individual bytes or segments of the stored data can be erased and rewritten
thousands of times. These features
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generally offer greater flexibility to systems designers than EPROMs. EEPROMs
are used to store system-critical information which needs to be updated on a
periodic basis. This includes control panel settings and other user-configurable
system parameters in consumer devices, cache memory for disk drives, and system
protocols and stored telephone numbers in cellular telephones, facsimile
machines and other telecommunications devices. EEPROMs are generally available
in two configurations, serial EEPROM devices, which transmit data through a
single input-output port, and parallel EEPROMs, which transmit data via multiple
ports concurrently. Each cell of an EEPROM (the discrete area on the device in
which one bit is stored) consists of two transistors, one to store data and one
to permit the cell to be selected when erasing data, as compared to the single,
storage transistor of an EPROM. EEPROMs can be modified to be utilized as
programmable erasable read only memory (PEROM) devices for 5-volt FLASH
applications involving sector-by-sector data read and write. EEPROMs are more
expensive to produce than EPROMs, due to their more complex circuitry.

NVRAMs. NVRAMs consist of a Static Random Access Memory (SRAM) device and
an EEPROM incorporated in a single semiconductor die. This enables the device to
provide both the high speed data transfer rates and read/write rates typical of
volatile SRAMs and the memory retention of NVMs when the system power is off.
However, the complexity of NVRAM devices, which typically utilize 8 transistors
per cell, makes them too costly for most commercial applications. Accordingly,
NVRAMs are generally limited in application to critical, high-performance
systems, such as antilock braking systems.

Flash Memory. Flash EEPROMs, or Flash memories, combine the benefits of
high-speed data alterability and data transfer rates and, potentially, the low
cost manufacturability of volatile memory, with the flexibility and continuous
data retention of NVM. Flash memory products can potentially be manufactured
with storage densities as great as DRAM densities and thereby achieve
manufacturing costs approaching the low cost of DRAMs. In addition, the
architecture of Flash memory potentially permits data alterability and transfer
rates as fast as DRAMs. Flash memory exhibits certain limitations as compared to
DRAMs, including a finite life span of read/write cycles, which limits its use
in computer main memory applications. However, Flash memory is being designed
into a wide variety of applications beyond the traditional application of NVM in
fixed program and data storage, and into applications in dynamic data storage
due to its nonvolatility, high storage densities, rapid access speed and
decreasing cost.

PRODUCTS AND APPLICATIONS

Catalyst provides a broad range of NVM products, including serial and
parallel EEPROMs, Flash memories, NVRAMs and mixed signal products. The
Company's principal product lines are as follows:

Serial EEPROM. The Company offers a broad range of serial EEPROM products
compatible with the three popular industry standard bus interface protocols: the
Inter-Integrated Circuit (I(2)C) bus interface of Philips Electronics, the
Microwire interface protocol of National Semiconductor and the Serial Peripheral
Interface (SPI) bus protocol. Additionally, Catalyst offers 4-wire bus interface
protocol type products and secure access designed devices for applications
requiring security lock for data protection. Products are offered in wide
density (1K to 256K) and voltage (1.8V to 6V) ranges. Serial EEPROM products are
used in many applications to store user reconfigurable data. Some of the more
common applications are disk drives, modems, cellular phones, VCRs, CD players,
hearing aids, PCMCIA cards, cordless phones, laser printers, computers and
pagers.

Parallel EEPROM. Parallel EEPROMs transfer data in multiple bits, generally
eight bits at a time. They provide faster transfer rates than serial EEPROMs,
which transfer data through a single port. Parallel EEPROMs are more costly than
serial EEPROMs and, accordingly, are used primarily in high performance
applications. Catalyst offers both standard 5 volt-only and 3.3 volt-only
parallel EEPROMs to meet battery operated application requirements. The Company
offers products with 16Kbit to 512Kbit densities. Parallel EEPROMs are primarily
used in applications such as POS terminals, industrial controllers, LAN
adapters, telecommunication switches, cellular phones and modems.

Flash Memory. The Company currently offers Intel-licensed, 12-volt Flash
memory devices in densities ranging from 256 kilobit to 2 megabit (Mb). The
Company's BIOS Flash family is targeted toward personal
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computer OEMs for BIOS code storage. This family includes Intel-licensed boot
block and bulk erase technologies available in 1 Mb and 2 Mb densities. The
Company's 1 Mb wordwide (x16) Flash memory product is targeted at disk drive
applications. There can be no assurance that the Company will receive additional
significant orders for this product or that it will achieve more widespread
market acceptance.

NVRAMs. NVRAMs consist of an SRAM and an EEPROM incorporated onto a single
semiconductor die. NVRAMs provide superior performance over other NVM products
and are ideal for applications that require high speed read/write operations
with nonvolatile memories, including parallel processing controllers for LANs
and antilock braking systems.

Mixed Signal/RF Products. The Company designs, manufactures and markets
selected mixed signal products using embedded EEPROM technologies for
specialized applications including radio frequency (RF) tags for contactless
security and access control, freight lading billing systems, data collection and
general micro-controller applications. These products are based on the Company's
NVM expertise and digital/analog mixed signal design.

The Company has recently developed and introduced the following two product
lines. However, in fiscal 2000, the revenue contribution has not been material.

Micro-controller supervisory products. The Company has recently introduced
a family of micro-controller supervisory products, combining reset and watchdog
functions required by many micro-controllers, with serial EEPROM for
non-volatile data storage. These products combine in the same chip two functions
required by many micro-controller applications, which are typically offered in
two separate products, providing a more functional, lower cost solution for
these applications. The use of NVM elements inside the chip offers programming
and fine tuning capabilities for the reset controller and watchdog timer
functions, resulting in more flexibility in operation and simplified
manufacturing logistics.

Solid State Digital Potentiometers. The Company has recently introduced a
family of solid state digital potentiometers, which are targeted at replacing
mechanical potentiometers used in a variety of applications for the purpose of
fine tuning and trimming electronic circuitry.

SALES AND DISTRIBUTION

The Company markets its products through a direct sales force and a network
of independent distributors and sales representatives. In addition to its
Sunnyvale headquarters facility, the Company has domestic sales employees in
Southern California, Connecticut, Georgia and Illinois and international sales
offices in Germany, England and Taiwan. Sales offices support both original
equipment manufacturers (OEM) and distributors. In addition, Nippon Catalyst
K.K., the Company's subsidiary in Japan, works closely with the Company's
principal foundry and Japanese distributors and OEM customers.

The Company seeks to develop strategic relationships with major OEMs and
other customers. The Company offers a broad range of NVM devices compatible with
the most common industry standards and also works closely with customers to
provide semi-custom solutions to address individual customers' needs. In fiscal
2000, the Company shipped products directly or through its distribution network
to customers in the computer, consumer electronics, telecommunications,
automotive, data communication and other industries. OEM customers of the
Company's products include Cisco, Compaq, Fujitsu, Hewlett Packard, IBM,
Matsushita Communications, Motorola, Quantum, Siemens and Sony.

During fiscal 2000, three customers exceeded ten percent of the Company's
revenue. Memec (Asia Pacific) Ltd., a distributor in Asia, Future Electronics,
Inc., a distributor principally in North America and Yosun Industrial Corp., a
reseller located in Taiwan received 13%, 12% and 11%, respectively of the
Company's shipments during fiscal 2000. During fiscal 1999, no customer
represented more that ten percent of Catalyst's product revenue. During fiscal
1998, the only customer which represented more than ten percent of Catalyst's
product revenue was Marubun Corporation, a Japanese distributor (21% of product
revenues). Marubun resigned as a distributor effective in or about March 1998.
International product sales represented approximately 60%, 41% and 63% of the
Company's product sales in fiscal 2000, 1999 and 1998, respectively. The
increase in percentage of international sales in fiscal 2000 is primarily
attributable to increased sales in the
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Far East due to increased market demand and the Company's ability to be more
competitive in the region as a result of certain cost reductions. The decrease
in percentage of international sales in fiscal 1999 was primarily attributable
to the resignation of Marubun at the end of fiscal 1998. The Company has taken
steps to address this problem by appointing Internix Inc., Unidex Inc. and USC
Corporation as distributors in Japan. However, there can be no assurance that
these distributors will effectively replace the loss of sales formerly
contributed by Marubun. International sales are primarily billed in U.S.
dollars. Due to the magnitude of its international sales, the Company is subject
to the risks of conducting business internationally, including unexpected
changes in regulatory requirements, fluctuations in the value of the U.S.
dollar, which could increase the sales price of the Company's products in local
currencies, tariffs and other barriers and restrictions and the burdens of
complying with a variety of foreign laws.

The Company generally does not recognize revenue on shipments to its
distributors until the distributor resells the Company's products. In addition,
as is common in the semiconductor industry, the Company grants price protection
to distributors, in an amount equal to the difference between the price
originally charged and the reduced price, for products held in inventory by the
distributor at the time of a price reduction. From time to time, distributors
are also granted credit on an individual basis for Company-approved price
reductions on specific transactions.

MANUFACTURING

The Company subcontracts the manufacture of all of its products through
independent semiconductor manufacturers, primarily through Oki and Xfab, its
semiconductor fabricators and NSEB, its principal provider of assembly and test
services. The Company also subcontracts certain production planning, product
engineering, shipping, and tape and reel activities to NSEB and Trio-Tech in
Bangkok, Thailand, which aggregately utilize the services of approximately 66
people in performing these services for the Company. The Company has designed
its proprietary circuit designs and fabrication processes to operate within the
overall semiconductor manufacturing processes of its contract manufacturers. The
Company's designs are manufactured utilizing Oki's processes developed for high
volume and high yield production of DRAMs. The Company also endeavors to develop
its processes in a manner that permits the manufacture of its products in the
fabrication facilities of different semiconductor manufacturing suppliers.
During the fourth quarter of fiscal 2000, the Company made the first volume
shipments of products fabricated at Xfab. Xfab is owned and operated by Elex NV,
the Belgian holding company that owns 33.8% of the outstanding shares of the
Company. If the Company were forced to switch more of its manufacturing from
Oki, its production and delivery of products would be delayed and the cost to
the Company of such products might be materially increased, which could
adversely affect the Company's business, financial condition and results of
operations.

Manufacturing semiconductor products is a highly complex process that is
sensitive to a wide variety of factors including the level of contaminants in
the manufacturing environment, impurities in the materials used and the
performance of personnel and equipment. While the Company believes that it has
suppliers willing to provide an adequate wafer supply to meet its currently
anticipated needs, there can be no assurance that the Company will receive
sufficient quantities of wafers at favorable prices on a timely basis, if at
all. As is typical in the semiconductor industry, the Company's outside
foundries have from time to time experienced lower than anticipated production
yields. There can be no assurance that manufacturing problems will not occur in
the future. The loss of Oki as a supplier, any prolonged inability to obtain
adequate yields or deliveries from Oki or other subcontractors or manufacturers,
or any other circumstance that would require the Company to seek alternative
sources of supply, could increase the cost to the Company of such supplies,
delay shipments and have a material adverse effect on the Company's operating
results. The Company currently purchases wafer supplies under arrangements with
Oki and Xfab. The Company also has a purchase agreement with UMC for certain
Flash products which runs through February 2006. Due to declining Flash bookings
and other circumstances, the Company has not ordered any wafers from UMC since
December 1997. The Company's ability to purchase wafers is also subject to
having sufficient cash or credit to pay for those wafers. During fiscal 1998 and
the first half of fiscal 1999, the Company's financial condition impaired the
Company's ability to purchase necessary wafer supplies. See "Management's
Discussion and Analyses of Financial Condition and Results of
Operations -- Results of Operations," and "-- Liquidity and Capital Resources."

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The Company performs circuit assembly and test primarily through
subcontractors located in Southeast Asia. In the assembly process, the wafers
are separated into individual dies, which are then assembled into packages and
tested in accordance with procedures developed by the Company. Following
assembly, the packaged devices are further tested and inspected pursuant to the
Company's quality assurance program prior to shipment to customers. The majority
of such assembly and test services are provided by NSEB in Bangkok, Thailand,
OSE in the Philippines and Taiwan, ASE in the Philippines and Taiwan and ChipPAC
in China. While the timeliness, yield and quality of semiconductor deliveries
from the Company's suppliers have been acceptable to date, there can be no
assurance that manufacturing problems will not occur in the future. Any
prolonged inability to obtain adequate yields or deliveries from these
manufacturers, or any other circumstance that would require the Company to seek
alternate sources of supply, could delay shipments. Any significant delays would
have an adverse effect on the Company's operating results. Failure to have such
services available would have a material adverse effect on the Company's
business, financial condition and results of operations.

As a result of the Company's dependence on foreign subcontractors and test
facilities, the Company's business is subject to the risks generally associated
with doing business abroad, such as fluctuations in currency exchange rates,
foreign government regulations, political unrest, disruptions or delays in
shipments and changes in economic conditions in countries in which the Company's
manufacturing and assembly and test sources are located.

RESEARCH AND DEVELOPMENT

The Company continues to invest significant sums in research and
development to improve its fabrication processes and develop additional products
with higher performance and reliability, lower voltage requirements, smaller die
sizes and improved manufacturability. The Company's efforts include the
development of successive generations of its EEPROM and Flash memory products,
scaled to smaller geometries, mixed signal, and micro-controller supervisory
circuits with embedded EEPROM technologies. As of April 30, 2000, the Company
employed 15 persons in research and development activities, compared to 11 and
13 as of April 30, 1999 and 1998, respectively. Additionally, six of the
subcontracted personnel at NSEB provided manufacturing engineering services as
of April 30, 2000. The Company invested $2.8 million, $2.3 million and $4.5
million in research and development activities in fiscal 2000, 1999 and 1998,
respectively.

In addition, the Company has an arrangement to obtain engineering services
from of Lxi Corporation, a California corporation (Lxi), a provider of
engineering services. As of April 30, 2000, Lxi provided engineering services
through its wholly owned Romanian subsidiary, Essex com SRL that were the
equivalent of approximately 13 engineers to perform work on behalf of Catalyst.
The services relate to key development projects of the Company including
development, design, layout and test program development services. Such
engineering services are sometimes difficult to obtain in the local area and the
arrangement with Lxi reduces the costs of hiring, training and supporting a
larger number of engineers to work directly for the Company. Messrs. Vanco,
Voicu and Gay own approximately 91%, 3% and 1%, respectively, of Lxi. The fees
for such engineering services are on terms believed by the Company to be fair to
the Company and no less favorable to the Company than arms length commercial
terms. During the fiscal years ended April 30, 2000 and April 30, 1999 the
Company recorded $534,000 and $437,000 respectively of engineering fees to Lxi
for engineering design services. As of April 30, 2000 the total amount owed to
Lxi was $167,000. Messrs. Vanco, Voicu and Gay received no payments during the
fiscal years ended April 30, 2000 and April 30, 1999, except Mr. Gay who
received $1,200 from Lxi during 1999. Such payment to Mr. Gay was made for
services rendered prior to his joining the Company in connection with his duties
as Treasurer of Lxi. Mr. Gay resigned such position immediately prior to joining
the Company. Mr. Gay continues to serve as a director of Lxi.

PATENTS AND LICENSES

As of April 30, 2000, the Company owned fifteen U.S. patents, one
international patent and had one additional U.S. patent application pending. The
process of seeking patent protection can be expensive and time consuming. There
can be no assurance that patents will issue from pending or future applications,
or that if patents are issued they will provide meaningful protection or other
commercial advantage to the Company.
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Moreover, there can be no assurance that patent rights will be upheld in the
future or that the Company will be able to preserve its other intellectual
property rights.

In the semiconductor industry it is typical for companies to receive
notices from time to time alleging infringement of patents or other intellectual
property rights of others. There can be no assurance that the Company will not
receive any such notification or that proceedings alleging infringement of
intellectual property rights will not be commenced against the Company in the
future. In such event, there can be no assurances that the Company could obtain
any required licenses of third party intellectual property rights or could
obtain such licenses on commercially reasonable terms. Failure to obtain a
license in any such event could require the Company to cease production of its
products until the Company develops a non-infringing design or process.
Moreover, the cost of litigation of any such claim or damages resulting
therefrom could be substantial and could materially and adversely affect the
Company's business, financial condition and results of operations.

The Company has entered into cross license agreements with Oki and Seiko
granting them nontransferable rights to produce certain products, in exchange
for royalty payments. See "Manufacturing." The Company is not currently
receiving any royalties under these licenses. In August 1995, the Company
entered into an agreement with Intel Corporation that provides Catalyst with a
license to Intel's Flash memory and EEPROM technology in exchange for royalty
payments. Such payments to Intel for EEPROM technology ceased in July 1998 and
the payments for Flash technology will continue through June 2000. In addition,
in February 1996, the Company also entered into an agreement with UMC, granting
UMC rights to produce certain products in exchange for the provision of certain
wafer capacities and certain other license rights. In addition, as a part of
such arrangement UMC purchased 650,000 shares of the Company's Common Stock for
cash consideration of $3.7 million.

COMPETITION

The semiconductor industry is intensely competitive and has been
characterized by price erosion, rapid technological change and product
obsolescence. The Company competes with major domestic and international
semiconductor companies, many of whom have substantially greater financial,
technical, marketing, distribution and other resources.

The Company's more mature products, such as EEPROM devices, compete on the
basis of product performance, price and customer service. The Company believes
it competes successfully with respect to each of these competitive factors.
Price competition is significant and expected to continue. Principal competitors
with respect to our EEPROM products currently include STMicroelectronics, Atmel,
Fairchild Semiconductor and Xicor, as well as one of the Company's foundries,
Oki, all of which have substantially greater resources than the Company.

The market for Flash memory products has been characterized by long
production cycles, irregular yields, competing technologies and, particularly in
fiscal 1997, fiscal 1998 and fiscal 1999, intense price competition. There can
be no assurance that the Company will be able to compete successfully in the
future against its competitors for Flash products business.

EMPLOYEES

As of April 30, 2000, the Company had 55 employees, of whom 15 were engaged
in research and development. The Company's future success will depend on its
ability to attract, train, retain and motivate highly qualified employees, who
are in great demand. The Company's employees are not represented by any
collective bargaining organization, and the Company has never experienced any
work stoppage. The Company believes that its employee relations are good.

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EXECUTIVE OFFICERS AND KEY PERSONNEL

The executive officers and certain key personnel of the Company are as
follows:

NAME AGE POSITION(S)
---- --- -----------

Radu M. Vanco...................... 50 President, Chief Executive Officer and Director
Jerry L. DaBell.................... 53 Vice President of Business Development
Thomas E. Gay III.................. 51 Vice President of Finance and Administration
and Chief Financial Officer
Bassam I. Khoury................... 40 Vice President of Marketing
Irv Kovalik........................ 63 Vice President of Sales
Gelu Voicu......................... 50 Vice President of Engineering and Manufacturing
Barry Wiley........................ 63 Vice President of Programmable Analog Business
Unit

Mr. Vanco has served the Company as President and Chief Executive Officer
since March 1998 and as a director since November 1995. From October 1996 to
March 1998 he served as Executive Vice President of Engineering, from October
1996 to December 1997 as Chief Operating Officer, and from November 1992 to
October 1995 as Vice President, Engineering. From 1991 to 1992, Mr. Vanco served
as product line director at Cypress Semiconductor. From 1985 to 1991, Mr. Vanco
held various technical and management positions at SEEQ Technology, Inc. Mr.
Vanco holds a M.S. in Electrical Engineering from the Polytechnical Institute,
Bucharest, Romania.

Mr. DaBell has served the Company as Vice President of Business Planning
since June 2000. He was formerly Sr. Vice President of Product Development at
IMP, a manufacturer of integrated circuits for power management and a provider
of semiconductor foundry services. Mr. DaBell joined IMP in 1988 and was
responsible for product development and other business, marketing and
engineering functions. From 1973 to 1988 he served as Director of Strategic
Marketing and held various engineering positions at American Microsystems, Inc.,
a semiconductor company. He holds a masters degree in electrical engineering
from Brigham Young University. Mr. DaBell has tendered his resignation to be
effective July 21, 2000.

Mr. Gay has served the Company as Vice President of Finance and
Administration, and Chief Financial Officer since May 1998. From August 1997 to
May 1998 he was Controller of Wireless Access, Inc., a communications device
manufacturing company. From April 1993 to May 1994 he was Controller for the
Company and from July 1994 to November 1996 he was a contract accountant for the
Company. From July 1988 to July 1992 he was Controller of Sanmina Corporation, a
contract manufacturing company. Mr. Gay holds a B.S. in Accounting from San
Diego State University.

Mr. Kovalik has served the Company as Vice President, Sales since December
1998 after joining the Company in November 1998. From January 1998 to November
1998, he was Director of Strategic Sales for Alliance Semiconductor, Inc., a
semiconductor company. From January 1997 to January 1998, he was Vice President
of Sales for NovaWeb Technologies, Inc., a modem manufacturer. From September
1995 to January 1997, he was Director of Strategic Sales for Sequel, Inc., a
semiconductor company. From June 1992 to June 1995, he was Vice President, Sales
of the Company.

Mr. Khoury has served the Company as Vice President, Marketing since March
1998. From April 1997 to March 1998, Mr. Khoury served the Company as Director
of Marketing, from July 1995 to March 1997, as Product Line Director of EEPROMs
and as Director of Product Engineering from March 1993 when he joined the
Company until July 1995. From 1991 to 1993, Mr. Khoury held the position of
product engineering manager at Cypress Semiconductor. From 1987 to 1991, he held
the position of product engineering manager at SEEQ Technology, Inc. Mr. Khoury
holds a B.S. in Electrical and Electronic Engineering from University of
Virginia Tech.

Mr. Voicu has served the Company as Vice President, Product Engineering and
Manufacturing since April 1998. From July 1995 to April 1998 he was Director of
Flash Product Line for the Company. From October 1993 to July 1995 he was
Manager of Product Engineering of the Company. From June 1991 to
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11

October 1993 he served with Cypress Semiconductor, Inc., a semiconductor
company, most recently as Senior Product Engineer. Mr. Voicu holds a M.S. in
Electrical Engineering from the Polytechnical Institute, Bucharest, Romania.

Mr. Wiley has served the Company as Vice President, Programmable Analog
Business Unit since September 1999 when he joined the Company. From July 1997 to
September 1999 he was Vice President Marketing and Sales for IMP, Inc., a
manufacturer of semiconductors. From August 1985 to January 1996, he was Vice
President, Marketing and Sales for Cherry Semiconductor Corp. Mr. Wiley holds a
MBA from the Harvard School of Business Administration and a MA in Physics from
the University of Southern California.

INSURANCE

Catalyst presently carries various insurance coverages including, but not
limited to, property damage, workers' compensation, directors and officers
liability, business interruption and general liability.

ITEM 2. PROPERTIES

The Company rents its 42,500 square foot principal facility in Sunnyvale,
California, pursuant to a lease that expires in July 2006. As permitted in the
lease, the Company has subleased out to two companies a total of 17,000 square
feet of such office space which it does not need at this time. The subleases
will expire in August and October 2001. The Company also has domestic sales
offices in Southern California, Connecticut, Georgia and Illinois and
international sales offices in England, Germany, Japan and Taiwan. The Company
believes that its existing facilities are adequate to meet its current needs and
that additional or alternative space will be available in the future on
commercially reasonable terms.

ITEM 3. LEGAL PROCEEDINGS

On June 26, 1998 Micro-Comp Industries filed a complaint against the
Company in Santa Clara County Superior Court. The complaint alleged that the
Company failed to pay for integrated circuits delivered to the Company by UMC
and sought $1.6 million in damages. The Company filed an answer and
cross-complaint in July 1998. In April 1999, the parties agreed to settle their
complaints. The settlement terms required the Company to make an immediate
payment of $0.4 million and eight monthly payments of $50,000 each (an aggregate
of an additional $0.4 million) with the final payment made in December 1999. The
Company met such payment schedule and paid off the remaining balance in October
1999. The successful completion of the payments due under the agreement resulted
in a credit to income of $0.8 million for the Company which was recognized in
the quarter ended October 31, 1999.

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

No matters were submitted to a vote of security holders during the fourth
quarter for the fiscal year ended April 30, 2000.

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12

PART II

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

COMMON STOCK MARKET PRICES AND DIVIDENDS

The Company's Common Stock is currently traded in the over-the-counter
market but is not regularly quoted in the automated quotation system of a
registered securities association. From the effective date of the Company's
initial public offering through August 4, 1998, the Common Stock was traded in
the over-the-counter market on the NASDAQ National Market under the symbol
"CATS." Commencing August 5, 1998, trading of the Company's Common Stock on
NASDAQ was discontinued. The following table sets forth the high and low closing
sales price for the Common Stock as reported on the NASDAQ National Market or,
after August 4, 1998, the high and low bid quotations on the over-the-counter
market for each calendar quarter of the last two fiscal years. Such
over-the-counter market quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not necessarily represent actual
transactions.

HIGH LOW
---- ---

FISCAL YEAR ENDED APRIL 30, 1999
Quarter ended July 31, 1998.............................. 29/32 15
Quarter ended October 31, 1998........................... 1/2 3/
Quarter ended January 31, 1999........................... 9/16 3/
Quarter ended April 30, 1999............................. 1/2 19

FISCAL YEAR ENDED APRIL 30, 2000
Quarter ended July 31, 1999.............................. 1 3/16 19
Quarter ended October 31, 1999........................... 2 1/2 7/
Quarter ended January 31, 2000........................... 7 15/16 1 3/64
Quarter ended April 30, 2000............................. 11 4 5/8

As of June 30, 2000, there were approximately 139 registered holders of
record of the Company's Common Stock including a number of holders who are
nominees for an undetermined number of beneficial holders.

No cash dividends have been declared or paid by the Company on the Common
Stock and the Company does not anticipate paying any such dividends in the
foreseeable future.

RECENT SALES OF UNREGISTERED SECURITIES

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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The following table presents selected consolidated financial data of the
Company. This historical data should be read in conjunction with the attached
consolidated Financial Statements and the related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing in Item 7 of this Form 10-K including the information
under the caption "Certain Factors that May Affect the Company's Future
Results".

YEAR ENDED APRIL 30,
----------------------------------------------------
2000 1999 1998 1997 1996(1)
------- ------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

STATEMENT OF OPERATIONS DATA:
Net revenues............................ $49,527 $31,987 $ 34,579 $47,094 $60,186
Cost of revenues........................ 26,837 20,909 39,025 36,720 42,199
------- ------- -------- ------- -------
Gross profit (loss)..................... 22,690 11,078 (4,446) 10,374 17,987
Operating expenses:
Research and development.............. 2,846 2,335 4,462 5,771 4,407
Selling, general and administrative... 9,042 7,718 9,111 8,437 9,733
------- ------- -------- ------- -------
Income (loss) from operations........... 10,802 1,025 (18,019) (3,834) 3,847
Interest income (expense), net.......... (492) (802) (847) (205) (225)
------- ------- -------- ------- -------
Income (loss) before income taxes....... 10,310 223 (18,866) (4,039) 3,622
Income tax provision.................... 300 -- -- -- 48
------- ------- -------- ------- -------
Net income (loss)....................... $10,010 $ 223 $(18,866) $(4,039) $ 3,574
======= ======= ======== ======= =======
Net income (loss) per share: Basic...... $ 0.69 $ 0.02 $ (2.28) $ (0.51) $ 0.44
======= ======= ======== ======= =======
Diluted... $ 0.50 $ 0.02 $ (2.28) $ (0.51) $ 0.43
======= ======= ======== ======= =======
Weighted average common shares: Basic... 14,552 12,189 8,263 7,918 8,144
======= ======= ======== ======= =======
Diluted... 19,974 13,678 8,263 7,918 8,241
======= ======= ======== ======= =======

APRIL 30,
---------------------------------------------------
2000 1999 1998 1997 1996(1)
------- ------- ------- ------- -------

BALANCE SHEET DATA:
Cash and cash equivalents................ $ 6,205 $ 1,852 $ 534 $ 2,695 $ 2,966
Total current assets..................... 21,087 9,627 16,105 28,646 36,225
Total assets............................. 22,943 11,566 18,939 32,553 39,275
Total current liabilities................ 12,378 12,697 22,307 16,631 21,194
Long-term debt and capital lease
obligations............................ 64 81 501 1,885 571
Stockholders' equity (deficit)........... 10,501 (1,212) (3,869) 14,037 17,510

- ---------------
(1) In February 1996, the Company changed its fiscal year end from March 31 to
April 30 of each year. The first such fiscal year began on May 1, 1995 and
ended on April 30, 1996.

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

THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED IN THIS ANNUAL
REPORT ON FORM 10-K. IN ADDITION, IN ORDER TO TAKE ADVANTAGE OF THE "SAFE
HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, THE
COMPANY HEREBY NOTIFIES READERS THAT THE FACTORS SET FORTH IN "CERTAIN FACTORS
THAT MAY AFFECT THE COMPANY'S FUTURE RESULTS" AS SET FORTH BELOW IN THIS ITEM 7,
AS WELL AS OTHER FACTORS, IN THE PAST HAVE AFFECTED AND IN THE FUTURE COULD
AFFECT THE COMPANY'S ACTUAL RESULTS, AND COULD CAUSE THE COMPANY'S RESULTS FOR
FUTURE PERIODS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN ANY FORWARD LOOKING
STATEMENTS MADE BY OR ON BEHALF OF THE COMPANY, INCLUDING WITHOUT LIMITATION
THOSE MADE IN THIS REPORT.

OVERVIEW

Catalyst Semiconductor, Inc., incorporated October 8, 1985, designs,
develops and markets nonvolatile memory semiconductor products including Serial
and Parallel EEPROMs, Flash memory and Mixed Signal devices. Revenues are
derived from sales of semiconductor products designed by the Company and
manufactured by other companies.

The Company's business is highly cyclical and has been subject to
significant downturns at various times which have been characterized by reduced
product demand, production overcapacity, and significant erosion of average
selling prices. Throughout fiscal 1998 and fiscal 1999, the market for certain
FLASH and EEPROM devices, which comprise the majority of Catalyst's business,
experienced an excess market supply relative to demand which resulted in a
significant downward trend in prices. During fiscal 2000, the Company reduced
its manufacturing costs, increased the efficiency of its manufacturing
operations and the selling prices for certain products that the Company produces
increased, contributing to the increased gross margin percentages. The Company
could experience an increase in its manufacturing costs and a downward trend in
product pricing in the future which could adversely affect the Company's
operating results.

RESULTS OF OPERATIONS

FISCAL YEAR ENDED APRIL 30, 2000 COMPARED TO FISCAL YEAR ENDED APRIL 30,
1999

Revenues. Total revenues consist primarily of net product sales. A
substantial portion of net product sales are made through independent
distributors. Revenue from product sales to original equipment manufacturers and
from sales to distributors who have no, or limited, product return rights and no
price protection rights, is recognized upon shipment net of allowances for
estimated returns. When distributors have rights to return products or price
protection rights, the Company defers revenue recognition until the distributor
sells the product to the end customer. Total revenues increased by 55% to $49.5
million in fiscal 2000 from $32.0 million in fiscal 1999. The increase was
primarily attributable to an increase in sales of the Company's EEPROM products
and price increases caused by excess demand and other favorable industry-wide
conditions. Shipments of the Company's EEPEOM devices increased by $18.3 million
to $40.5 million or 82% of revenues in fiscal 2000 compared to $22.2 million or
69% of revenues in the prior year. The increase is attributable to improved
market conditions and increased wafer supplies from the Company's foundry
service providers. Shipments of the Company's Flash memory devices increased by
$1.3 million to $9.0 million or 18% of revenues in fiscal 2000 compared to $7.7
million or 24% of revenues in the prior year. The increase in Flash product
sales is attributable to increases in the average selling price (ASP) for such
products. International sales contributed 60% of net product sales in fiscal
2000 as compared to 41% in fiscal 1999. The increase in international revenues
is attributable to the Company's ability to compete effectively at the low
prices prevalent in certain markets in the Far East. All sales of the Company's
products are in US dollars, minimizing the effects of currency fluctuations.

Gross Profit (Loss). Gross profit for fiscal 2000 was $22.7 million or a
gross margin of 46% compared to gross profit of $11.1 million or a gross margin
of 35% for fiscal 1999. The increase in gross profit is primarily attributable
to increased revenues, reduced production costs, increased selling prices and
$1.2 million in credits from a settlement with a vendor and the sale of
inventory that had been previously reserved. This compares to $1.7 million in
credits received from various negotiations and settlements with certain vendors
in

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15

fiscal 1999. In the first quarter of fiscal 1999, renegotiation of amounts due
under a licensing agreement resulted in a $0.5 million reduction to cost of
sales. In the second quarter of fiscal 1999, $0.7 million was credited to the
Company in return for payment of $7.0 million due under an inventory purchasing
arrangement. In the fourth quarter of fiscal 1999, $0.5 million benefit was
recognized as the result of successful payment of amounts due under the terms of
a licensing agreement settlement. It is the policy of the Company to fully
reserve all inventory that is not expected to be sold in a reasonable period of
time from the balance sheet date, generally within the ensuing six months. The
increase in gross margin percentage is due to decreased price per unit wafer,
assembly and testing costs and the Company increasing the level of sales of
products with higher gross margins. The Company pays certain foreign
manufacturing expenses in local currency, primarily Baht in Thailand and Yen in
Japan. Such expenses are not material to the Company and are paid mostly on 90
day terms, minimizing the effects of currency fluctuations.

Research and Development. Research and development (R&D) expenses consist
principally of salaries for engineering, technical and support personnel,
depreciation of equipment and the cost of wafers used to evaluate new products
and new versions of current products. R&D expenses increased 22% to $2.8 million
in fiscal 2000 from $2.3 million in fiscal 1999. The increase was primarily
attributable to a $0.4 million increase in personnel related expenses. As of
April 30, 2000, the Company employed 15 persons in research and development
activities, compared to 11 as of April 30, 1999. As a percentage of revenues,
R&D expenses decreased to 6% from 7%. This decrease was primarily attributable
to the increase in revenues.

Selling, General and Administrative. Selling, general and administrative
(SG&A) expenses consist principally of salaries for sales, marketing and
administrative personnel, commissions, promotional activities and director and
officer (D&O) insurance. SG&A expenses increased 17% to $9.0 million in fiscal
2000 from $7.7 million in fiscal 1999. This increase was primarily attributable
to a $1.3 million increase in personnel related expenses. As a percentage of
revenues, SG&A expenses decreased to 18% from 24%. The primary reason for the
decrease in the percentage of revenue is the increase in revenues.

Net Interest Expense. Net interest expense decreased by 39% to $492,000, or
1% of revenues, in fiscal 2000, as compared to $802,000, or 3% of revenues, in
fiscal 1999. The decrease in net interest expense is primarily attributable to
decreased borrowing from lenders and increased interest earnings from the
increased cash on hand. The decrease in interest expense as a percentage of
revenues was attributable to decreased borrowing and the increase in revenues.

Income Tax Provision. The provision for income taxes was $0.3 million in
fiscal 2000 compared to zero provision for taxes in fiscal 1999. While the
Company has considerable tax credits available as a result of previous losses,
there are limitations on the amount of such benefit available to offset profits
earned due to alternative minimum tax.

As of April 30, 2000 the Company had available net operating loss
carryforwards of approximately $22.8 million and credit carryforwards of
approximately $0.7 million for federal tax purposes, which begin to expire in
fiscal 2004. Availability of the net operating loss and general business credit
carryforwards may potentially be reduced in the event of substantial changes in
equity ownership.

FISCAL YEAR ENDED APRIL 30, 1999 COMPARED TO FISCAL YEAR ENDED APRIL 30,
1998

Revenues. Total revenues decreased by 8% to $32.0 million in fiscal 1999
from $34.6 million in fiscal 1998. The decrease was primarily attributable to a
decrease in sales of the Company's Flash products, the resignation of the
Company's Japanese distributor, price erosion caused by excess supply and other
adverse industry-wide conditions. Shipments of the Company's Flash memory
devices decreased by $9.3 million to $7.7 million or 24% of revenues in fiscal
1999 compared to 49% of revenues or $17.0 million in the prior year. The
decrease in Flash product sales is attributable to ASP erosion. Marubun, the
Japanese distributor which resigned effective the end of fiscal 1998,
represented sales of approximately $7.2 million or 21% of total revenues in
fiscal 1998, compared to revenues of $1.1 million through replacement
distributors in fiscal 1999. Additionally, the Company was unable to purchase
sufficient wafers during the fourth quarter of fiscal 1998 due to lack of
working capital, contributing to an inability to fill some orders in a timely
manner in the first quarter of fiscal 1999. The Company was reliant upon
receiving and fulfilling orders within the same quarter to
15
16

meet or exceed its current revenue levels. A continuation of weak demand,
capital deficiencies and price erosion for the Company's products could lead to
poor operating results. In May and June of 1998, the Company received
substantial cancellations of the backlog existing at fiscal 1998 year end.
International sales contributed 41% of net product sales in fiscal 1999 as
compared to 64% in fiscal 1998. The decrease in international revenues was
attributable to the loss of the Company's Japanese distributor and the Company's
inability to compete effectively at the low prices prevalent in certain markets
in the Far East. All sales of the Company's products were in US dollars,
minimizing the effects of currency fluctuations.

Gross Profit (Loss). Gross profit for fiscal 1999 was $11.1 million or a
gross margin of 35% compared to a gross loss of $4.4 million or a negative gross
margin of 13% for fiscal 1998. The increase from a gross loss of $4.4 million to
a gross profit of $11.1 million is primarily attributable to decreased costs of
wafers, assembly and testing services and $1.7 million in credits received from
various negotiations and settlements with certain vendors in fiscal 1999,
compared to $7.5 million in charges taken in fiscal 1998 for inventory valuation
adjustments and other costs of reworking and expediting inventory. In the first
quarter of fiscal 1999, renegotiation of amounts due under a licensing agreement
resulted in a $0.5 million reduction to cost of sales. In the second quarter of
fiscal 1999, $0.7 million was credited to the Company in return for payment of
$7.0 million due under an inventory purchasing arrangement. In the fourth
quarter of fiscal 1999, $0.5 million benefit was recognized as the result of
successful payment of amounts due under the terms of a licensing agreement
settlement. The inventory valuation adjustments in 1998 were primarily due to
the rapid decrease in demand for and the selling prices for the Company's
products. In addition, the Company's ability to forecast future demand and
selling prices diminished. As a result of a reduction in estimated demand for
the Company's products, the Company provided additional reserves for excess
quantities and obsolescence for certain products, primarily the Company's Flash
and EEPROM products. The rapid erosion of selling prices also left the Company
with significant amounts of inventory with a carrying value that exceeded its
current selling price resulting in adjustments to the carrying value of the
inventory to the lower of cost or market value. Additionally, certain masks
valued at $0.6 million and other manufacturing assets valued at $0.2 million
associated with the production of the Company's inventory were written off in
1998. The increase in gross margin is due to decreased per unit wafer, assembly
and testing costs, the $1.7 million in credits from vendors and the Company
reducing the level of sales of products with lower gross margins. The Company
pays certain foreign manufacturing expenses in local currency, primarily Baht in
Thailand and Yen in Japan. Such expenses have not been material to the Company
and are generally paid within 90 days, minimizing the effects of currency
fluctuations.

Research and Development. R&D expenses consist principally of salaries for
engineering, technical and support personnel, depreciation of equipment, and the
cost of wafers used to evaluate new products and new versions of current
products. R&D expenses decreased 49% to $2.3 million in fiscal 1999 from $4.5
million in fiscal 1998. The decrease was primarily attributable to a $1.3
million reduction in personnel related expenses resulting from a general
reduction in force in 1998 and a transfer of development to more cost effective
offshore sources and $0.2 million decrease in depreciation expenses for R&D
equipment. As of April 30, 1999, the Company employed 11 persons in research and
development activities, compared to 13 and 30 as of April 30, 1998 and 1997,
respectively. As a percentage of revenues, R&D expenses decreased to 7% from
13%. This decrease was primarily attributable to the decrease in R&D expenses.

Selling, General and Administrative. SG&A expenses consist principally of
salaries for sales, marketing and administrative personnel, commissions,
promotional activities and D&O insurance. SG&A expenses decreased 15% to $7.7
million in fiscal 1999 from $9.1 million in fiscal 1998. This decrease was
primarily attributable to $0.5 million of bad debt expenses in 1998 as compared
to $0.1 million such expense in 1999 and $0.7 million of severance expenses in
fiscal 1998 compared to $0.1 million of such expenses in 1999. As a percentage
of revenues, SG&A expenses decreased to 24% from 26%.

Net Interest Expense. Net interest expense decreased by 5% to $802,000, or
3% of revenues, in fiscal 1999, as compared to $847,000, or 2% of revenues, in
fiscal 1998. The decrease in net interest expense is primarily attributable to
decreased balances in interest bearing cash accounts. The increase in interest
expense as a percentage of revenues was attributable to the decrease in
revenues.

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Income Tax Provision. As a result of the Company's previous losses, the
provision for income taxes remained at zero in fiscal 1999.

As of April 30, 1999 the Company had available net operating loss
carryforwards of approximately $37.0 million and credit carryforwards of
approximately $1.0 million for federal tax purposes, which begin to expire in
fiscal 2001. Availability of the net operating loss and general business credit
carryforwards may potentially be reduced in the event of substantial changes in
equity ownership.

LIQUIDITY AND CAPITAL RESOURCES

Total cash increased $4.4 million to $6.2 million as of April 30, 2000 from
$1.9 million as of April 30, 1999. The increase was primarily attributable to
the net profits earned by the Company. Net cash provided by the sale of common
stock through the exercise of stock options totaled $1.7 million during fiscal
2000. Approximately $1.9 million was used to reduce the bank credit line, notes
payable and other debt obligations. The company also spent $0.9 million for
capital expenditures without additional borrowing. During fiscal 2000, the
Company's net working capital increased from a deficit of ($3.1) million as of
April 30, 1999 to $8.7 million as of April 30, 2000.

As of April 30, 2000, the Company had approximately $2.0 million of secured
loans owed to its bank. As of that date, under the terms of its borrowing
agreement, the Company was eligible to borrow approximately $3.0 million
additional cash and had cash on hand of $6.2 million. The terms of the agreement
require the Company to pay interest on a minimum balance of $2.0 million at a
rate of prime plus 2.5% which was 11.5% at April 30, 2000. For the period from
January 1998 through March 1999, as a result of the Company's financial
condition and results of operations, the bank had determined that the Company
was in default under various provisions of the loan agreement that would have
entitled the bank to terminate the loan agreement and declare the loans
immediately due and payable. During that period, the Company obtained letters of
forbearance from the bank taking any action with respect to the existing
conditions of default. In April 1999, various terms and conditions of the
agreement were renegotiated, reducing the borrowing limit from $13.5 million to
$5.0 million, reducing the interest rate and changing the covenant requiring a
minimum net worth, to allow the Company to be in compliance at April 30, 1999.
The Company is also indebted to other creditors in the amount of approximately
$6.7 million. This amount is comprised of approximately $5.6 million for wafers
and inventory processing and approximately $1.1 million for other goods and
services.

On February 15, 1997, a vendor loaned $1.2 million to the Company in
settlement of billings for assembly and test services totaling the same amount.
The loan bore interest at 18% and was originally due and payable on May 15,
1998. During fiscal 1999, the interest payments were kept current and the
principal was reduced by $0.4 million. In May 1999, the note was paid in full
and a new note for $0.7 million was negotiated bearing interest at 12.25%
interest and requiring monthly payments of $75,000. The new note was paid off in
October 1999 in advance of the payment schedule, eliminating the interest
expense on the remaining balance.

Management believes that cash on hand, available borrowing facilities and
operating cash flow will provide sufficient cash to fund operations for the next
12 months.

YEAR 2000

Neither the Company nor its suppliers or customers experienced any
significant problem with their key computer systems recognizing the correct year
on January 1, 2000 and we anticipate no further system related date problems.

CERTAIN FACTORS THAT MAY AFFECT THE COMPANY'S FUTURE RESULTS

THE COMPANY DESIRES TO TAKE ADVANTAGE OF CERTAIN PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995, ENACTED IN DECEMBER 1995 (THE "REFORM
ACT") THAT PROVIDES A "SAFE HARBOR" FOR FORWARD-LOOKING STATEMENTS MADE BY OR ON
BEHALF OF THE COMPANY. THE COMPANY HEREBY CAUTIONS STOCKHOLDERS, PROSPECTIVE
INVESTORS IN THE COMPANY AND OTHER READERS THAT THE FOLLOWING IMPORTANT FACTORS,
AMONG OTHERS, IN SOME CASES HAVE AFFECTED, AND IN THE FUTURE COULD AFFECT, THE
COMPANY'S STOCK PRICE OR CAUSE THE COMPANY'S ACTUAL RESULTS

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18

FOR THE FISCAL QUARTER ENDING JULY 31, 2000, FOR THE FISCAL YEAR ENDING APRIL
30, 2001, AND FUTURE FISCAL YEARS AND QUARTERS TO DIFFER MATERIALLY FROM THOSE
EXPRESSED IN ANY FORWARD-LOOKING STATEMENTS, ORAL OR WRITTEN, MADE BY OR ON
BEHALF OF THE COMPANY.

The Company's business and future operating results are subject to
potential fluctuations due to a number of factors including the following:

Recent Operating Results; Possibility of Future Losses. The Company's
operating results for the year ended April 30, 2000 would have resulted in a
profit of $8.8 million instead of a profit of $10.0 million if they had not
included a credit of $0.8 million from a vendor as a result of various
negotiations and $0.4 million profit from the sale of inventory previously
reserved for. Additionally, the Company's operating results for fiscal 1999
would have resulted in a loss of $1.5 million instead of a profit of $0.2
million if they had not included $1.7 million of credits received from vendors
as a result of various negotiations. Additionally, the Company's operating
results in fiscal 1998 and 1997 resulted in losses of $18.9 million and $4.0
million respectively. During the fiscal years 1998 through most of 1999 and
before, the Company experienced significant negative cash flow from operations.
The Company has taken many steps to reduce its operating expenses including
reducing its headcount from 71 in December 1996 to 55 in April 2000. Although
reductions in headcount may help the Company meet its operating expense
objectives, such reductions could adversely impact the Company's sales,
marketing and product development efforts. There can be no assurance that the
Company can continue to generate revenue growth, or that any revenue growth that
is achieved can be sustained. To the extent that increases in operating expenses
precede and are not subsequently followed by increased revenues, the Company's
business, results of operations and financial condition would be materially
adversely affected. Although the Company has reported profits for all four
quarters of the fiscal year ended April 30, 2000, there can be no assurance that
the Company will be able to sustain profitability in the future.

Semiconductor Industry. The semiconductor industry is highly cyclical and
has been subject to significant economic downturns at various times,
characterized by diminished product demand, accelerated erosion of average
selling prices and gross margins, and production overcapacity. Accordingly, the
Company may experience substantial period to period fluctuations in future
operating results due to general semiconductor industry conditions, overall
economic conditions or other factors. For example, the Company experienced
accelerated erosion of average selling prices caused by adverse industry-wide
conditions in fiscal years 1997, 1998 and 1999 and incurred substantial losses
during that period. While average selling prices have increased recently, there
can be no assurances of how long, if at all, these increases will continue and
when decreases will occur.

Fluctuations in Operating Results. The Company's operating results have
historically been and in future quarters may be adversely affected or otherwise
fluctuate due to factors such as timing of new product introductions and
announcements by the Company and its competitors, fluctuations in customer
demand for the Company's products, volatility in supply and demand affecting
market prices generally (such as the increases in supply of competitive products
and significant declines in average selling prices experienced by the Company in
the fiscal years ended April 30, 1999, 1998 and 1997), increased expenses
associated with new product introductions or process changes, increased
expenditures related to expanding the Company's sales channels, gains or losses
of significant customers, timing of significant orders of the Company's
products, fluctuations, in manufacturing yields, changes in product mix, wafer
price increases due to increased market demand, prices charged by the Company's
suppliers and foreign currency fluctuations, and general economic conditions.
The Company anticipates that a significant portion of its revenue will be
derived from a limited number of large orders, and the timing of receipt and
fulfillment of any such orders is expected to cause material fluctuations in the
Company's operating results, particularly on a quarterly basis.

Due to the foregoing factors, quarterly revenue and operating results are
difficult to forecast. The Company's expense levels are based, in significant
part, on the Company's expectations as to future revenue and are therefore
relatively fixed in the short term. If revenue levels fall below expectations,
as has occurred during the years ended April 30, 1999, 1998 and 1997, net income
is likely to be disproportionately adversely affected because a proportionately
smaller amount of the Company's expenses varies with its revenue. There can be
no assurance that the Company will be able to achieve or maintain profitability
on a quarterly or annual basis in the future. Due to

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the foregoing factors, the Company's operating results may fall below the
expectations of investors, which could have a material adverse effect on the
market price of the Company's Common Stock. Reductions in revenue expectations
can also require the Company to take additional reserves against inventory
valuations based upon the reduced likelihood that the Company will be able to
liquidate its inventories at profitable prices.

Dependence on One Manufacturer. The Company does not manufacture the
semiconductor wafers used for its products. Oki has supplied wafers to the
Company since 1987 and was the Company's sole foundry source until the fourth
quarter of fiscal 2000. At this time, the additional foundry, Xfab, provides
only one product to the Company and the volumes are considerably less than Oki
currently provides. The Company does not have a wafer supply agreement with Oki
or Xfab at this time and instead purchases wafers on a purchase order and
acceptance basis. The Company's almost exclusive reliance on these independent
foundries involves a number of risks including the risk of inadequate wafer
supplies to meet the Company's production needs, increased prices charged by
those independent foundries, the unavailability of or interruption in access to
required or more cost effective process technologies, reduced control over
delivery schedules, manufacturing yields and costs, and the risks associated
with international operations more fully described below. In view of the recent
increase in demand for semiconductor products, the Company has not been able to
obtain sufficient increased quantities of wafers from Oki to fulfill some of the
recent increased customer demand, a circumstance that is expected to continue in
at least the near future. Although the Company has a wafer purchase agreement
with UMC for certain Flash products which runs through February 2006, due to
declining Flash bookings and other circumstances, the Company has not ordered
any wafers from UMC since December 1997. To address the Company's wafer supply
concerns, the Company plans to continue working on expanding its primary foundry
capability at Oki and its secondary foundry capability with Xfab at that
foundry's facility in Lubbock, Texas. Xfab is owned by Elex NV which is a 33.8%
shareholder of the Company. The addition of Xfab as a second foundry source
could enable the Company to reduce the risks associated with the sourcing and
quantity of its wafer supply and thereby improve control over an important
component of its business; however, there can be no assurance that sufficient
capacity will be available from Xfab or another manufacturer at prices
acceptable to the Company. Even if such capacity is available, the qualification
process and time required to make the foundry fully operational for the Company
could take many months, or longer, and be subject to the other factors described
under "Semiconductor Manufacturing Risks" below. The loss of Oki as a supplier,
the inability of the Company to obtain additional capacity at Oki or to qualify
Xfab for additional products or other wafer manufacturers for desired foundry
capacity, or any other circumstances causing a significant interruption in the
supply of semiconductor wafers to the Company would have a material adverse
effect on the Company's business, financial condition and results of operations.

Semiconductor Manufacturing Risks. The manufacture of semiconductor wafers
is highly complex and sensitive to a wide variety of factors and, as is typical
in the semiconductor industry, the Company's outside wafer foundry from time to
time has experienced lower than anticipated production yields. The amount of
time to develop an alternative foundry source can be lengthy and the expense
considerable. Furthermore, the yield of satisfactory product is often
substandard during the initial developmental stages when the process is being
initiated. There can be no assurance that the Company will continue to receive
sufficient quantities of wafers at favorable prices on a timely basis, if at
all, or that the Company will be able to attain higher levels of wafer supply as
demand requires. Material disruptions in the supply of wafers as a result of
manufacturing yield or other manufacturing problems are not uncommon in the
semiconductor industry. The Company may also be subject to production transition
delays. There can be no assurance that the Company will not experience such
problems in the future. Such delays and reductions can result in cancellations
of customer orders thereby adversely affecting the Company's ability to generate
future revenues. The loss of Oki as a supplier, the failure to develop Xfab as a
reliable foundry in an expeditious and cost-effective manner, any prolonged
inability to obtain adequate yields or deliveries from Oki or Xfab, or any other
circumstance that would require the Company to seek and qualify alternative
sources of supply of such products, could delay shipments, result in the loss of
customers and have a material adverse effect on the Company's business and
operating results. Moreover, the inability to procure wafer supplies from Oki on
commercially reasonable terms as a result of foreign currency exchange rate
fluctuations may have a material adverse effect on the Company's operating
results. Although the Company is exploring and seeking to develop alternative
wafer supply sources such as Xfab, there can be no assurance that it will be
able to obtain such alternative sources or
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that the Company will have adequate facilities available. Failure to have such
supplies available would have a material adverse effect on the Company's
business, financial condition and results of operations.

Inventory. The cyclical nature of the semiconductor industry periodically
results in oversupply or shortages of wafer fabrication capacity such as the
Company has experienced from time to time. Since the Company must order products
and build inventory substantially in advance of product shipments, there is a
risk that the Company will forecast incorrectly and produce excess or
insufficient inventories of particular products because demand for the Company's
products is volatile and customers place orders with short lead times. The
ability of the Company's customers to reschedule or cancel orders without
significant penalty could adversely affect the Company's liquidity, as the
Company may be unable to adjust its purchases from its wafer suppliers to match
such customer changes and cancellations. There can be no assurance that the
Company's inventory will be reduced by the fulfillment of customer orders or
that in the future the Company will not produce excess quantities of its
products. To the extent the Company produces excess inventories of particular
products, the Company's operating results could be adversely affected by charges
that the Company could recognize due to significant reductions in demand for its
products, rapid declines in the market value of inventory resulting in inventory
writedowns or other related factors. For example, during the last half of fiscal
1998, the Company recorded charges of approximately $7.5 million due to the
rapid decrease in demand for and the selling prices for the Company's products.
Such adjustments amounted to less than $0.5 million in fiscal 1999 and were not
material in fiscal 2000. In addition, in fiscal 1998, the Company's ability to
forecast future demand and selling prices diminished. It is the policy of the
Company to fully reserve all inventory that is not expected to be sold in a
reasonable period of time from the balance sheet date, generally within the
ensuing six months. As a result of a reduction in estimated demand for the
Company's products, the Company provided additional reserves for excess
quantities and obsolescence for certain products, primarily the Company's Flash
and EEPROM products. The rapid erosion of selling prices also left the Company
with significant amounts of inventory with a carrying value that exceeded its
current selling price resulting in adjustments to the carrying value of the
inventory to the lower of cost or market value. There can be no assurance that
the Company will not suffer similar reductions in values of its inventories in
the future or that the Company will be able to liquidate its inventory at
acceptable prices.

Dependence upon Key Personnel. The Company's ability to operate
successfully will depend, to a large extent, upon the continued service of
certain key employees, and the continued ability to attract and retain
additional highly qualified personnel. Competition for such personnel,
particularly for highly skilled design, process and test engineers, is intense
and there can be no assurance that the Company can retain such personnel or that
it can attract other highly qualified personnel. The loss of or failure to
attract and retain any such highly qualified personnel could have a material
adverse affect on the Company's business, financial condition and results of
operations.

International Operations. For fiscal years 2000, 1999 and 1998,
international sales accounted for approximately 60%, 41% and 64%, respectively,
of the Company's product sales. The decrease in international sales in 1999 was
primarily attributable to the transition in Japan from Marubun, who resigned in
fiscal 1998, to various smaller alternative distributors that serve similar
markets and the inability of the Company to compete with the low selling prices
in certain Far East markets. In fiscal 2000, the Company has been able to
reenter certain Far East markets, contributing to the increased international
sales. The Company expects that international sales will continue to represent a
significant portion of its product sales in the future. The Company's
international operations may be adversely affected by fluctuations in exchange
rates, imposition of government controls, political and financial instability,
trade restrictions, changes in regulatory requirements, difficulties in staffing
international operations and longer payment cycles. All sales are invoiced and
paid in dollars, reducing the Company's direct exposure to currency
fluctuations. Except for Yoshikawa Semiconductor in Japan, a provider of wafer
sorting services, and some payroll and incidental manufacturing supply purchases
in Thailand, over 98% of the Company's purchases are in US dollars, minimizing
any direct currency fluctuation risk. In addition, the Company's business is
subject to other risks generally associated with doing business with foreign
subcontractors including, but not limited to, foreign government regulations,
political and financial unrest which may cause disruptions or delays in
shipments to the Company's customers or access to the Company's inventories.
There can be no assurance that these or other factors related to

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international operations will not have a material adverse affect on the
Company's business, financial condition and results of operations.

Competition. The semiconductor industry is intensely competitive and has
been characterized by rapid price erosion, declining gross margins, rapid
technological change, product obsolescence and heightened international
competition in many markets. Average selling prices in the semiconductor
industry generally, and for the Company's products in particular, have decreased
significantly and rapidly over the life of each product. The Company expects
that average selling prices for its existing products will decline rapidly in
the future and that average selling prices for each new product will decline
significantly over the life of the product. Declines in average selling prices
for the Company's products, if not offset by reductions in the cost of producing
those products or by sales of new products with higher gross margins, would
decrease the Company's overall gross margins, could cause a negative adjustment
to the valuation of the Company's inventories and could materially and adversely
affect the Company's operating results.

The Company competes with major domestic and international semiconductor
companies, many of which have substantially greater financial, technical, sales,
marketing, production, distribution and other resources. The can be no assurance
that the Company will be able to compete successfully in the future. The
Company's more mature products, such as Serial and Parallel EEPROM devices,
compete on the basis of product performance, price and customer service. The
Company believes it competes successfully with respect to each of these
competitive factors; however price competition is significant and expected to
continue. Principal competitors with respect to the Company's EEPROM products
currently include STMicroelectronics, Fairchild Semiconductor, Atmel and Xicor,
all of which have substantially greater resources than the Company.

The market for Flash memory products has been characterized by long
production cycles, irregular yields, competing technologies and, particularly
since the first quarter of fiscal 1997, intense price competition resulting in
major reductions in average selling prices and corresponding reductions in
margins. The Company's Flash memory products compete on the basis of product
performance, price and customer service. However, given the development of
higher density/lower cost products and the intense price competition prevalent
for these products, there can be no assurance that the Company will be able to
compete successfully in the future against its competitors on the bases of these
or other competitive factors.

Flash Memory Market. A significant amount of the Company's net revenues
during 2000, 1999 and 1998 were derived from sales of Flash memory products. The
market for Flash memory products has been characterized by intense price
competition, long production cycles, inconsistent yields, competing
technologies, rapidly declining average selling prices, declines in gross
margins and intense overall competition. The Company's fiscal 1999, 1998 and
1997 operating results were adversely affected by intense price competition
caused by increased supplies of products and other adverse industry-wide
conditions. Intel and other competitors (which include Advanced Micro Devices,
Atmel, Fujitsu, Hitachi, Micron, Mitsubishi, STMicroelectronics, Sharp, Texas
Instruments and Toshiba) are expected to further increase Flash memory
production. Most of these competitors are manufacturing and selling devices with
larger memories which are utilized in more recently developed products such as
digital cameras. Due to the intense competition, limited development resources
and other factors, the Company has decided not to develop any of the higher
density Flash memory devices at this time. There can be no assurance that the
Company will be able to sustain the market acceptance for its Flash memory
products. The Company anticipates continued price and other competitive
pressures, which adversely affected fiscal 1999, 1998 and 1997 operating results
to continue to adversely affect the Company's future operating results.

Expected Need for Additional Capital. The Company has incurred significant
losses or experienced significant negative cash flow from operations during
several recent years. Such negative cash flow has significantly reduced the
Company's available capital. During fiscal 1999, the Company was successful in
having its lenders agree to waive or forbear taking actions on defaults under
existing loans or to renegotiate the terms of such loans to enable the Company
to be in conformance with the terms and conditions negotiated. Even though the
company had cash on hand of $6.2 million and the ability to draw up to $3.0
million additional cash from its bank as of April 30, 2000, there can be no
assurance that the Company will continue

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to generate sufficient revenue and profits to fund its operations. The Company
has pursued and continues to pursue measures designed to reduce expenses and
conserve cash such as constraints in hiring additional personnel, deferrals of
planned expenditures, other expense reductions and other measures. Such
activities can have a material, adverse effect on the Company's business,
financial condition and operating results. Furthermore, to the extent the
Company suffers any adverse effects to its revenues or margins because of delays
in new product introductions, price competition or other competitive factors,
the Company's cash position and its business, operating results and financial
condition will be further adversely affected.

The Company obtained additional capital of $1.5 million in the quarter
ended July 31, 1998 and $1.0 million equity financing in the quarter ended
October 31, 1998. The Company may seek additional equity or debt financing to
address its working capital needs and to provide funding for capital
expenditures. There can be no assurance that additional funding will continue to
be available at acceptable terms, if at all. If the Company is successful in
raising additional funds through the issuance of equity securities, existing
stockholders of the Company could experience significant dilution, or the
securities may have rights, preferences or privileges senior to those of the
Company's Common Stock. If adequate funds are not available or are not available
on acceptable terms, further reductions in the Company's operating expenses and
capital expenditures may be required to continue operations, either of which
could have a material adverse effect on the Company's business, operating
results and financial condition.

Volatility of Stock Price. The Company's stock price has been and may
continue to be subject to significant volatility. Any shortfall in revenues or
earnings from levels expected or projected by investors or others could have an
immediate and significant adverse effect on the trading price of the Company's
Common Stock in any given period. In addition, the stock market in general has
experienced extreme price and volume fluctuations particularly affecting the
market prices for many high technology companies and small capitalization
companies, and these fluctuations have often been unrelated to the operating
performance of the specific companies. These broad fluctuations may adversely
affect the market price for the Company's Common Stock.

Delinquency to Customers. Due to the constraints in the Company's wafer
supply, it has been unable to fulfill all its customers' orders according to the
schedule originally requested. Although the Company is striving to increase its
supply of wafers and communicate to its customers the scheduled delivery dates
that it believes that it can reasonably expect to meet, there can be no
assurance that the customers will accept the alternative delivery date or not
seek cancellation of its outstanding orders. The Company's operating results
have historically been and in future quarters may be adversely affected or
otherwise fluctuate due to factors such as timing of new product introductions
and announcements by the Company and its competitors, fluctuations in customer
demand for the Company's products, volatility in supply and demand affecting
market prices generally (such as the increases in supply of competitive products
and significant declines in average selling prices experienced by the Company in
recent fiscal years).

Reoccurrence of Defaults under Outstanding Loans. The Company had
approximately $2.0 million of secured loans owing to its bank and $6.2 million
cash on hand at April 30, 2000. As a result of the Company's financial condition
and results of operations in 1998, the bank had determined that the Company was
in default under various provisions of the loan agreement that would entitle the
bank to terminate the loan agreement and declare the loans immediately due and
payable. The Company was able to obtain letters of forbearance from the bank
agreeing not to take any action with respect to the existing defaults until
March 1999. In that regard, the Company received $2.5 million in equity
financing during fiscal 1999. In April 1999, various terms and conditions of the
agreement were renegotiated, reducing the borrowing limit from $13.5 million to
$5.0 million, reducing the interest rate and changing the covenant requiring a
minimum net worth to allow the Company to be in compliance at April 30, 1999.
The Company is also indebted to other creditors in the amount of approximately
$6.7 million. Due to its poor performance in fiscal 1998 and fiscal 1999 and the
resulting net worth deficiency, the Company had to negotiate forbearance
agreements with its bank and principal lessor. Although recent results have
cured such conditions, there can be no assurance that such conditions will not
recur, requiring negotiation with the Company's principle creditors and
increased borrowing expenses associated with forbearance agreements or waivers
of default necessary for continued operations.
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23

New Product Development and Technological Change. The markets for the
Company's products are characterized by rapidly changing technology and product
obsolescence. The timely introduction of new products at competitive
price/performance levels is a key factor to the success of the Company's
business. In particular, the Company's future success will depend on its ability
to develop and implement new design and process technologies which enable the
Company to achieve higher product densities and thereby reduce product costs.
For example, most of the Company's products are currently designed and
manufactured using a 0.8 micron CMOS EEPROM process or a 0.5 micron Flash memory
process. There can be no assurance that the Company will be able to select and
develop new products and technologies and introduce them to the market in a
timely manner and with acceptable fabrication yields and production costs.
Furthermore, there can be no assurance that the Company's products will achieve
market acceptance. The failure of the Company to complete and introduce new
products at competitive price/performance levels could materially and adversely
affect the Company's business, financial condition and operating results. Delays
in developing new products, achieving volume production of new products,
successfully completing technology transitions with acceptable yields and
reliability or the lack of commercial acceptance of new products introduced by
the Company, could have a material adverse effect on the Company's business,
financial condition and results of operations.

Dependence on Proprietary Technology; Risk of Intellectual Property
Litigation. In the semiconductor industry, companies place extensive reliance
upon their intellectual property and proprietary technology and it is typical
for companies to receive notices from time to time that allege infringement of
patents or other intellectual property rights of others. There can be no
assurance that the Company will not receive any such notification or that
proceedings alleging infringement of intellectual property rights will not be
commenced against the Company in the future. In such event, there can be no
assurances that the Company could obtain any required licenses of third party
intellectual property rights or could obtain such licenses on commercially
reasonable terms. Failure to obtain such a license in any event could require
the Company to cease production of its products until the Company develops a
non-infringing design or process. Moreover, the cost of litigation of any such
claim or damages resulting therefore could be substantial and could materially
and adversely affect the Company's business, financial condition and results of
operations.

Limited Market for the Company's Securities. The Company's common stock was
traded on the NASDAQ National Market from May 1993 until it was delisted in
August 1998 for sustained trading below the minimum level of $1.00 per share
required by the NASDAQ stock exchange for continued listing. The Company's stock
has been trading on the Over-The-Counter Bulletin Board market since the
delisting action. The over the counter market is generally less visible to
investors and fails to meet the liquidity requirements of some major commercial,
institutional and private investors. As a result of recent operating results,
recent increases in the trading price of the Company's common stock and other
conditions, management believes that the Company's common stock now meets the
qualifications for being listed on the NASDAQ SmallCap market. The Company
submitted a request that its securities be relisted on June 16, 2000, but is
unable to ascertain the amount of time NASDAQ will take to consider such
application, if NASDAQ will reply favorably to such application or, if
additional information is requested, how much time and effort will be required
on the part of the Company's management and legal representatives to adequately
demonstrate and verify the Company's qualifications.

Customer Concentration. A relatively small number of customers have
accounted for a significant portion of the Company's net revenue in the past.
For the year ended April 30, 2000, shipments to Memec (Asia Pacific) Ltd., a
distributor in Asia, Future Electronics, Inc., a distributor principally in
North America and Yosun Industrial Corp., a reseller located in Taiwan each
represented more than ten percent of the Company's revenues (13%, 12% and 11%
respectively). During fiscal years 1999 and 1998, the only customer which
represented more than ten percent of Catalyst's product revenue was Marubun
Corporation, a Japanese distributor (0% and 21%, respectively). Marubun resigned
as a distributor effective in or about March 1998. The Company has been working
to develop alternative distributors in Japan to replace Marubun. Such efforts
take substantial time and may never completely replace the sales volumes
achieved through Marubun. Loss of one or more of the Company's current customers
could materially and adversely affect the Company's business, operating results
and financial condition. In addition, the Company has experienced and may

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continue to experience lower margins on sales to significant customers as a
result of volume pricing arrangements.

Dependence on Manufacturer Representatives and Distributors. The Company
markets and distributes its products primarily through manufacturers'
representatives and independent distributors. The Company's distributors
typically offer competing products. The distribution channels have been
characterized by rapid change, including consolidations and financial
difficulties. The loss of one or more manufacturers' representatives or
distributors, or the decision by one or more distributors to reduce the number
of the Company's products offered by such distributors or to carry the product
lines of the Company's competitors, could have a material, adverse effect on the
Company's operating results.

Takeover Resistive Measures. The Company's Stockholder Rights Plan, which
provides stockholders with certain rights to acquire shares of Common Stock in
the event a third party acquires more than 15% of the Company's stock, the
Board's ability to issue "blank check" Preferred Stock without stockholder
approval and the Company's staggered terms for its directors, could have the
effect of delaying or preventing a change in control of the Company.

Recently Issued Accounting Standards. In June 1998, the Financial
Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. It further
provides criteria for derivative instruments to be designated as fair value,
cash flow and foreign currency hedges, and establishes respective accounting
standards for reporting changes in the fair value of the instruments. The
statement is effective for all fiscal quarters of fiscal years beginning after
June 15, 2000. Upon adoption of SFAS No. 133, the Company will be required to
adjust hedging instruments to fair value in the balance sheet, and recognize the
offsetting gain or loss as transition adjustments to be reported in net income
or other comprehensive income, as appropriate, and presented in a manner similar
to the cumulative effect of a change in accounting principle. The Company
believes the adoption of this statement will not have a significant effect on
the results of operations.

In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition", which provides
guidance on the recognition, presentation and disclosure of revenue in financial
statements filed with the SEC. SAB 101 outlines the basic criteria that must be
met in order to recognize revenue and provides guidance for disclosures related
to revenue recognition policies. In June 2000, the SEC issued SAB 101B, "Second
Amendment: Revenue Recognition in Financial Statements" which extends the
effective date of SAB 101 to the fourth fiscal quarter of fiscal years
commencing after December 15, 1999. At this time, management is still assessing
the impact of SAB 101 on the Company's financial position and results of
operations.

In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation -- an interpretation of APB Opinion No. 25" (FIN 44). This
Interpretation clarifies the definition of employee for the purposes of applying
Accounting Practice Board Opinion No. 25, Accounting for Stock Issued to
Employees (APB 25), the criteria for determining whether a plan qualifies as a
noncompensatory plan, the accounting consequences of various modifications to
the terms of a previously fixed stock option or award and the accounting for an
exchange of stock compensation awards in a business combination. This
Interpretation is effective July 1, 2000, but certain conclusions in this
Interpretation cover specific events that occur after either December 15, 1998,
or January 12, 2000. The Company believes that FIN 44 will not have a material
effect on the financial position or results of operations of the Company.

ITEM 7A. QUANTITATIVE AND CUMULATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk. The Company does not use derivative financial
instruments in its investment portfolio. The Company's investment portfolio is
generally comprised of cash deposits. The Company policy is to place these
investments in instruments that meet high credit quality standards. These
securities are subject to interest rate risk, and could decline in value if
interest rates fluctuate. Due to the short duration and

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25

conservative nature of the Company's investment portfolio, the Company does not
expect any material loss with respect to its investment portfolio.

Foreign Currency Exchange Rate Risk. The majority of the Company's sales,
cost of manufacturing and marketing are transacted in US dollars. Accordingly,
the Company's results of operations are not subject to foreign exchange rate
fluctuations. Gains and losses from such fluctuations have not been incurred by
the Company to date.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

(a) FINANCIAL STATEMENTS

See index to Consolidated Financial Statements on page F-2 hereof.

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

None.

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PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

Information relating to the Company's directors required by this item is
incorporated herein by reference to the section entitled "Proposal 1 -- Election
of Directors" in the 2000 Proxy Statement. Information relating to the Company's
executive officers required by this item appears in "Item 1 -- Executive
Officers and Key Personnel" of this report. Additional information relating to
the Company's directors and executive officers required by this item is
incorporated herein by reference to the section entitled "Additional
Information -- Compliance with Section 16(a) of the Securities Exchange Act" in
the 2000 Proxy Statement.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated herein by reference
to the sections entitled "Proposal 1 -- Election of Directors -- Compensation of
Directors" and "Additional Information -- Executive Compensation" in the 2000
Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item is incorporated herein by reference
to the sections entitled "Additional Information -- Security Ownership" in the
2000 Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is incorporated herein by reference
to the sections entitled "Additional Information -- Certain Relationships and
Related Transactions" in the 2000 Proxy Statement.

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PART IV

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

(a)(1) FINANCIAL STATEMENTS

See Index to Consolidated Financial Statements on page F-2 hereof.

(a)(2) FINANCIAL STATEMENT SCHEDULES

See Item 14(a)(1) above. Schedules other than those included in referenced
Index have been omitted because they are not required or are not applicable.

(a)(3) EXHIBITS

3.2(11) Restated Certificate of Incorporation of Registrant.
3.4(10) Bylaws of Registrant.
4.1(5) Preferred Shares Rights Agreement, dated as of December 3,
1996, between Catalyst Semiconductor, Inc. and First
National Bank of Boston, including the Certificate of
Designation of Rights, Preferences and Privileges of Series
A Participating Preferred Stock, the Form of Rights
Certificate and the Summary of Rights attached thereto as
Exhibits A, B and C respectively.
4.2(6) Amendment No. 1 to Preferred Shares Rights Agreement dated
as of May 22, 1998 between Registrant and BankBoston, N. A.,
as rights agent.
4.3(9) Amendment No. 2 to Preferred Shares Rights Agreement dated
as of September 14, 1998 between Registrant and BankBoston,
N. A., as rights agent.
10.3(1)* Stock Purchase Agreement dated March 31, 1992 between
Kamlesh Kumari and Registrant, together with Promissory Note
and Guarantee by B.K. Marya.
10.7(11)* Stock Option Plan.
10.8(16) 1993 Employee Stock Purchase Plan.
10.9(16) 1993 Director Stock Option Plan.
10.12(1) Distributor Agreement dated February 1990 between Arrow
Electronics, Inc. and Registrant.
10.14(1) Distributor Agreement dated June 30, 1986 between Registrant
and Marubun Corporation.
10.15(1) Irrevocable License Agreement dated May 8, 1988 between
Seiko Instruments, Inc. and Registrant.
10.16(1) 64 KBIT CMOS EEPROM, 1M BIT CMOS EEPROM and 256 KBIT CMOS
EEPROM Consulting and Design Work Agreement dated March 26,
1986 between OKI Electric Industry Co., Ltd. and the
Registrant.
10.17(1) FLASH EEPROM Development and License Agreement dated July
18, 1988 between OKI Electric Co., Ltd. and Registrant.
10.18(1) 4M FLASH Development and License Agreement dated May 27,
1992 between OKI Electric Co., Ltd. and Registrant.
10.27(1)* Form of Indemnification Agreement entered into by Registrant
with each of its directors and executive officers.
10.34(2) Wafer Supply Agreement dated February 24, 1995 between OKI
Electric Industry Co., Ltd. And the Registrant.
10.36(3)+ License Agreement dated August 18, 1995 between Intel
Corporation and Registrant.
10.38(4) Standard Industrial Lease dated March 22, 1996 between Marin
County Employees Retirement Association and Registrant.

27
28

10.39(4)+ Master Agreement dated February 7, 1996 between United
Microelectronics Corporation and the Registrant.
10.41(4)+ Amendment dated May 20, 1996 to the Wafer Supply Agreement
dated February 24, 1994 between OKI Electric Industry Co.,
Ltd. and Registrant.
10.42(4)* Separation and Consulting Agreements dated August 14, 1995
between B.K. Marya and Registrant.
10.46(4)* Employment Agreement dated October 14, 1995 between Radu
Vanco and Registrant.
10.48(4)* Loan Forgiveness Agreement dated March 12, 1996 between Radu
Vanco and Registrant.
10.49(6) Loan and Security Agreement dated June 19, 1997 between
Coast Business Credit, a division of Southern Pacific Thrift
& Loan Association (Coast), and Registrant.
10.50(6) Loan and Security Agreement (CEFO Facility) dated June 19,
1997 between Coast Business Credit, a division of Southern
Pacific Thrift & Loan Association (Coast), and Registrant.
10.51(6) Commercial Security Agreement dated April 1, 1998 between
Registrant and Oki Electric Industry Co., Ltd.
10.52(6) Wafer Purchase Agreement dated March 23, 1998 between
Registrant and Trio-Tech International PTE LTD with
Variation Agreement dated April 16, 1998 between Registrant
and Trio-Tech.
10.53(6)* Addendum dated May 29, 1998 to Employment Agreement dated
October 14, 1995 between Radu Vanco and Registrant.
10.54(6)* Severance Agreement dated April 28, 1998 between Sorin
Georgescu and Registrant.
10.55(6)* Severance Agreement dated April 28, 1998 between Gelu Voicu
and Registrant.
10.57(6)* Severance Agreement dated April 28, 1998 between Marc H.
Cremer and Registrant.
10.58(6)* Severance Agreement dated April 28, 1998 between Bassam
Khoury and Registrant.
10.59(6)* Severance Agreement dated June 1, 1998 between Thomas E. Gay
III and Registrant.
10.61(6) Common Stock Purchase Agreement dated as of May 26, 1998
between Registrant and Elex N.V. (Elex) with Standstill
Agreement dated as of May 26, 1998 between Registrant and
Elex.
10.62(6) Letter Agreement dated August 6, 1998 between Coast and
Registrant concerning default and forbearance under the
Company's bank agreements.
10.63(7)* Agreement dated August 14, 1995 between Registrant and
Lionel M. Allan.
10.64(8) Common Stock Purchase Agreement dated as of September 14,
1998 between Registrant and Elex N.V. with Standstill
Agreement dated as of September 14, 1998 between Registrant
and Elex, N.V.
10.65(8) Letter Agreement dated September 21, 1998 between Coast
Business Credit and Registrant concerning forbearance under
the Company's Bank Agreement.
10.67(12)* Modification dated January 1, 1999 of Consulting Agreement
dated August 14, 1995 between the Company and Allan
Advisors, Inc.
10.68(13) Amendment No. One to Loan and Security Agreement dated as of
April 21, 1999 between Registrant and Coast Business Credit,
a division of Southern Pacific Bank.
10.69(16) 1998 Special Equity Incentive Plan.
10.70(14)* Employment Agreement dated August 18, 1998 between Radu
Vanco and Registrant.
10.71(14)* Severance Agreement dated May 11, 1999 between Irv Kovalik
and Registrant.
10.72(15)* Severance Agreement dated May 11, 1999 between Frank
Reynolds and Registrant.
10.73(15)* Consulting Agreement dated January 1, 2000 between Hideyuki
Tanigami and Registrant.

28
29

10.74(15)* Amendment to Consulting Agreement dated June 23, 2000
between Hideyuki Tanigami and Registrant.
21.1(1) List of Subsidiaries of Registrant.
23.1 Consent of Independent Accountants.
24.1(15) Power of Attorney.
27.1(15) Financial Data Schedule.

- ---------------
(1) Incorporated by reference to Registrant's Registration Statement on Form
S-1 filed with the Commission on May 11, 1993 (File No. 33-60132), as
amended.

(2) Incorporated by reference to Registrant's Form 10-K filed for the year
ended March 31, 1995.

(3) Incorporated by reference to Registrant's Form 10-Q filed for the quarter
ended September 30, 1995.

(4) Incorporated by reference to Registrant's Form 10-K filed for the year
ended April 30, 1996.

(5) Incorporated by reference to Exhibit 1 to Registrant's Form 8-A filed on
January 22, 1997.

(6) Incorporated by reference to Registrant's Form 10-K filed for the year
ended May 3, 1998.

(7) Incorporated by reference to Registrant's Form 10-K/A (Am. No. 1) filed for
the year ended May 3, 1998.

(8) Incorporated by reference to Registrant's Form 10-Q filed for the quarter
ended August 2, 1998.

(9) Incorporated by reference to Registrant's Form 10-Q filed for the quarter
ended November 1, 1998.

(10) Incorporated by reference to Registrant's Form 10-Q/A (Am. No. 1) filed for
the quarter ended November 1, 1998.

(11) Incorporated by reference to an Appendix to Registrant's Definitive Proxy
Statement filed December 18, 1998.

(12) Incorporated by reference to Registrant's Form 10-Q filed for the quarter
ended January 21, 1999.

(13) Incorporated by reference to Registrant's Form 8-K, Date of Report: April
15, 1999.

(14) Incorporated by reference to Registrant's Form 10-K filed for the year
ended May 2, 1999.

(15) Incorporated by reference to Registrant's Form 10-K filed for the year
ended April 30, 2000 previously filed on July 27, 2000.

(16) Incorporated by reference to an Appendix to Registrant's Definitive Proxy
Statement filed July 27, 2000.

+ Confidential treatment has been granted as to a portion of this Exhibit.
Such portion has been redacted and filed separately with the Securities and
Exchange Commission.

* Constitutes a management contract or compensatory plan or arrangement
required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.

(b) REPORTS ON FORM 8-K

There were no reports on Form 8-K filed during the quarter ended April 30,
2000.

29
30

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized, in the City of Sunnyvale
and State of California, on August 2, 2000.

CATALYST SEMICONDUCTOR, INC.

By: /s/ RADU M. VANCO
------------------------------------
Radu M. Vanco
President, Chief Executive Officer
and Director

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

August 2, 2000 /s/ RADU M. VANCO
---------------------------------------------------
Radu M. Vanco
President, Chief Executive Officer and Director
(Principal Executive Officer)

August 2, 2000 /s/ THOMAS E. GAY III
---------------------------------------------------
Thomas E. Gay III
Vice President of Finance and Administration
and Chief Financial Officer (Principal Financial
and Accounting Officer)

August 2, 2000 *
--------------------------------------------------
Hideyuki Tanigami
Chairman of the Board

August 2, 2000 *
--------------------------------------------------
Lionel M. Allan
Director

--------------------------------------------------
Cynthia M. Butitta
Director

--------------------------------------------------
Roland M. Duchatelet
Director

--------------------------------------------------
Henry C. Montgomery
Director

August 2, 2000 *
--------------------------------------------------
Glenn G. Possley
Director

August 2, 2000 *
--------------------------------------------------
Patrick Verderico
Director

* By: /s/ RADU M. VANCO
- ----------------------------------------------
Attorney-in-fact

30
31

CATALYST SEMICONDUCTOR, INC.

CONSOLIDATED FINANCIAL STATEMENTS
AS OF APRIL 30, 2000 AND 1999
AND
FOR THE THREE FISCAL YEARS ENDED APRIL 30, 2000, 1999 AND 1998
WITH REPORT OF INDEPENDENT ACCOUNTANTS

F-1
32

CATALYST SEMICONDUCTOR, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

PAGE
----

Report of Independent Accountants........................... F-3
Consolidated Balance Sheets as of April 30, 2000 and 1999... F-4
Consolidated Statements of Operations for the years ended
April 30, 2000, 1999 and 1998............................. F-5
Consolidated Statements of Stockholders' Equity for the
years ended April 30, 2000, 1999 and 1998................. F-6
Consolidated Statements of Cash Flows for the years ended
April 30, 2000, 1999 and 1998............................. F-7
Notes to Consolidated Financial Statements.................. F-8

F-2
33

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
Catalyst Semiconductor, Inc.

In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of stockholders' equity (deficit)
and of cash flows present fairly, in all material respects, the financial
position of Catalyst Semiconductor, Inc. and its subsidiary at April 30, 2000
and 1999, and the results of their operations and their cash flows for each of
the three years in the period ended April 30, 2000, in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.

/s/ PRICEWATERHOUSECOOPERS LLP

San Jose, California
May 18, 2000

F-3
34

CATALYST SEMICONDUCTOR, INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUE DATA)

ASSETS

APRIL 30,
--------------------
2000 1999
-------- --------

Current assets:
Cash...................................................... $ 6,205 $ 1,852
Accounts receivable, net.................................. 10,727 5,119
Inventories............................................... 3,531 1,914
Other assets.............................................. 624 742
-------- --------
Total current assets.............................. 21,087 9,627
Property and equipment, net................................. 1,856 1,939
-------- --------
Total assets...................................... $ 22,943 $ 11,566
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Line of credit............................................ $ 2,028 $ 2,942
Accounts payable.......................................... 5,721 5,770
Accounts payable -- related parties....................... 1,024 275
Accrued expenses.......................................... 2,522 1,508
Deferred gross profit on shipments to distributors........ 880 1,061
Current portion of long-term debt and capital lease
obligations............................................ 203 1,141
-------- --------
Total current liabilities......................... 12,378 12,697
Long-term debt and capital lease obligations................ 64 81
-------- --------
Total liabilities................................. 12,442 12,778
-------- --------
Commitments and contingencies (Notes 4 and 9)
Stockholders' equity (deficit):
Preferred stock, $.001 par value, 2,000 shares authorized;
zero shares issued and outstanding..................... -- --
Common stock and paid-in-capital in excess of $.001 par
value, 45,000 shares authorized; 16,010 and 13,958 shares
issued and outstanding.................................... 46,926 45,223
Accumulated deficit......................................... (36,425) (46,435)
-------- --------
Total stockholders' equity (deficit).............. 10,501 (1,212)
-------- --------
Total liabilities and stockholders equity
(deficit)....................................... $ 22,943 $ 11,566
======== ========

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

F-4
35

CATALYST SEMICONDUCTOR, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

YEAR ENDED APRIL 30,
------------------------------
2000 1999 1998
------- ------- --------

Net revenues................................................ $49,527 $31,987 $ 34,579
Cost of revenues............................................ 26,837 20,909 39,025
------- ------- --------
Gross profit (loss)......................................... 22,690 11,078 (4,446)
Research and development.................................... 2,846 2,335 4,462
Selling, general and administrative......................... 9,042 7,718 9,111
------- ------- --------
Income (loss) from operations............................... 10,802 1,025 (18,019)
Interest income (expense), net.............................. (492) (802) (847)
------- ------- --------
Income (loss) before income taxes........................... 10,310 223 (18,866)
Income tax provision........................................ 300 -- --
------- ------- --------
Net income (loss)........................................... $10,010 $ 223 $(18,866)
======= ======= ========
Net income (loss) per share:
Basic..................................................... $ 0.69 $ 0.02 $ (2.28)
======= ======= ========
Diluted................................................... $ 0.50 $ 0.02 $ (2.28)
======= ======= ========
Weighted average common shares outstanding:
Basic..................................................... 14,552 12,189 8,263
======= ======= ========
Diluted................................................... 19,974 13,678 8,263
======= ======= ========

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

F-5
36

CATALYST SEMICONDUCTOR, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)

COMMON STOCK
--------------- ADDITIONAL
PAR PAID IN ACCUMULATED
SHARES VALUE CAPITAL DEFICIT TOTAL
------ ----- ---------- ----------- --------

Balance at April 30, 1997................ 7,989 $ 8 $41,821 $(27,792) $ 14,037
Issuance of common stock to
creditors........................... 259 -- 675 -- 675
Issuance of common stock for employee
stock purchase plan................. 87 -- 87 -- 87
Exercise of stock options.............. 110 -- 198 -- 198
Net loss............................... -- -- -- (18,866) (18,866)
------ --- ------- -------- --------
Balance at April 30, 1998................ 8,445 8 42,781 (46,658) (3,869)
Issuance of common stock to an
investor............................ 5,500 6 2,426 -- 2,432
Issuance of common stock for employee
stock purchase plan................. 3 -- 1 -- 1
Exercise of stock options.............. 10 -- 1 -- 1
Net income............................. -- -- -- 223 223
------ --- ------- -------- --------
Balance at April 30, 1999................ 13,958 14 45,209 (46,435) (1,212)
Exercise of stock options.............. 2,052 2 1,701 -- 1,703
Net income............................. -- -- -- 10,010 10,010
------ --- ------- -------- --------
Balance at April 30, 2000................ 16,010 $16 $46,910 $(36,425) $ 10,501
====== === ======= ======== ========

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

F-6
37

CATALYST SEMICONDUCTOR, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

YEAR ENDED APRIL 30,
------------------------------
2000 1999 1998
------- ------- --------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $10,010 $ 223 $(18,866)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization.......................... 939 1,202 2,629
Changes in assets and liabilities:
Accounts receivable.................................. (5,608) 20 2,348
Inventories.......................................... (1,617) 1,953 8,538
Other assets......................................... 118 73 80
Accounts payable (including related party)........... 700 (7,355) 3,133
Accrued expenses..................................... 1,014 (2,228) 2,381
Deferred gross profit on shipments to distributors... (181) 586 97
------- ------- --------
Net cash provided by (used in) operating
activities...................................... 5,375 (5,526) 340
------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash used for the acquisition of equipment................ (856) (307) (1,556)
------- ------- --------
Cash provided by (used in) investing activities........ (856) (307) (1,556)
------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock issuances.................................... 1,703 2,434 285
Payment of line of credit................................. (914) (283) (224)
Payment of long-term debt and capital lease obligations... (955) (750) (506)
Change in restricted cash................................. -- 5,750 (500)
------- ------- --------
Cash provided by financing activities.................. (166) 7,151 (945)
------- ------- --------
Net increase (decrease) in cash and cash equivalents........ 4,353 1,318 (2,161)
Cash at beginning of the period............................. 1,852 534 2,695
------- ------- --------
Cash at end of the period................................... $ 6,205 $ 1,852 $ 534
======= ======= ========
Supplemental disclosures:
Cash paid during the year for:
Interest............................................... $ 522 $ 927 $ 1,425
======= ======= ========
Income taxes........................................... $ 2 $ 1 $ 15
======= ======= ========

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

F-7
38

CATALYST SEMICONDUCTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- DESCRIPTION OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:

OPERATIONS

Catalyst Semiconductor, Inc. (Catalyst or the Company), incorporated on
October 8, 1985 and reincorporated in Delaware in May 1993, designs, develops
and markets nonvolatile memory semiconductor products including Serial and
Parallel EEPROMs and Flash memory. Revenues are derived from sales of
semiconductor products designed by the Company and manufactured by other
companies.

The Company's business is highly cyclical and has been subject to
significant downturns at various times which have been characterized by reduced
product demand, production overcapacity, and significant erosion of average
selling prices. During fiscal 2000, the semiconductor market rebounded from a
cyclical decline which has had a favorable impact on the Company's revenues and
gross margins. Throughout fiscal 1998 and 1999, the market for certain FLASH and
EEPROM devices, which comprise the majority of Catalyst's business, experienced
an excess market supply relative to demand which resulted in a significant
downward trend in prices. The Company could experience a resumption of the
downward trend in product pricing which could adversely affect the Company's
operating results.

BASIS OF PRESENTATION

Catalyst has a fiscal year that ends on the Sunday nearest April 30th. For
presentation purposes, the consolidated financial statements and notes refer to
the calendar month end. The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiary after elimination of all
significant intercompany balances and transactions.

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

FOREIGN CURRENCY TRANSLATION

The functional currency of the Company's Japanese subsidiary is the
Japanese yen. Accordingly, all assets and liabilities are translated at the
current exchange rate at the end of the period and revenues and expenses at
exchange rates in effect when incurred. Cumulative translation adjustments and
net gains and losses resulting from foreign exchange transactions were not
significant during any of the periods presented.

REVENUE RECOGNITION

Revenue from product sales to original equipment manufacturers and from
sales to distributors who have no, or limited, product return rights and no
price protection rights, is recognized upon shipment net of allowances for
estimated returns. When distributors have rights to return products or price
protection rights, the Company defers revenue recognition until the time the
distributor sells the product to the end customer. Upon shipment by the Company,
amounts billed to distributors with rights to product returns or price
protection rights are included as accounts receivable, inventory is relieved,
the sale is deferred and the gross profit is reflected as a current liability
until the merchandise is sold to the end customer by the distributors.

F-8
39
CATALYST SEMICONDUCTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FAIR VALUE OF FINANCIAL INSTRUMENTS

For certain of the Company's financial instruments, including cash,
accounts receivable, line of credit, notes payable and accounts payable, the
carrying amounts approximate fair value due to their short maturities.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments, purchased with an
original maturity of three months or less to be cash equivalents.

INVENTORIES

Inventories are stated at the lower of standard cost, which approximates
actual, determined on the first-in, first-out basis, or market. During the first
quarter of fiscal 2000, $0.4 million benefit was recognized from the sale of
inventory previously fully reserved.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost and depreciated on a
straight-line basis over the estimated economic useful lives of the assets
(generally two to five years). Leasehold improvements are stated at cost and
amortized over their estimated useful lives or the remaining lease term,
whichever is shorter.

CONCENTRATION OF CREDIT RISK

Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and accounts
receivable. Catalyst invests primarily in money market accounts and certificates
of deposit and places its investments with high quality financial institutions.
The Company's accounts receivable are derived from sales to original equipment
manufacturers and distributors serving a variety of industries located primarily
in the United States, Europe and the Far East and the Company performs ongoing
credit evaluations of these customers.

Three customers accounted for 13%, 12% and 11% of revenues during the year
ended April 30, 2000. Two customers accounted for 20% and 11% of accounts
receivables as of April 30, 2000.

DEPENDENCE ON WAFER SUPPLIERS

The Company does not directly manufacture finished silicon wafers. The
Company's strategy has been to maintain relationships with wafer foundries.
However, there can be no assurance that the Company will be able to satisfy its
future wafer needs from current or alternative manufacturing sources. This could
result in a possible loss of sales or reduced margins.

STOCK-BASED COMPENSATION

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

NET INCOME (LOSS) PER SHARE

Basic EPS is computed by dividing net income available to common
stockholders (numerator) by the weighted average number of common shares
outstanding (denominator) during the period. Diluted EPS gives

F-9
40
CATALYST SEMICONDUCTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

effect to all dilutive potential common shares outstanding during a period. In
computing diluted EPS, the average price for the period is used in determining
the number of shares assumed to be purchased from exercise of stock options.

A reconciliation of the numerators and denominators of the basic and
diluted income per share is presented below:

YEAR ENDED APRIL 30,
---------------------------------------
2000 1999 1998
---------- ---------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Net income (loss).................................... $10,010 $ 223 $(18,866)
======= ======= ========
Shares calculation:
Average shares outstanding -- basic.................. 14,552 12,189 8,263
Effect of dilutive securities:
Stock options...................................... 5,422 1,489 --
------- ------- --------
Average shares outstanding -- diluted................ 19,974 13,678 8,263
======= ======= ========
Net income (loss) per share -- basic................. $ 0.69 $ 0.02 $ (2.28)
======= ======= ========
Net income (loss) per share -- diluted............... $ 0.50 $ 0.02 $ (2.28)
======= ======= ========

Options to purchase 204,000 shares at prices ranging from $4.63 to $8.38
per share were outstanding during 2000 and were excluded in the computation of
diluted EPS because their effect would have been antidilutive. Options to
purchase 1,372,000 shares of common stock at prices ranging from $0.40 to $6.30
per share were outstanding during 1999 and were not included in the computation
of diluted EPS because the inclusion of such options and shares would have been
antidilutive. Options to purchase 2,547,000 shares of common stock at prices
ranging from $0.69 to $6.30 per share were outstanding during 1998 and were not
included in the computation of diluted EPS because the inclusion of such options
and shares would have been antidilutive.

COMPREHENSIVE INCOME

In 1999, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income." Comprehensive income is defined as the change in equity of a company
during a period from transactions and other events and circumstances, excluding
transactions resulting from investments by owners and distributions to owners.
The Company had no items of other comprehensive income for any period presented.

SEGMENT REPORTING

In 1999, the Company adopted SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise," and replaces the
"industry segment" approach with the "management" approach. The management
approach designates the internal organization that is used by management for
making operating decisions and assessing performance as the source of a
company's reportable segments. SFAS No. 131 also requires disclosures about
products and services, geographic areas, and major customers.

RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. It further provides criteria for derivative instruments to be
designated as fair value, cash flow and

F-10
41
CATALYST SEMICONDUCTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

foreign currency hedges, and establishes respective accounting standards for
reporting changes in the fair value of the instruments. The statement is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
Upon adoption of SFAS No. 133, the Company will be required to adjust hedging
instruments to fair value in the balance sheet, and recognize the offsetting
gain or loss as transition adjustments to be reported in net income or other
comprehensive income, as appropriate, and presented in a manner similar to the
cumulative effect of a change in accounting principle. The Company believes the
adoption of this statement will not have a significant effect on the results of
operations.

NOTE 2 -- BALANCE SHEET COMPONENTS (IN THOUSANDS):

APRIL 30,
-----------------
2000 1999
------- ------

Accounts receivable:
Accounts receivable..................................... $11,013 $5,405
Less: Allowance for doubtful accounts................... (286) (286)
------- ------
$10,727 $5,119
======= ======

The amounts of $0, $100,000 and $500,000 were written off in respect of bad
debts in the years ended April 30, 2000, 1999 and 1998, respectively.

F-11
42
CATALYST SEMICONDUCTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Inventories:
Work-in-process...................................... $ 2,516 $ 1,507
Finished goods....................................... 1,015 407
-------- --------
$ 3,531 $ 1,914
======== ========
Property and equipment:
Engineering and test equipment....................... $ 8,012 $ 7,193
Computer hardware and software....................... 3,517 3,485
Furniture and office equipment....................... 1,286 1,281
-------- --------
12,815 11,959
Less: accumulated depreciation and amortization...... (10,959) (10,020)
-------- --------
$ 1,856 $ 1,939
======== ========
Accrued expenses:
Accrued employee compensation........................ $ 1,167 $ 467
Other................................................ 1,355 1,041
-------- --------
$ 2,522 $ 1,508
======== ========

NOTE 3 -- LINE OF CREDIT:

Under the terms of a bank revolving line of credit in place at April 30,
2000, the Company could borrow the lesser of $5.0 million or an amount
determined by a formula applied to eligible accounts receivable. The line of
credit bears interest at a variable rate equal to the bank's prime lending rate
plus 2.5% (11.5% at April 30, 2000). The revolving line of credit expires on
June 30, 2001. Amounts borrowed on the line of credit are secured by accounts
receivable and are subject to compliance with loan covenants.

As of April 30, 2000, the Company had approximately $2.0 million of secured
loans owed to a bank. As of April 30, 2000, under the terms of its borrowing
agreement, the Company was eligible to borrow approximately $3.0 million. For
the period from January 1998 through March 1999, as a result of the Company's
financial condition and results of operations, the bank had determined that the
Company was in default under various provisions of the loan agreement that would
have entitled the bank to terminate the loan agreement and declare the loans
immediately due and payable. During that period, the Company obtained letters of
forbearance from the bank taking any action with respect to the existing
conditions of default. In April 1999, various terms and conditions of the
agreement were renegotiated, reducing the borrowing limit from $13.5 million to
$5.0 million, reducing the interest rate and changing the covenant requiring a
minimum net worth to allow the Company to be in compliance at April 30, 1999.

On February 15, 1997, a vendor loaned $1.2 million to the Company in
settlement of billings for assembly and test services totaling the same amount.
The loan bore interest at 18% and was originally due and payable on May 15,
1998. During fiscal 1999, the interest payments were kept current and the
principal was reduced by $0.4 million. In May 1999, the note was paid in full
and a new note for $0.7 million was negotiated bearing interest at 12.25% and
requiring monthly payments of $75,000. The new note was paid off in October 1999
in advance of the payment schedule.

NOTE 4 -- LEASES:

At April 30, 2000 and 1999, the net book value of assets recorded as
property and equipment under capital leases aggregated $0.2 million and $0.3
million, which is net of accumulated amortization of $0.6 million and $0.5
million, respectively. The amortization of assets recorded under capital leases
is included with depreciation and amortization expense.

F-12
43
CATALYST SEMICONDUCTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Company leases its office facilities under operating leases. Total rent
expense under these leases was $531,000, $558,000 and $416,000 for fiscal 2000,
1999 and 1998, respectively. The aggregate future minimum lease payments, by
fiscal year, under capital and non-cancelable operating leases with initial
terms of one year or more at April 30, 1999 are as follows (in thousands):

CAPITAL OPERATING
LEASES LEASES
------- ---------

2000.................................................... $ 245 $ 460
2001.................................................... 43 423
2002.................................................... -- 435
2003.................................................... -- 449
2004.................................................... -- 462
Thereafter................................................ -- 596
----- ------
Total minimum payments.................................. 288 $2,825
======
Less: amount representing interest...................... (21)
-----
Present value of future minimum lease payments.......... 267
Current portion of capital lease obligations............ (203)
-----
Long-term portion of capital lease obligations.......... $ 64
=====

NOTE 5 -- INCOME TAXES:

The provision for income taxes for the year ended April 30, 2000 represents
current federal alternative minimum income tax.

Deferred tax assets are comprised of the following (in thousands):

APRIL 30,
--------------------
2000 1999
-------- --------

Capitalized research................................... $ 2,498 $ 0
Deferred income and sales returns reserves............. 933 371
Loss carryforwards..................................... 8,239 12,950
Research and development credit carryforwards.......... 771 959
Non deductible reserves and accruals................... 1,327 1,175
Other.................................................. 767 0
-------- --------
Total deferred tax assets......................... 14,535 15,455
Valuation allowance.................................... (14,535) (15,455)
-------- --------
$ -- $ --
======== ========

Tax loss carryforwards at April 30, 2000 are approximately $22.8 million
for federal purposes. These carryforwards begin to expire in fiscal 2004. The
research and development credits begin to expire in fiscal 2005. Availability of
the net operating loss and credit carryforwards may potentially be reduced in
the event of certain substantial changes in equity ownership.

F-13
44
CATALYST SEMICONDUCTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The provision for income taxes differs from the amount of income tax
determined by applying the applicable statutory federal income tax rate to
pretax income (loss) as a result of the following:

YEAR ENDED APRIL 30,
------------------------
2000 1999 1998
---- ---- ----

Statutory federal tax rate.......................... 34% (34)% (34)%
Tax benefits not currently recognized............... -- 34 34
Benefit of net operating loss carryforwards not
previously recognized............................. (34) -- --
Alternative minimum tax............................. 3 -- --
--- --- ---
Effective tax rate................................ 3% --% --%
=== === ===

No provision is made for income taxes relating to potential future
distributions of accumulated earnings from the Company's foreign subsidiary,
which at April 30, 2000 were not significant, since it is the Company's
intention to reinvest substantially all of the undistributed earnings in its
foreign operations.

NOTE 6 -- STOCK PLANS:

STOCK OPTION PLANS

In October 1989, the Company adopted a founder stock plan for incentive
stock options and non-statutory stock options. The founder stock plan was
amended and restated in March of 1993 as the stock option plan (the "Option
Plan") which had the effect of extending its expiration date to March 2003. In
January 1999, the shareholders authorized an additional 1.8 million shares to be
reserved under the Option Plan. A total of 5.1 million shares of Common Stock
have been reserved for issuance under the Option Plan. Options granted under the
Option Plan are for periods not to exceed ten years. Incentive stock option and
non-statutory stock option grants under the Option Plan must generally be at
prices equal to 100% of the fair market value of the stock at the date of grant.
Options generally vest over four year periods.

During 1993, the Company adopted a Director Stock Option Plan (the
"Director Plan") which provides for the grant of nonstatutory stock options to
nonemployee directors. In November 1999, the stockholders authorized an
additional 100,000 shares to be reserved under the Director Plan. A total of
320,000 shares of Common Stock have been reserved for issuance under the
Director Plan. Options granted under the Director Plan are for periods not to
exceed five years. Option grants under the Director Plan must be at prices equal
to 100% of the fair market value of the stock at the date of grant. Options vest
over a period of three years. As of April 30, 2000 a total of 243,000 options at
exercise prices ranging from $0.47 to $8.38 per share, have been granted under
the Director Plan, 23,000 of which were exercisable.

In December 1998, the Company adopted an additional stock option plan
entitled the Special Equity Incentive Plan (Special Option Plan) for incentive
stock options and non-statutory stock options for certain directors, officers
and consultants of the Company. A total of 3.5 million shares of Common Stock
have been reserved for issuance under the Special Option Plan. Options granted
under the Special Option Plan are for periods not to exceed ten years. Options
generally vest over four year periods. During 1999, options totaling 3.0 million
shares were granted to employees and directors under the plan at a price of
$0.125 per share when the market was at $0.26 per share. As a result, an
aggregate of $533,000 of compensation expense will be recognized over the four
year vesting period of the options, $136,000 and $57,000 of which was recognized
during the years ended April 30, 2000 and April 30, 1999, respectively.

F-14
45
CATALYST SEMICONDUCTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

A summary of activity under the Option Plan, the Director Plan and the
Special Option Plan are as follows:

OPTIONS WEIGHTED
AVAILABLE OPTIONS AVG. PRICE
FOR GRANT OUTSTANDING PER SHARE
--------- ----------- ----------
(IN THOUSANDS)

Balance at April 30, 1997........................... 209 2,466 $2.41
Granted........................................... (2,995) 2,995 $1.15
Canceled.......................................... 2,804 (2,804) $2.20
Exercised......................................... -- (110) $1.82
------ ------
Balance at April 30, 1998........................... 18 2,547 $1.26
Additional shares reserved........................ 5,300 --
Granted........................................... (5,758) 5,758 $0.17
Canceled.......................................... 1,485 (1,485) $1.02
Exercised......................................... -- (10) $0.13
------ ------
Balance at April 30, 1999........................... 1,045 6,810 $0.56
Granted........................................... (1,295) 1,295 $1.58
Canceled.......................................... 1,141 (1,141) $0.35
Exercised......................................... -- (2,052) $0.80
------ ------
Balance at April 30, 2000........................... 891 4,912 $0.57
====== ======

The Range of Exercise Prices table below summarizes information regarding
stock options outstanding at April 30, 2000.

OPTIONS OUTSTANDING
------------------------------------------------
WEIGHTED- OPTIONS EXERCISABLE
AVERAGE -----------------------------
ACTUAL NUMBER REMAINING WEIGHTED- NUMBER WEIGHTED-
RANGE OF OUTSTANDING CONTRACTUAL AVERAGE EXERCISABLE AVERAGE
EXERCISE AT APRIL 30, LIFE EXERCISE AT APRIL 30, EXERCISE
PRICES 2000 (YEARS) PRICE 2000 PRICE
- ------------ ------------ ---------------- -------------- ------------ --------------

$0.11 - 0.13 2,841,554 8.2 $0.12 953,363 $0.12
$0.25 - 0.33 864,363 8.1 $0.29 173,403 $0.29
$0.40 - 0.50 227,500 8.4 $0.41 7,497 $0.47
$0.91 - 1.08 635,003 7.0 $1.02 196,500 $1.05
$1.69 - 2.00 139,545 8.0 $1.87 14,545 $1.74
$4.63 - 6.30 134,000 9.9 $4.65 2,000 $6.30
$8.22 - 8.38 70,000 7.7 $8.29 0 --
- ------------ --------- --- ----- --------- -----
$0.11 - 8.38 4,911,965 8.1 $0.57 1,347,308 $0.31
========= =========

The options exercisable as of April 30, 1999 and 1998 were 2,073,000 and
1,681,000 respectively.

In September 1998, the Board of Directors offered employee holders of
options the opportunity to cancel such options and receive an equal amount of
options with an exercise price per share equal to the then current fair market
value. As a result, options to purchase approximately 1.4 million shares were
canceled and an equal number were granted at an exercise price of $0.125.

OTHER STOCK PLANS

The Board of Directors and Stockholders approved the Company's Employee
Stock Purchase Plan (the "Purchase Plan) in March 1993. A total of 250,000
shares of Common Stock have been reserved for issuance

F-15
46
CATALYST SEMICONDUCTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

under the Purchase Plan. Sales made through this plan will be at the lower of
85% of the market price at the date of purchase or on the first day of each
six-month offering period. The Purchase Plan was suspended effective June 1998
due to the Company's delisting from the NASDAQ stock market in August 1998. As
of April 30, 2000, a total of 231,000 shares have been issued under the Purchase
Plan.

PRO FORMA STOCK COMPENSATION DISCLOSURE

The fair value of each option granted under the Option Plan, the Director
Plan and the Special Option Plan is estimated on the date of grant using the
Black-Scholes option-valuation model with the following weighted-average
assumptions used for options granted in 2000, 1999 and 1998, respectively:
dividend yield of 0 percent for all years, expected volatility of 100, 100 and
79 percent, risk free interest rates of 6.00%, 4.54% and 5.50%, and expected
lives of 3 years for non-officer/director employees and 4 years for officers and
directors for all years.

The fair value of each share granted under the Purchase Plan is estimated
on the date of grant using the Black-Scholes option-valuation model with the
following weighted-average assumptions used for shares granted in 1998: dividend
yield of 0 percent, expected volatility of 79 percent, risk free interest rate
of 5.36% and an expected life of 0.5 years for non-officer/director employees
and officers and directors for 1998. The Purchase Plan was suspended effective
June 1998 due to the Company's delisting from the NASDAQ stock market in August
1998. As a result of such suspension, no fair value for the Purchase Plan was
calculated under the Black-Scholes option-valuation model for fiscal 2000 or
1999.

Had compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates for awards under the stock
option plans and its Purchase Plan consistent with the method of SFAS 123, the
Company's net income (loss) and net income (loss) per share would have been
reduced to the pro forma amounts below (in thousands, except per share amounts):

YEAR ENDED APRIL 30,
-----------------------------
2000 1999 1998
------ ------- --------

Pro-forma net income (loss):.......................... $9,604 $ (31) $(20,226)
Pro-forma net income (loss) per share:
Basic:.............................................. $ 0.66 $(0.003) $ (2.45)
Diluted:............................................ $ 0.48 $(0.003) $ (2.45)

OPTIONS GRANTED TO CONSULTANTS AND VENDORS

On January 14, 1999, the Company granted 250,000 options to outside
consultants as compensation for services provided. The 250,000 options granted
to the consultants are accounted for under EITF 96-18, which requires the
Company to record compensation equal to the fair value of the options,
remeasured over the vesting period of the options. Compensation expense of
$7,000 and $49,000 was recorded in fiscal 1999 and fiscal 2000, respectively,
and no more compensation will be recorded as the options are all fully vested.

The Company issued 100,000 options under the terms of the Company's
Separation and Mutual Release agreement with the former President of the
Company, signed October 1998. Such options were granted on January 14, 1999 out
of the 1998 Plan pool. These options were to become fully vested one year after
the date of the agreement, so long as the former president remained in
compliance with the terms of the Separation Agreement. On December 1, 1999, the
Board of Directors authorized the accelerated vesting of the options. Total
compensation of $187,000 was recorded for these options.

In March 1999, the Company entered into an arrangement with a sales
representative providing for options for the purchase of up to 200,000 shares of
the Company's common stock. The options under this agreement will vest 16,666
for each $1.0 million in shipments of Catalyst products by the representative.
The

F-16
47
CATALYST SEMICONDUCTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

options are valued using the Black-Scholes option pricing model and in
accordance with the guidance in EITF 96-18. Total expense of $167,000 was
recorded in fiscal 2000, based upon shipments of $1.3 million representing fixed
expenses of $97,000 relating to options that became fully vested in the third
quarter of fiscal 2000 and $70,000 of accrued variable expense relating to the
probable vesting of another 16,666 options.

NOTE 7 -- SALE OF COMMON STOCK:

In May 1998, the Company sold 1,500,000 shares of its Common Stock to a
corporate investor in a private placement transaction at $1.00 per share for
cash consideration of $1,500,000. There were no sales discounts or commissions
paid. In September 1998, the Company sold 4,000,000 additional shares of its
Common Stock to the same corporate investor in a private placement transaction
at $.25 per share for an aggregate cash consideration of $1,000,000. The Company
retained a consultant for $60,000 to render an opinion as to the fairness of the
pricing of the transaction. As part of the September 1998 transaction, the
Company negotiated the right to demand the additional sale of up to 1,000,000
more shares at $.25 per share until September 13, 1999. This right was not
exercised and hence lapsed on September 13, 1999. The offer and sale of the
securities in both transactions was exempt from registration under the
Securities Act of 1933, as amended, pursuant to Section 4(2) of such Act. The
proceeds of such offerings are being used for general corporate purposes. In
connection with such issuances the investor agreed to various standstill and
voting provisions including not acquiring additional shares of Company stock or
taking actions to control the Company. For both transactions, the Company also
had certain repurchase rights with respect to the shares sold over the twelve
months from the date of issuance. These repurchase rights lapsed unexercised.

NOTE 8 -- SEGMENT REPORTING:

The company operates in one business segment, being the semiconductor
manufacturing segment.

Revenues by destination were as follows (in thousands):

YEAR ENDED APRIL 30,
-----------------------------
2000 1999 1998
------- ------- -------

North America......................................... $19,416 $17,493 $12,311
Japan................................................. 4,362 2,773 8,883
Other Far East........................................ 21,696 5,605 8,122
Europe................................................ 4,053 6,116 5,263
------- ------- -------
Total sales................................. $49,527 $31,987 $34,579
======= ======= =======

The Company sold product to its former Japanese distributor who resigned
effective April 1998. Revenue from this distributor represented $0.0 million,
$0.0 million and $7.2 million or approximately 0%, 0% and 21% of product sales
for the years ended April 30, 2000, 1999 and 1998, respectively. In fiscal 2000,
three customers accounted for 13%, 12% and 11% of product sales for the year
ended April 30, 2000.

Sales and purchase transactions are denominated in U.S. dollars, except for
certain sales and purchases which were denominated in Japanese yen and which
were not significant for the years ended April 30, 2000, 1999 and 1998.

NOTE 9 -- SETTLEMENTS AND CONTINGENCIES:

VENDOR SETTLEMENTS

F-17
48
CATALYST SEMICONDUCTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

dismissal of the $1.6 million claim, which was fully accrued by the Company, if
the Company made total payments of $0.8 million, consisting of an immediate
payment of $0.4 million and eight monthly payments of $50,000 each (an aggregate
of an additional $0.4 million) with the final payment to be made in December
1999. The Company made such final payment in October 1999, satisfying the terms
of settlement and allowing the Company to recognize a benefit of $0.8 million in
the quarter ended October 31, 1999 from meeting the terms of the settlement.

During fiscal 1999, the Company received $1.7 million in credits and
adjustments as the result of various settlements with vendors. In the first
quarter, renegotiation of amounts due under a licensing agreement resulted in
$0.5 million reduction to cost of sales. In the second quarter, $0.7 million was
credited to the Company in return for payment of $7.0 million due under an
inventory purchasing arrangement. The Company used $5.8 million of restricted
cash and $1.2 million advance from a bank to make the $7.0 million payment. In
the fourth quarter, a $0.5 million benefit was recognized as the result of
successful payment of amounts due under the terms of a licensing agreement
settlement.

CONTINGENCIES

In the normal course of business, the Company receives notification of
threats of legal action in relation to claims of patent infringement by the
Company. Although no assurances can be given to the results of these claims,
management does not believe that any such results will have a material adverse
impact on the Company's financial condition or results of operations.

NOTE 10 -- RELATED PARTY TRANSACTIONS:

During the fourth quarter of fiscal 2000, the Company began taking delivery
of wafers fabricated at X-fab Texas, Inc. (Xfab), a wholly owned subsidiary of
Elex NV, a Belgian holding company that owns 35% of the outstanding shares of
the Company. The wafers provided by Xfab supplement the same designs fabricated
at Oki Semiconductor in Japan, the Company's principal wafer fab since 1985. The
Company believes that the cost of such wafers is no greater than comparable
materials available from alternative foundry services. During the fiscal year
ended April 30, 2000, the Company purchases from Xfab totaled $899,000. As of
April 30, 2000, the total amount owed Xfab was $857,000. Mr. Duchatelet is the
Chairman and CEO of Elex N. V. and serves as a member of the Company's Board of
Directors.

The Company has had an arrangement since 1995 to obtain engineering
services from Lxi Corporation, a California corporation (Lxi), a provider of
engineering services through Essex com SRL (Essex), its wholly owned subsidiary
in Romania. As of April 30, 2000, Essex employed the equivalent of approximately
13 engineers to perform the services on behalf of Catalyst. The services relate
to key development projects of the Company including development, design, layout
and test program development services. Officers of the Company own approximately
95% of Lxi. The fees for such engineering services are on terms believed by the
Company to be fair to the Company and no less favorable to the Company than arms
length commercial terms. During the fiscal years ended April 30, 2000, April 30,
1999 and April 30, 1998 the Company recorded $534,000, $437,000 and $413,000,
respectively, of engineering fees to Essex and Lxi for engineering design
services. As of April 30, 2000 the total amount owed to Essex and Lxi was
$167,000. The officers received no payments during the fiscal years ended April
30, 2000, April 30, 1999 and April 30, 1998, except one officer who received $0,
$1,200 and $3,000 from Lxi during such respective periods. Such payments to such
officer were made for services rendered prior to his joining the Company in
connection with his duties as Treasurer of Lxi. Such officer resigned such
position immediately prior to joining the Company. Such officer continues to
serve as a director of Lxi.

F-18
49

EXHIBIT INDEX

EXHIBIT
NUMBER DESCRIPTION
---------- -----------

10.48(4)* Loan Forgiveness Agreement dated March 12, 1996 between Radu
Vanco and Registrant.
10.49(6) Loan and Security Agreement dated June 19, 1997 between
Coast Business Credit, a division of Southern Pacific Thrift
& Loan Association (Coast), and Registrant.
10.50(6) Loan and Security Agreement (CEFO Facility) dated June 19,
1997 between Coast Business Credit, a division of Southern
Pacific Thrift & Loan Association (Coast), and Registrant.
10.51(6) Commercial Security Agreement dated April 1, 1998 between
Registrant and Oki Electric Industry Co., Ltd.
10.52(6) Wafer Purchase Agreement dated March 23, 1998 between
Registrant and Trio-Tech International PTE LTD with
Variation Agreement dated April 16, 1998 between Registrant
and Trio-Tech.
10.53(6)* Addendum dated May 29, 1998 to Employment Agreement dated
October 14, 1995 between Radu Vanco and Registrant.
10.54(6)* Severance Agreement dated April 28, 1998 between Sorin
Georgescu and Registrant.
10.55(6)* Severance Agreement dated April 28, 1998 between Gelu Voicu
and Registrant.
10.57(6)* Severance Agreement dated April 28, 1998 between Marc H.
Cremer and Registrant.
10.58(6)* Severance Agreement dated April 28, 1998 between Bassam
Khoury and Registrant.
10.59(6)* Severance Agreement dated June 1, 1998 between Thomas E. Gay
III and Registrant.
10.61(6) Common Stock Purchase Agreement dated as of May 26, 1998
between Registrant and Elex N.V. (Elex) with Standstill
Agreement dated as of May 26, 1998 between Registrant and
Elex.
10.62(6) Letter Agreement dated August 6, 1998 between Coast and
Registrant concerning default and forbearance under the
Company's bank agreements.
10.63(7)* Agreement dated August 14, 1995 between Registrant and
Lionel M. Allan.
10.64(8) Common Stock Purchase Agreement dated as of September 14,
1998 between Registrant and Elex N.V. with Standstill
Agreement dated as of September 14, 1998 between Registrant
and Elex, N.V.
10.65(8) Letter Agreement dated September 21, 1998 between Coast
Business Credit and Registrant concerning forbearance under
the Company's Bank Agreement.
10.67(12)* Modification dated January 1, 1999 of Consulting Agreement
dated August 14, 1995 between the Company and Allan
Advisors, Inc.
10.68(13) Amendment No. One to Loan and Security Agreement dated as of
April 21, 1999 between Registrant and Coast Business Credit,
a division of Southern Pacific Bank.
10.69(16) 1998 Special Equity Incentive Plan.
10.70(14)* Employment Agreement dated August 18, 1998 between Radu
Vanco and Registrant.
10.71(14)* Severance Agreement dated May 11, 1999 between Irv Kovalik
and Registrant.
10.72(15)* Severance Agreement dated May 11, 1999 between Frank
Reynolds and Registrant.
10.73(15)* Consulting Agreement dated January 1, 2000 between Hideyuki
Tanigami and Registrant.
10.74(15)* Amendment to Consulting Agreement dated June 23, 2000
between Hideyuki Tanigami and Registrant.
21.1(1) List of Subsidiaries of Registrant.
23.1 Consent of Independent Accountants.
24.1(15) Power of Attorney.
27.1(15) Financial Data Schedule.