<PAGE>

                         SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, D. C. 20549



                                     FORM 10-Q

/X/  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998 OR

/ /  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 0-13244



                               GATEFIELD CORPORATION
               (Exact name of registrant as specified in its charter)



DELAWARE                                                             41-1404495
(State of incorporation)                   (I.R.S. Employer Identification No.)


                               47100 BAYSIDE PARKWAY
                             FREMONT, CALIFORNIA 94538
               (Address of principal executive offices and zip code)


Registrant's telephone number, including area code:         (510) 623-4400


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

     Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.

        Title of Each Class                       Outstanding at August 13, 1998
---------------------------------------           ------------------------------
Common stock, par value $0.10 per share                     40,971,495



<PAGE>

                               GATEFIELD CORPORATION

                                       INDEX



<TABLE>
<CAPTION>
                                                                                               Page
                                                                                              Number
<S>                                                                                           <C>
PART I.    FINANCIAL INFORMATION

Item 1.    Financial Statements

                     Condensed Consolidated Balance Sheets as of June 30, 1998
                         and December 31, 1997                                                2


                     Condensed Consolidated Statements of Operations for the Three
                         and Six Months Ended June 30, 1998 and June 30, 1997                 3


                     Condensed Consolidated Statements of Cash Flows for the Six
                         Months Ended June 30, 1998 and June 30, 1997                         4


                     Notes to Condensed Consolidated Financial Statements, June 30, 1998      5


Item 2.    Management's Discussion and Analysis of Financial Condition
                     and Results of Operations                                                7




PART II.  OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K                                                    11

SIGNATURE                                                                                    14

</TABLE>

<PAGE>

PART I.  FINANCIAL INFORMATION


ITEM 1.  FINANCIAL STATEMENTS



                               GATEFIELD CORPORATION
                            (FORMERLY ZYCAD CORPORATION)
                       CONDENSED CONSOLIDATED BALANCE SHEETS
                                    (UNAUDITED)

<TABLE>
<CAPTION>


                                                                  June 30,     December 31,
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)                                1998           1997
-------------------------------------------------------------------------------------------
<S>                                                              <C>           <C>
ASSETS
Current assets:
  Cash and cash equivalents                                      $  2,851      $  4,189
  Short-term investments                                              113            98
  Accounts receivable, less allowance for doubtful
     accounts of $483 in 1998 and $528 in 1997                      1,874         2,763
  Inventories                                                         669           735
  Other current assets                                                546           524
                                                                 --------      --------
     Total current assets                                           6,053         8,309

Property and equipment, net                                         3,107         2,660
Other assets                                                          254           287
                                                                 --------      --------
  Total assets                                                   $  9,414      $ 11,256
                                                                 --------      --------
                                                                 --------      --------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Current portion of long-term obligations                       $    617      $    516
  Accounts payable                                                  2,778         3,741
  Accrued expenses                                                  2,434         3,118
  Deferred revenues                                                   692           981
                                                                 --------      --------
     Total current liabilities                                      6,521         8,356

Other long-term liabilities                                           420            71
                                                                 --------      --------
     Total liabilities                                              6,941         8,427
                                                                 --------      --------
Stockholders' equity:
  Preferred stock:
     $0.10 par value; 2,000,000 shares authorized;
     shares issued and outstanding:  1,000,000 in 1998 and 1997       100           100
  Additional paid-in capital, preferred stock                       4,563         4,494
  Common stock:
     $0.10 par value; 65,000,000 shares authorized; shares issued
     and outstanding: 41,421,706 in 1998 and 36,222,326 in 1997     4,142         3,622
  Additional paid-in capital, common stock                         71,183        66,776
  Accumulated translation adjustments                                (543)         (544)
  Accumulated deficit                                             (76,972)      (71,619)
                                                                 --------      --------
     Total stockholders' equity                                     2,473         2,829
                                                                 --------      --------
     Total liabilities and stockholders' equity                  $  9,414      $ 11,256
                                                                 --------      --------
                                                                 --------      --------
</TABLE>

SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

                                       2.
<PAGE>

                            GATEFIELD CORPORATION
                        (FORMERLY ZYCAD CORPORATION)
               CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                (UNAUDITED)

<TABLE>
<CAPTION>
                                                            Three Months Ended               Six Months Ended
                                                                   June 30,                      June 30,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)                    1998           1997           1998           1997
----------------------------------------------------------------------------------------------------------------
<S>                                                       <C>            <C>            <C>           <C>
Revenues:
  Product                                                 $ 1,359        $ 1,016        $ 1,999       $  2,176
  Service                                                   2,109          2,800          3,318          5,724
                                                          -------        -------        -------       --------
     Total revenues                                         3,468          3,816          5,317          7,900
                                                          -------        -------        -------       --------

Cost of revenues:
  Product                                                   1,486          1,864          2,536          3,247
  Service                                                     605          1,456          1,365          3,274
                                                          -------        -------        -------       --------
     Total cost of revenues                                 2,091          3,320          3,901          6,521
                                                          -------        -------        -------       --------

     Gross profit                                           1,377            496          1,416          1,379
                                                          -------        -------        -------       --------

Operating expenses:
  Sales and marketing                                       1,359          2,991          2,274          6,244
  Research and development                                  1,399          2,133          2,696          4,799
  General and administrative                                  785            443          1,550            950
                                                          -------        -------        -------       --------
     Total operating expenses                               3,543          5,567          6,520         11,993
                                                          -------        -------        -------       --------

Operating loss                                             (2,166)        (5,071)        (5,104)       (10,614)
                                                          -------        -------        -------       --------

Other income (expense), net                                  (154)         3,197           (179)         3,129
                                                          -------        -------        -------       --------

Net loss                                                  $(2,320)       $(1,874)       $(5,283)      $ (7,485)
                                                          -------        -------        -------       --------
                                                          -------        -------        -------       --------

Basic and diluted net loss per share                      $ (0.06)       $ (0.07)       $ (0.13)      $  (0.29)
                                                          -------        -------        -------       --------
                                                          -------        -------        -------       --------

Basic and diluted weighted average shares outstanding      41,350         27,041         40,840         26,148
                                                          -------        -------        -------       --------
                                                          -------        -------        -------       --------

</TABLE>

SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

                                      3.
<PAGE>

                           GATEFIELD CORPORATION
                       (FORMERLY ZYCAD CORPORATION)
              CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (UNAUDITED)

<TABLE>
<CAPTION>
                                                                         Six Months Ended June 30,
(IN THOUSANDS)                                                              1998           1997
---------------------------------------------------------------------------------------------------
<S>                                                                      <C>            <C>
Operating activities:
  Net loss                                                               $(5,283)       $(7,485)
  Reconciliation to net cash used in operating activities:
     Depreciation and amortization                                           640          2,398
     Subordinated convertible debt interest capitalized                        -            438
     Gain on sale of LightSpeed                                                -           (314)
     Gain on sale of QSS                                                       -         (3,321)
     Changes in assets and liabilities:
       Accounts receivable                                                   849          7,575
       Inventories                                                            64           (244)
       Other assets                                                          (10)           400
       Accounts payable and accrued expenses                              (1,565)        (4,081)
       Deferred revenues                                                    (326)          (538)
                                                                         -------        -------
          Net cash used in operating activities                           (5,631)        (5,172)
                                                                         -------        -------
Investing activities:
  Purchases of marketable securities                                         (15)             -
  Property and equipment purchases, net                                     (627)        (1,205)
  Capitalized software                                                         -           (150)
  Proceeds from sale of LightSpeed                                             -          5,000
  Proceeds from sale of QSS                                                    -          3,500
                                                                         -------        -------
          Net cash provided by (used in) investing activities               (642)         7,145
                                                                         -------        -------
Financing activities:
  Proceeds from issuance of convertible debenture notes, net                   -          3,500
  Proceeds from issuance of common stock                                   4,926            104
  Bank financing, net                                                          -         (3,039)
  Repayments of debt obligations                                               -         (1,967)
                                                                         -------        -------
          Net cash provided by (used in) financing activities              4,926         (1,402)
                                                                         -------        -------

Effect of exchange rate changes on cash and cash equivalents                   9            (28)
                                                                         -------        -------

Net change in cash and cash equivalents                                   (1,338)           543

Cash and cash equivalents, beginning of period                             4,189          1,703
                                                                         -------        -------

Cash and cash equivalents, end of period                                 $ 2,851        $ 2,246
                                                                         -------        -------
                                                                         -------        -------
Supplemental disclosure of cash flow information:
  Noncash activities:
     Equipment acquired under capital leases                             $  465         $     -
     Common stock exchanges for convertible debentures                   $    -         $ 6,217
     Preferred stock exchanges for convertible debentures                $    -         $ 3,917
     Common stock exchanges for preferred stock                          $    -         $   289
  Cash activities:
     Cash paid during the year for interest                              $  186         $   417

</TABLE>

SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

                                        4.
<PAGE>


                               GATEFIELD CORPORATION
                            (FORMERLY ZYCAD CORPORATION)
                NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                    (UNAUDITED)

                                   JUNE 30, 1998

1.   BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements 
contain all adjustments of a normal recurring nature that are, in the opinion 
of management, necessary to present fairly the financial position and results 
of operations of GateField Corporation, formerly known as Zycad Corporation, 
(the "Company").  Interim results of operations are not necessarily 
indicative of the results to be expected for the full year.  The Company's 
interim fiscal quarter ended on June 30, 1998 and 1997, respectively.  The 
condensed consolidated financial statements should be read in conjunction 
with the financial statements and the notes thereto for the year ended 
December 31, 1997, included in the Company's 1997 Annual Report on Form 10-K.

2.   COMPREHENSIVE INCOME

In January 1998, the Company adopted Statement of Financial Accounting 
Standards No. 130, REPORTING COMPREHENSIVE INCOME, which requires reporting 
by major components and as a single total, the change in its net assets 
during the period from nonowner sources.  For the six months ended June 30, 
1998 and 1997, the change in net assets from nonowner sources was an increase 
of $1,000 and a decrease of $230,000, respectively, for the change in the 
accumulated translation adjustment, and comprehensive loss was $5,282,000 and 
$7,715,000.

3.   NET EARNINGS (LOSS) PER SHARE

In 1997, the Company adopted SFAS No. 128, "Earnings Per Share" which 
requires a dual presentation of basic and diluted earnings per share ("EPS"). 
 Basic EPS excludes dilution and is computed by dividing net income 
attributable to common stock holders by the weighted average of common stock 
outstanding for the period.  Diluted EPS reflects the potential dilution that 
could occur if securities or other contracts to issue common stock 
(convertible preferred stock, warrants to purchase convertible preferred 
stock, warrants to purchase common stock and common stock options using the 
treasury stock method) were exercised or converted into common stock.  
Potential common shares in the diluted EPS computation are excluded in net 
loss periods, as their effect would be antidilutive.  EPS for all periods 
have been computed in accordance with SFAS No. 128.

4.   INVENTORIES

<TABLE>
<CAPTION>
                                                June 30,    December 31,
         (IN THOUSANDS)                           1998          1997
------------------------------------------------------------------------
<S>                                             <C>         <C>
         Raw materials and supplies               $223         $306
         Finished goods                            446          429
                                                  ----         ----
                                                  $669         $735
                                                  ----         ----
                                                  ----         ----

</TABLE>

5.   SALE OF COMMON STOCK


In January 1998, the Company issued 4,582,500 shares of common stock to an 
outside investor for an aggregate purchase price of $4,582,500 pursuant to a 
Stock Purchase Agreement entered into on November 10, 1997.  The issuance of 
common stock completes the second and final phase of the private placement of 
securities contemplated by such Stock Purchase Agreement, dated November 10, 
1997.


                                        5.
<PAGE>

6.   SELECTED BALANCE SHEET INFORMATION

Included in accounts payable at June 30, 1998 is $930,000 and at December 31, 
1997 is $1,667,000 due to a supplier that was in dispute.  In April and May 
1998, the Company resolved and paid $737,000 of the outstanding balance.  The 
remaining balance was paid in August 1998.

7.   SUBSEQUENT EVENTS

SALE OF THE DESIGN SERVICES BUSINESS ASSETS

Pursuant to that certain Asset Purchase Agreement dated as of August 14, 1998 
(the "Asset Purchase Agreement"), GateField Corporation (the "Company") sold 
certain of the assets relating to its Design Service Business Unit, which is 
engaged in the business of providing prototyping design services and 
verification services for electronic systems, integrated circuits and other 
electronic components, located in Mt. Arlington, New Jersey (the "Design 
Services Business") to Actel Corporation ("Actel").  The purchase price for 
such assets was (i) $5.4 million plus (ii) contingent payments to be paid 
over a three-year period on a quarterly basis based on the Design Services 
Business achieving certain profitability levels which payments shall not 
exceed $1.0 million in the aggregate.

SERIES C PREFERRED STOCK PURCHASE AGREEMENT

Pursuant to that certain Series C Preferred Stock Purchase Agreement dated as 
of August 14, 1998, Actel purchased, and the Company issued to Actel, 300,000 
shares of the Company's Series C Convertible Preferred Stock, par value 
$0.10, for an aggregate purchase price of $3,000,000 (the "Shares").  The 
Shares are initially convertible into 2,000,000 shares of the Company's 
common stock and are entitled to certain liquidation and redemption rights.  
Actel is entitled to certain registration rights and shall have a right of 
first refusal to purchase its pro rata share of certain new securities the 
Company may issue.

PRODUCT MARKETING AGREEMENT

On August 14, 1998, GateField Corporation and Actel entered into a Product 
Marketing Agreement (the "Marketing Agreement"). Under the terms of the 
Marketing Agreement, Actel received exclusive, worldwide distribution rights 
to the Company's standard ProASIC FPGA products below .35 micron, including 
FPGA products that are integrated with SRAM or Flash memory and all resulting 
next generation reduced process geometry ProASIC FPGA products. For these 
rights, Actel agreed to pay the Company an initial fee of $1.0 million and a 
$1.0 million fee upon qualification of the initial .25 micron product.

ACTEL LICENSE AGREEMENT

On August 14, 1998 GateField Corporation and Actel entered into a license 
agreement pursuant to which the Company granted to Actel a fully paid, 
non-exclusive, non-transferable license to sell and upon certain release 
events, make, have made, import and use the Company's standard ProASIC FPGA 
products below .35 micron and all resulting next generation reduced process 
geometry ProASIC FPGA products (the "Actel License Agreement").  Actel agreed 
to pay the Company a $1.0 million fee for such license.

ROHM LICENSE AGREEMENT

On July 31, 1998, GateField Corporation and Rohm Co., Ltd. ("Rohm") entered 
into a license agreement (the "Rohm License Agreement").  Pursuant to the 
Rohm License Agreement, the Company granted to Rohm a worldwide, nonexclusive 
and royalty-free license of the Company's ProASIC Technology for Standard 
ProASIC and embedded products down to 0.35 micron with no limitation on 
density and a license for 0.25 micron and below embedded products with a per 
unit royalty for a license fee of $2.5 million.

                                        6.
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
RESULTS OF OPERATIONS

The discussion in this Report contains forward-looking statements that 
involve risks and uncertainties.  The statements contained in this Report 
that are not purely historical are forward-looking statements within the 
meaning of Section 27A of the Securities Act of 1933, as amended (the 
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as 
amended, including statements regarding the Company's expectations, beliefs, 
intentions or strategies regarding the future. All forward-looking statements 
included in this document are based on information available to the Company 
on the date hereof, and the Company assumes no obligation to update any such 
forward-looking statements.  The Company's actual results could differ 
materially from those discussed herein.  Factors that could cause or 
contribute to such differences include, but are not limited to, those 
discussed in "Factors Affecting Future Results" as well as those discussed in 
this section and elsewhere in this Report, and the risks discussed in the 
Company's Securities and Exchange Commission filings as of the date hereof.

RESULTS OF OPERATIONS 
THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997

REVENUE

Total revenue for the quarter ended June 30, 1998 was $3.5 million compared 
to $3.8 million for the quarter ended June 30, 1997, a decrease of 9%.  The 
decrease in revenue is the result of competitive price and performance 
pressure for the Company's current product lines.  Product revenue for the 
quarter ended June 30, 1998 was $1.4 million compared to $1.0 million for the 
quarter ended June 30, 1997, an increase of 34%.  The product revenue figure 
for the current quarter includes a $1.0 million sales transaction related to 
the delivery of certain equipment, documentation and software tools under a 
Strategic Partnership Agreement (the "Strategic Partnership Agreement"). 
Service revenue for the quarter ended June 30, 1998 was $2.1 million as 
compared to $2.8 million for the quarter ended June 30, 1997, a decrease of 
25%.  The decrease in service revenue primarily reflects the discontinuation 
of sales of several product families in 1997, off-set by a ramp up of sales 
in the Company's new reprogrammable ASIC products and related services.

Total revenue for the six months ended June 30, 1998 was $5.3 million, a 
decrease of $2.6 million from $7.9 million for the same period in 1997.  
Product revenue for the first half of 1998 was $2.0 million, compared to $2.2 
million for the comparable period in 1997.  Service revenue was $3.3 million 
for the six months ended June 30, 1998; a decrease of $2.4 million from $5.7 
million for the six months ended June 30, 1997.  This decrease primarily 
reflects the sale of the Company's LightSpeed and XP/PXP maintenance and 
support business to Zycad TSS on October 31, 1997 (the "Transfer Agreement"). 
The Transfer Agreement and the Strategic Partnership Agreement are more fully 
described in the Company's Annual Report on Form 10K for the year ended 
December 31, 1997.

GROSS PROFIT

Total gross profit was $1.4 million, or 40% of total revenue, for the three 
months ended June 30, 1998 compared to $496,000, or 13% of total revenue, for 
the three months ended June 30, 1997.  The loss from product revenues at the 
gross margin level was $127,000 for the quarter ended June 30, 1998, as 
compared to a loss of $848,000 for the quarter ended June 30, 1997.  The 
improvement in the loss at the gross margin level in 1998 was primarily due 
to the $1.0 million sale pursuant to the Strategic Partnership Agreement.  
The equipment, documentation and software tools sold pursuant to the 
Strategic Partnership Agreement had minimal cost of goods sold associated 
with their production. Gross profit from service revenue was $1.5 million, or 
71% of the total revenues, for the three months ended June 30, 1998 compared 
to $1.3 million, or 48% of the total revenues, for the three months ended 
June 30, 1997.  This increase in gross profit from service revenues in 1998 
as compared to 1997 was partly due to the dispositions pursuant to the 
Strategic Partnership Agreement mentioned above and the reduction of certain 
operating expenses in the Design Services Business of the Company.

Total gross profit was $1.4 million for both six-month periods ended June 30, 
1998 and 1997 or 27% and 17% of total revenue for the six months ended June 
30, 1998 and 1997, respectively.  The loss from product revenues at the gross 
margin level was $537,000 for the six month period ended June 30, 1998 as 
compared to a loss of $1.1 million for the quarter ended June 30, 1997.  
Gross profit from service revenues was $2.0 million, or 59%, for the six 
months ended June 30, 1998 compared to $2.5 million, or 43%, for the six 
months ended June 30, 1997.


                                        7.
<PAGE>

OPERATING EXPENSES

SALES AND MARKETING

Sales and marketing expenses were $1.4 million for the quarter ended June 30, 
1998 and $3.0 million for the quarter ended June 30, 1997, which represents 
39% of total revenues in 1998 and 78% of total revenues in 1997.  Sales and 
marketing expenses for the six months ended June 30, 1998 and June 30, 1997 
were $2.3 million and $6.2 million respectively. The decrease in sales and 
marketing expenses for both periods is largely the result of reduced staffing 
levels resulting from the sale of the verification, test and maintenance 
businesses in 1997, pursuant to the Transfer Agreement.

RESEARCH AND DEVELOPMENT

Research and development expenses decreased to $1.4 million for the three 
months ended June 30, 1998 compared to $2.1 million for the three months 
ended June 30, 1997 and $2.7 million for the six months ended June 30, 1998 
compared to $4.8 million for the same period in 1997.  This decrease in 1998 
as compared to 1997 expenses is mainly due to reduced headcount.

GENERAL AND ADMINISTRATIVE

General and administrative expenses for the three months ended June 30, 1998 
and 1997 were $785,000 and $443,000, respectively and $1.6 million and $1.0 
million for the six months ended June 30, 1998 and 1997, respectively.  The 
increase in expenses for 1998 was primarily related to a change in the way 
the Company allocated facilities expenses between departments.

OTHER INCOME AND EXPENSES

Other expenses for the quarter ended June 30, 1998 were $154,000 as compared 
to $3.2 million in other income for the quarter ended June 30, 1997.  Other 
expenses for the six months ended June 30, 1998 was $179,000 compared to $3.1 
million for the six months ended June 30, 1997.  The differences between the 
periods were primarily due to a $3.2 million gain the Company had on the sale 
of its ownership interest in QSS, Inc. in May of 1997.

LIQUIDITY AND CAPITAL RESOURCES

The Company has historically used internally generated funds, public and 
private offerings of common and preferred stock, sale and leaseback 
arrangements, bank financing and credit lines to finance its business.  Cash 
used in operations was $5.6 million in the first six months of 1998 compared 
to $5.2 million for the first six months of 1997.  This increase in cash used 
in operations in 1998 compared to 1997 was primarily due to a reduction in 
depreciation expense associated with the dispositions assets in 1997 and to 
smaller reductions in the accounts receivable and accounts payable balances 
in the first six months of 1998 as compared to the reductions experienced in 
those balances for the same period of 1997.  Net cash used in investing 
activities during the six-month period ended June 30, 1998 was $642,000 as 
compared to $7.1 million in net cash provided by investment operations during 
the same period ended June 30, 1997. This decrease in net cash provided by 
investment operations is primarily due to $8.5 million in proceeds from the 
sale of certain businesses in 1997.  Net cash provided by financing 
activities was $4.9 million in the first six months of 1998, compared to net 
cash used by financing activities in the amount of $1.4 million for the same 
six-month period in 1997.  This increase in cash provided by financing 
activities in 1998 as compared to 1997 is primarily due to the sale of $4.6 
million of the Company's common stock in the first quarter of 1998 and the 
repayment of approximately $5.0 in debt obligations in the first six-months 
of 1997.

At June 30, 1998, the Company had $2.9 million of cash and cash equivalents 
and negative working capital of $468,000.  The Company has a $5.0 million 
revolving credit facility, which expires on January 31, 1999 and bears 
interest at the lender's prime rate plus 2.25% (the "Credit Facility").  
Pursuant to the Credit Facility, the Company may borrow up to 80% of its 
outstanding eligible accounts receivable.  There is no outstanding balance 
under the Credit Facility as of June 30, 1998.  The Company is not currently 
in compliance with certain covenants in the Credit Facility.  The Company 
continues to work with certain vendors to facilitate extended trade terms, 
thus 



                                        8.
<PAGE>
reducing the Company's immediate cash requirements to meet established 
payments and other normal, recurring period expenses.

At June 30, 1998, the Company was not in compliance with the requirement of 
The Nasdaq Stock Market, Inc. for listing on The Nasdaq National Market (a 
distinct tier of The Nasdaq Stock Market, Inc.) that issuers must maintain 
minimum net tangible assets of $4.0 million (the "Minimum").  Such Minimum 
must be maintained in order for the Company to be listed on The Nasdaq 
National Market ("NMS"), pursuant to the National Association of Securities 
Dealers, Inc. ("NASD") Marketplace Rule 4420.  On July 16, 1998, the Nasdaq 
Listings Qualification Panel (the "Panel") granted the Company's common stock 
listing on The Nasdaq SmallCap Market (the "Exchange"), which is another tier 
of The Nasdaq Stock Market, Inc.  The Panel granted the Company listing 
pursuant to that Exchange's maintenance requirements pursuant to NASD 
Marketplace Rule 4450 with the exception that the Company make a public 
filing with the Securities and Exchange Commission on or before August 14, 
1998, evidencing a minimum of $6.0 million in net tangible assets (the 
"Public Filing"). At such time, the Company must also demonstrate that it 
meets the continued listing requirements of NASD Marketplace Rule 4450 (the 
"Continued Listing Requirements").  One of the criteria for continued listing 
on the Exchange is that the Company's minimum bid price exceed $1.00 per 
share for an unspecified period of time.  As of August 13, 1998, the 
Company's shares of common stock were trading below $1.00 per share.  The 
Company must meet both the Public Filing requirement and the Continued 
Listing Requirements of the Exchange in order for its securities to continue 
to be traded on the Exchange.  If the Company is unable to meet one of the 
aforementioned requirements for listing, the Company's shares may be delisted 
by the Exchange or further action may be required by the Panel.  There can be 
no assurance that the Company will remain eligible for listing on the 
Exchange or on a like exchange in the future. If at some future date the 
Company's securities should cease to be listed on the Exchange, the shares 
may continue to be listed in the OTC-Bulletin Board.

On August 14, 1998, the Company entered into an agreement to sell its 
ownership interest in the assets relating to its Design Services Business to 
Actel for a purchase price of $5.4 million plus contingent payments to be 
paid over a three-year period on a quarterly basis based on the Design 
Services Business achieving certain profitability levels which payments shall 
not exceed $1.0 million in the aggregate.  In addition, on that date, Actel 
purchased 300,000 shares of the Company's Series C Convertible Preferred 
Stock, par value $0.10, for an aggregate purchase price of $3,000,000, 
entered into a Product Marketing Agreement with the Company in which the 
Company sold certain distribution rights to Actel for an initial fee of $1.0 
million and entered into a license agreement with the Company, pursuant to 
which the Company received, and Actel paid, a $1.0 million fee for such 
license.  Finally, on July 31, 1998, the Company entered into a license 
agreement with Rohm Co., Ltd. for a fee of $2.5 million.  The effect of these 
transactions was to increase the Company's net tangible assets as of June 30, 
1998 on a pro forma basis to $10.4 million.  The above mentioned transactions 
and resulting pro forma statements are more fully described in the Company's 
Current Report on Form 8-K filed with the Securities and Exchange Commission 
on August 14, 1998.

The Company believes that the above mentioned agreements will provide 
sufficient cash to meet its short-term liquidity needs.  Should additional 
funding be required, however, there can be no assurance that such funding 
will be available on acceptable terms when and as required by the Company.

FACTORS AFFECTING FUTURE RESULTS

The Company operates in a rapidly changing environment that involves a number 
of risks, many of which are beyond the Company's control.  The following 
discussion highlights some of these risks.  The Company's actual results 
could differ materially from those discussed herein.  Factors that could 
cause or contribute to such differences include, but are not limited to, 
those discussed in this section and elsewhere in this Report, and the risks 
discussed in the Company's Securities and Exchange Commission filings made as 
of the date hereof.

FUTURE OPERATING RESULTS UNCERTAIN

The Company's quarterly operating results have varied significantly in the 
past and are likely to vary significantly in the future.  For example, the 
Company has recently experienced quarterly losses and experienced a loss for 
fiscal 1997.  The Company continues to seek improvement in operating results 
primarily through the introduction of new products and marketing and sales 
efforts to increase revenue from existing FPGA products.  In addition, the 

                                        9.
<PAGE>

Company is continuing its efforts to control the costs of operations and 
administration. However, there can be no assurance that the Company will be 
successful in its efforts.  In the future, the Company's operating results 
may be impacted by a number of factors, including cancellation or delays in 
new product introductions, lack of market acceptance of new or existing 
products, cancellation or delays of customer orders, interruptions or delays 
in the supply of key components, changes in yields from manufacturing 
processes, changes in customer base or product mix, seasonal patterns of 
capital spending by customers, new product announcements by the Company or 
its competitors, pricing pressures and changes in general economic conditions 
in domestic or international markets.  Historically, a significant portion of 
the Company's shipments have been made in the last month of each quarter.  As 
a result, a shortfall in revenue compared to expectation may not evidence 
itself until late in the quarter. Additionally, the timing of expenditures 
for research and development activities and sales and marketing programs as 
well as the timing of orders by major customers may cause operating results 
to fluctuate substantially between quarters and between years.

MANAGEMENT OF CHANGING BUSINESS

The Company has shifted its business strategy from a provider of high 
performance verification products to a provider of high density, high 
performance programmable logic solutions, related development system software 
and design services.  This transition represents a significant challenge for 
the Company and its administrative, operational and financial resources and 
places increased demand on its systems and controls.  The Company's ability 
to manage the continuing development of its programmable logic solutions 
business will require the Company to continue to change, expand and improve 
its operational, management and financial systems and controls and to expand 
its third party manufacturing capabilities.  There can be no assurance that 
the Company will be successful in its efforts to accomplish these changes and 
effect these improvements.

VOLATILITY OF STOCK PRICE

The market price of the shares of the Company's common stock is highly 
volatile and may be significantly affected by factors such as actual or 
anticipated fluctuations in the Company's results of operations, 
manufacturing processes, announcements of technological innovations, 
introduction of new products by the Company or its competitors, developments 
with respect to patents, copyrights or proprietary rights, conditions and 
trends in the ASIC industry and other industries, changes in or failure by 
the Company to meet securities analysts' expectations, general market 
conditions and other factors.  In addition, the stock market has from time to 
time experienced significant price and volume fluctuations that have 
particularly affected the market prices for the common stock of technology 
companies.  These broad market fluctuations may adversely affect the market 
price of the Company's common stock.  In the past, following periods of 
volatility in the market price of a particular company's securities, 
securities class action litigation has often been brought against that 
company. There can be no assurance that such litigation will not occur in the 
future with respect to the Company.  Such litigation could result in 
substantial costs and a diversion of management's attention and resources, 
which could have a material adverse effect upon the Company's business, 
operating results and financial condition.

CAPITAL RESOURCES

The Company has funded its operations to date primarily through cash flow 
from operations, the private sale of equity securities and public offerings 
of the Company's common stock.  If its existing cash, cash equivalents and 
short-term investments plus cash generated from operations are insufficient 
to satisfy the Company's liquidity requirements, the Company may seek 
additional equity or convertible debt securities or obtain additional credit 
facilities.  The sale of additional equity or convertible debt securities 
could result in additional dilution to the Company's stockholders.  There can 
be no assurance that the Company would be successful in obtaining these funds 
on acceptable terms when and if needed or that the sale of such equity or 
convertible debt securities will not substantially dilute the Company's 
existing stockholders' interests.

YEAR 2000 ISSUES

The Company is in the process of conducting assessments of its computer 
information systems and will take the necessary steps to determine the nature 
and extent of the work required to make its systems Year 2000 compliant, 
where necessary.  These steps may require the Company to modify, upgrade or 
replace some of its internal financial 


                                        10.
<PAGE>

and operational systems.  The cost of bringing all internal systems, 
equipment and operations into Year 2000 compliance has not yet been 
determined.  While these efforts may involve additional costs, the Company 
believes, based upon currently available information, that these costs will 
not have a material adverse effect on the business, financial condition or 
results of operations of the Company.  However, if these efforts are not 
completed on time, the Year 2000 issue could have a material adverse impact 
on the business, financial condition or results of operations of the Company. 
 To address these issues the Company has enlisted the aid of outside 
consultants and has evaluated, purchased, installed and implemented a year 
2000 compliant financial information system and discontinued operation of its 
non-compliant accounting system.

The Company also intends to determine the extent to which it may be 
vulnerable to any failures by its major partners, customers and service 
providers to remedy their own Year 2000 issues and is in the process of 
initiating formal communications with these parties.  At this time the 
Company is unable to estimate the nature or extent of any potential adverse 
impact resulting from the failure of third parties to achieve Year 2000 
compliance; however, there can be no assurance that these third parties will 
not experience Year 2000 problems or that any problems would not have a 
material adverse effect on the Company's business, financial condition or 
results of operations.

PART II.  OTHER INFORMATION

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K


(a)  Exhibits:

<TABLE>
<CAPTION>
Number         Description
------         -----------
<S>            <C>
3.1                   Certificate of Incorporation, as amended (incorporated by
reference to Exhibit 3.1 to the Company's Annual Report 10-K for the year ended
December 31, 1997).

3.2                   Certificate of Designations of Preferred Stock of
GateField Corporation to be Designated Series B Convertible Preferred Stock of
the Company (incorporated by reference to Exhibit 3.3 to the Company's Annual
Report 10-K for the year ended December 31, 1997).

3.3                   Certificate of Designations of Preferred Stock of
GateField Corporation to be Designated Series C Convertible Preferred Stock of
the Company.

3.4                   Bylaws of the Company, as amended.

4.1                   See Exhibit 3.1 referenced above.

4.2                   See Exhibit 3.2 referenced above.

4.3                   See Exhibit 3.3 referenced above.

4.4                   See Exhibit 3.4 referenced above.

10.1                  1993 Stock Option Plan (incorporated by reference to 
Exhibit 4.1 to the Company's Registration Statement on Form S-8 (File No. 
333-42363) filed on December 16, 1997).

10.2                  1996 Stock Option Plan (incorporated by reference to 
Exhibit 4.2 to the Company's Registration Statement on Form S-8 (File No. 
333-42363) filed on July 31, 1998).

10.3                  1995 Stock Option Directors Plan for Non-Employee 
Directors (incorporated by reference to Exhibit 4.3 to the Company's 
Registration Statement on Form S-8 (File No. 333-42363) filed on December 16, 
1997).

</TABLE>


                                        11.
<PAGE>

<TABLE>
<CAPTION>

<S>            <C>

10.4                  Employee Stock Purchase Plan (incorporated by reference 
to Exhibit 4.4 to the Company's Registration Statement on Form S-8 (File No. 
333-42363) filed on July 31, 1998).

10.5                  Employment, Confidential Information and Invention and 
Assignment Agreement, between the Company and Douglas E. Klint, as amended on 
June 5, 1997 (incorporated by reference to Exhibit 10.6 to the Company's 
Annual Report 10-K for the year ended December 31, 1997).

10.6                  Employment, Confidential Information and Invention and 
Assignment Agreement, between the Company and Stephen A. Flory, as amended on 
June 5, 1997 (incorporated by reference to Exhibit 10.7 to the Company's 
Annual Report 10-K for the year ended December 31, 1997).

10.7                  Warrant Certificate for the purchase of 50,000 shares 
of Common Stock, dated July 28, 1997, issued to James R. Fiebiger 
(incorporated by reference to Exhibit 10.8 to the Company's Annual Report 
10-K for the year ended December 31, 1997).

10.8                  Warrant Certificate for the purchase of 7,500 shares of 
Common Stock, dated November 25, 1997, issued to Benjamin Huberman 
(incorporated by reference to Exhibit 10.9 to the Company's Annual Report 
10-K for the year ended December 31, 1997).

10.9                  Common Stock Purchase Warrant, dated August 21, 1997, 
issued to Halifax Fund L.P. (incorporated by reference to Exhibit 10.10 to 
the Company's Annual Report 10-K for the year ended December 31, 1997).

10.10                 Common Stock Purchase Warrant, dated August 21, 1997, 
issued to Capital Ventures International (incorporated by reference to 
Exhibit 10.11 to the Company's Annual Report 10-K for the year ended December 
31, 1997).

10.11                 Form of Registration Rights Agreement, dated February 
13, 1997 between the Company and each of Halifax Fund L.P. and Capital 
Ventures International (incorporated by reference to Exhibit 4.19 to the 
Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997).

10.12                 Stock Purchase Agreement, dated November 10, 1997, 
between the Company, Idanta Partners Ltd., Dunn Family Trust and Perscilla 
Faily Trust (incorporated by reference to Exhibit 10.13 to the Company's 
Annual Report 10-K for the year ended December 31, 1997).

10.13                 Registration Rights Agreement, dated November 10, 1997, 
between the Company, Idanta Partners Ltd., Dunn Family Trust and Perscilla 
Faily Trust (incorporated by reference to Exhibit 10.14 to the Company's 
Annual Report 10-K for the year ended December 31, 1997).

10.14                 Credit Loan and Security Agreement, entered into at 
January 6, 1997, between the Company and Coast Business Credit, a division of 
Southern Pacific Thrift and Loan Association (incorporated by reference to 
Exhibit 10.25 to the Company's Annual Report on Form 10-K for the year ended 
December 31, 1996).

10.15                 Lease, dated March 6, 1992, between the Company and 
Renco Equities IV, relating to the premises at 47100 Bayside Parkway, 
Fremont, California (incorporated by reference to Exhibit 10.16 to the 
Company's Annual Report 10-K for the year ended December 31, 1997).

10.16                 Sub-Lease Agreement, dated October 27, 1997, between 
the Company and Mattson Technology, relating to the premises at 47100 Bayside 
Parkway, Fremont, California (incorporated by reference to Exhibit 10.17 to 
the Company's Annual Report 10-K for the year ended December 31, 1997).

10.17                 SICAN/GateField Technology Agreement, dated September 
23, 1993, between SICAN G.m.b.H. and the Company (incorporated by reference 
to Exhibit 10.18 to the Company's Annual Report on Form 10-K for the year 
ended December 31, 1997).
</TABLE>

                                        12.
<PAGE>


<TABLE>
<CAPTION>

<S>            <C>
10.18                 License Agreement, dated October 22, 1997, between the 
Company and Siemens Aktiengesellschaft (incorporated by reference to Exhibit 
10.29 to the Company's Current Report on Form 8-K dated November 14, 1997).

10.19                 Asset Purchase Agreement, dated April 14, 1997, between 
the Company and IKOS Systems, Inc., regarding the purchase of the Company's 
LightSpeed product family by IKOS Systems, Inc. (incorporated by reference to 
Exhibit 10.26 to the Company's Current Report on Form 8-K dated April 15, 
1997).

10.20                 Asset Purchase Agreement, dated August 18, 1997, 
between the Company and IKOS Systems, Inc., regarding the purchase of the 
Company's XP and PXP hardware fault simulation product business by IKOS 
Systems, Inc. (incorporated by reference to Exhibit 10.27 to the Company's 
Current Report on 8-K, dated September 5, 1997).

10.21                 Asset Purchase Agreement, dated August 20, 1997, 
between the Company and Test Systems Strategies, Inc., regarding the purchase 
of the Company's TDX software fault simulation and test business 
(incorporated by reference to Exhibit 10.28 to the Company's Current Report 
on Form 8-K dated September 5, 1997).

10.22                 Purchase Agreement, dated October 31, 1997, between the 
Company, Zycad Japan (GateField) KK and Zycad TSS Inc., regarding the 
purchase of the maintenance business (incorporated by reference to Exhibit 
10.24 to the Company's Annual Report 10-K for the year ended December 31, 
1997).

10.23                 Severance Agreement and General Release of All Claims, 
dated September 30, 1997, between the Company and Phillips W. Smith 
(incorporated by reference to Exhibit 10.25 to the Company's Annual Report 
10-K for the year ended December 31, 1997).

Exhibit 27.1          Article 5 of Regulation S-X, Financial Data Schedule 
for GateField Corporation for the quarter ended June 30, 1998.                
</TABLE>


                                        13.
<PAGE>

                                 SIGNATURE

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

                                        GATEFIELD CORPORATION




                                        /s/  Timothy Saxe
                                        -------------------------------------
                                        Timothy Saxe
                                        President and Chief Operating Officer


                                        /s/  James B. Boyd
                                        -------------------------------------
                                        James B. Boyd
                                        Controller


Dated:  August 14, 1998



                                        14.