<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 SEPTEMBER 30, 1998

/ /  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)               (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 November 12, 1998
         -------------------                 --------------------------------
Common stock, par value $0.10 per share                      41,303,178

<PAGE>

                                        GATEFIELD CORPORATION
                                                INDEX        

                                                                          Page
                                                                          Number

PART I.    FINANCIAL INFORMATION

Item 1.    Financial Statements

            Condensed Consolidated Balance Sheets as of 
            September 30, 1998 and December 31, 1997 (Restated)              3

            Condensed Consolidated Statements of Operations for the 
            Three and Nine Months Ended September 30, 1998 and 1997          4


            Condensed Consolidated Statements of Cash Flows for 
            the Nine Months Ended September 30, 1998 and 1997                5


            Notes to Condensed Consolidated Financial Statements, 
            September 30, 1998                                               6


Item 2.    Management's Discussion and Analysis of Financial Condition
              and Results of Operations                                      9

PART II.  OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K                                   13

         (a) Exhibits

         (b) Reports on Form 8-K:

SIGNATURE                                                                   15


<PAGE>

PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                           GATEFIELD CORPORATION
                       (FORMERLY ZYCAD CORPORATION)
                   CONDENSED CONSOLIDATED BALANCE SHEETS
                               (UNAUDITED)
<TABLE>
<CAPTION>

                                                                               September 30,     December 31,
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)                                             1998               1997
----------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>               <C>
ASSETS                                                                                              (Restated)
Current assets:
   Cash and cash equivalents                                                     $  11,342          $   4,189
   Short-term investments                                                              118                 98
   Accounts receivable, less allowance for doubtful
      accounts of $274 in 1998 and $528 in 1997                                        806              2,763
   Inventories                                                                         172                735
   Other current assets                                                                348                524
                                                                            ---------------     --------------
      Total current assets                                                          12,786              8,309

Property and equipment, net                                                          2,707              2,660
Other assets                                                                           214                287
                                                                            ---------------     --------------
      Total assets                                                               $  15,707          $  11,256
                                                                            ---------------     --------------
                                                                            ---------------     --------------

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
   Current portion of long-term obligations                                      $     511          $     516
   Accounts payable                                                                  1,490              3,741
   Accrued expenses                                                                  3,189              3,118
   Deferred revenues                                                                 4,716                981
                                                                            ---------------     --------------
      Total current liabilities                                                      9,906              8,356

Other long-term liabilities                                                            430                 71
   Redeemable preferred stock (deficit):
      $0.10 par value; 2,000,000 shares authorized;
      shares issued and outstanding:  1,300,000 in 1998 and 
      1,000,000 in 1997 -- at redemption value                                       7,697              4,594
Stockholders' deficit:
   Common stock:
      $0.10 par value; 65,000,000 shares authorized; shares issued
      and outstanding: 41,745,108 in 1998 and 36,222,326 in 1997                     4,174              3,622
   Additional paid-in capital                                                       77,189             72,642
   Accumulated translation adjustments                                                (530)              (544)
   Accumulated deficit                                                             (83,159)           (77,485)
                                                                            ---------------     --------------
      Total stockholders' deficit                                                   (2,326)            (1,765)
                                                                            ---------------     --------------
      Total liabilities and stockholders' deficit                                $  15,707          $  11,256
                                                                            ---------------     --------------
                                                                            ---------------     --------------
</TABLE>

 See accompanying Notes to Condensed Consolidated Financial Statements.

<PAGE>

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

<TABLE>
<CAPTION>

                                            Three Months Ended               Nine Months Ended
                                               September 30,                    September 30,

(IN THOUSANDS, 
EXCEPT PER SHARE AMOUNTS)                  1998            1997             1998            1997
----------------------------------------------------------------------------------------------------
<S>                                      <C>             <C>              <C>             <C>
Revenues:
   Product                                $     379       $   1,844        $   2,456       $   4,020
   Service                                      629           2,573            3,869           8,297
                                          ---------       ---------        ---------       ---------
      Total revenues                          1,008           4,417            6,325          12,317
                                          ---------       ---------        ---------       ---------

Cost of revenues:
   Product                                    1,040           2,782            1,717           6,029
   Service                                      351           1,659            3,576           4,933
                                          ---------       ---------        ---------       ---------
      Total cost of revenues                  1,391           4,441            5,293          10,962
                                          ---------       ---------        ---------       ---------
      Gross margin                             (383)            (24)           1,032           1,355
                                          ---------       ---------        ---------       ---------

Operating expenses:
   Sales and marketing                        1,603             648            3,877           6,892
   Research and development                   1,321           1,751            4,017           6,550
   General and administrative                 1,276           1,800            2,826           2,750
                                          ---------       ---------        ---------       ---------
      Total operating expenses                4,200           4,199           10,720          16,192
                                          ---------       ---------        ---------       ---------
Operating loss                               (4,583)         (4,223)          (9,688)        (14,837)
                                          ---------       ---------        ---------       ---------
Other income (expense), net                   4,295            (122)           4,117           3,007
                                          ---------       ---------        ---------       ---------
Net loss                                  $    (288)      $  (4,345)       $  (5,571)      $ (11,830)
                                          ---------       ---------        ---------       ---------
                                          ---------       ---------        ---------       ---------
Loss attributable to common
   stockholders                           $    (322)      $  (4,627)       $  (5,674)      $ (12,892)
                                          ---------       ---------        ---------       ---------
                                          ---------       ---------        ---------       ---------
Basic and diluted net loss 
   per share                              $   (0.01)      $   (0.14)       $   (0.14)      $   (0.45)
                                          ---------       ---------        ---------       ---------
                                          ---------       ---------        ---------       ---------
Basic and diluted weighted average
   shares outstanding                        41,503          32,884           41,053          28,460
                                          ---------       ---------        ---------       ---------
                                          ---------       ---------        ---------       ---------
</TABLE>

See accompanying Notes To Condensed Consolidated Financial Statements.

<PAGE>

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

<TABLE>
<CAPTION>
                                                                                            Nine Months
                                                                                         Ended September 30,
(IN THOUSANDS)                                                                          1998            1997
------------------------------------------------------------------------------------------------------------------
<S>                                                                                   <C>             <C>
Operating activities:
   Net loss                                                                          $  (5,571)       $ (11,830)
   Reconciliation to net cash used in operating activities:
     Depreciation and amortization                                                         375            3,435
     Subordinated convertible debt interest capitalized                                   -                 438
     Sales under capital leases                                                           -               1,143
     Gain on sale of Design Service Business                                            (4,462)            -
     Gain on sale of LightSpeed                                                           -                (445)
     Gain on sale of QSS                                                                  -              (3,321)
     Loss on sale of EDA                                                                  -                 504
     Changes in assets and liabilities:
       Accounts receivable                                                               1,081            5,373
       Inventories                                                                         562             (384)
       Other assets                                                                        180            1,009
       Accounts payable and accrued expenses                                            (2,200)          (4,744)
       Deferred revenues                                                                 3,763             (693)
                                                                                     ---------        ---------
          Net cash used in operating activities                                         (6,272)          (9,515)
                                                                                     ---------        ---------
Investing activities:
   Property and equipment purchases                                                                      (1,404)
   Capitalized software                                                                   -                (150)
   Proceeds from sale of Design Service Business                                         5,444             -
   Proceeds from sale of LightSpeed                                                       -               5,000
   Proceeds from sale of QSS                                                              -               3,500
   Proceeds from sale of EDA                                                              -               4,450
                                                                                     ---------        ---------
          Net cash provided by investing activities                                      5,444           11,396
                                                                                     ---------        ---------
Financing activities:
   Proceeds from issuance of convertible debenture notes, net                            -                3,500
   Proceeds from issuance of common stock                                               5,099               170
   Proceeds from issuance of preferred stock                                            3,000             -
   Bank financing, net                                                                   -               (3,114)
   Repayments of debt obligations                                                        (158)           (2,196)
                                                                                     ---------        ---------
          Net cash provided by (used in) financing activities                            7,941           (1,640)
                                                                                     ---------        ---------
Effect of exchange rate changes on cash and cash equivalents                                40              159
                                                                                     ---------        ---------
Net change in cash and cash equivalents                                                  7,153              400
Cash and cash equivalents, beginning of period                                           4,189            1,703
                                                                                     ---------        ---------

Cash and cash equivalents, end of period                                             $  11,342        $   2,103
                                                                                     ---------        ---------
                                                                                     ---------        ---------

Supplemental disclosure of cash flow information:
   Noncash activities:
     Equipment acquired under capital leases                                             $525          $   -
     Common stock exchanges for convertible debentures                                   $ -           $ 7,342
     Preferred stock exchanges for convertible debentures                                $ -           $ 3,917
     Common stock exchanges for preferred stock                                          $ -           $ 1,207
   Cash activities:
     Cash paid during the year for interest                                              $300            $454

</TABLE>
See accompanying Notes To Condensed Consolidated Financial Statements.
<PAGE>

                                GATEFIELD CORPORATION
                            (FORMERLY ZYCAD CORPORATION)
                NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                      (UNAUDITED)
                                   SEPTEMBER 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 September 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/A.

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 nine months ended September 30, 1998 and 1997,
the change in net assets from nonowner sources was an increase of $14,000 and a
decrease of $114,000 respectively, for the change in the accumulated translation
adjustment, and comprehensive loss was $5,557,000 and $11,944,000.

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 stockholders 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. In the computation of 
loss per share, loss attributable to common stockholders includes the accrual 
of dividends on outstanding shares of preferred stock of $34,000 and $103,000 
for the three and nine months ended September 30, 1998, respectively, and 
$282,000 and $1,042,000 for the three and nine months ended September 30, 
1997, respectively. EPS for all periods have been computed in accordance with 
SFAS No. 128.

4.   INVENTORIES

<TABLE>
<CAPTION>
                                               September 30,     December 31,
(IN THOUSANDS)                                     1998             1997
------------------------------------------------------------------------------
<S>                                             <C>              <C>
Raw materials and supplies                      $   107          $   306

Finished goods                                       65              429
                                                ------------     ------------
                                                 $  172           $  735
                                                ------------     ------------
                                                ------------     ------------
</TABLE>

<PAGE>




5.   SALE OF THE DESIGN SERVICES BUSINESS ASSETS

Pursuant to the Asset Purchase Agreement dated as of August 14, 1998 (the "Asset
Purchase Agreement"), 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.

6.   SALE OF PREFERRED STOCK

Pursuant to the 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. 
In the event that all the Company's outstanding shares of Series B Preferred 
Stock are redeemed, Actel shall be entitled to redeem its Series C Shares, 
subject to applicable law. 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.

7.    STRATEGIC ALLIANCES

PRODUCT MARKETING AGREEMENT

In August 1998, the Company 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 utilizing less than .35 micron 
geometries, 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. Revenue recognition of the $1.0 million initial fee has 
been deferred until delivery to Actel of products below .35 micron.

ACTEL LICENSE AGREEMENT

In August 1998, the Company 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 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. The $1.0 million initial fee received has 
been deferred until delivery of products below .35 micron.

ROHM LICENSE AGREEMENT

In July 1998, the Company 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 for a license fee of $2.5 million: (i) 
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 (ii) a license for 0.25 micron and below 
embedded products with a per unit royalty for a license fee of $2.5 million. 
The $2.5 million license fee has been deferred until certain contract terms 
have been completed.

8.    STOCK MARKET LISTING

Effective September 17, 1998 the Company's stock was delisted from the Nasdaq 
SmallCap Market for failure to  meet the on-going minimum bid price 
requirement. Since that time, the Company's stock has traded on the OTC 
Bulletin Board. As a result of the delisting, the Company's 1,000,000 shares 
of Series B Preferred Stock became redeemable at the option of the holders 
thereof, to the extent permitted by applicable law. In October 1998, the 
Company was notified by the Series B stockholders of their desire to redeem 
981,997 of the 1,000,000 outstanding shares of the Series B Preferred Stock 
for approximately $4.6 million. A special subcommittee of the Board of 
Directors has been appointed and is currently assessing whether, or to what 
extent, the redemption is permitted by applicable law. If the above Series B 
redemption is permitted and if the holders of the remaining 18,003 shares of 
Series B elect to redeem all of their shares, then the holders of the 
Company's Series C Preferred Stock would have the right to redeem their 
shares for a total of $3.0 million, to the extent permitted by applicable law.

<PAGE>

9.    RESTATEMENT

Subsequent to the issuance of the Company's 1997 consolidated financial 
statements, the Company determined that the application of a technical 
accounting treatment required that the 1997 net loss per share calculation to 
include $5,866,000 for the accretion of the assumed beneficial conversion 
feature of the Series B Preferred Stock issued in November 1997 and 
$1,053,000 for preferred stock dividends. The effect of the accretion is a 
non-cash charge to stockholders' deficit and does not impact the previously 
reported net loss for the year ended December 31, 1997 nor does it result in 
a net change to stockholders' deficit. The effect of the restatement was to 
increase net loss per share by $0.23 to $0.73 for the year ended December 31, 
1997. 

In addition, the Certificate of Designation of the Series B Convertible 
Preferred Stock requires the Company to maintain a listing on a public market 
(as defined in the agreement). As discussed in Note 8, the Company is not in 
compliance with this provision and accordingly the Series B Preferred Stock 
is now redeemable at the option of the holders or convertible at 6.11 shares 
of Common Stock if the redemption is not possible or not permitted by 
applicable law. If the Series B Preferred Stock is fully redeemed, the Series 
C preferred stockholders may elect to cause the redemption of the Series C 
Preferred Stock for $10.00 per share, to the extent permitted by applicable 
Delaware and California law. Accordingly, the Series B and Series C 
Convertible Redeemable Preferred Stock is classified as a mezzanine equity 
separate from stockholders' equity (deficit).

<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 1997 Annual Report on Form 10-K/A.

RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997

REVENUE

Total revenue for the quarter ended September 30, 1998 was $1.0 million 
compared to $4.4 million for the quarter ended September 30, 1997, a decrease 
of 77%. Product revenue for the quarter ended September 30, 1998 was $379,000 
compared to $1.8 million for the quarter ended June 30, 1997, a decrease of 
79%. Service revenue for the quarter ended June 30, 1998 was $629,000 as 
compared to $2.6 million for the quarter ended September 30, 1997, a decrease 
of 76%. The decrease in product revenue is the result of the Company's 
decision to stop production of its .7 micron product in order to concentrate 
on delivering its .25 micron product on time and to transition its sales and 
marketing efforts to Actel Corporation (see Strategic Alliance section in 
Note 7). The decrease in service revenue reflects the sale of the Design 
Service Business to Actel in August 1998, as described in Note 5, and the 
sale of the verification product families in 1997.

Total revenue for the nine months ended September 30, 1998 was $6.3 million, 
a decrease of $6.0 million from $12.3 million for the same period in 1997. 
Product revenue for the first nine months of 1998 was $2.5 million, compared 
to $4.0 million for the comparable period in 1997. Service revenue was $3.9 
million for the nine months ended September 30, 1998; a decrease of $4.4 
million from $8.3 million for the nine months ended September 30, 1997. This 
decrease primarily reflects the sale of the Company's LightSpeed and XP/PXP 
maintenance and support business to Zycad TSS in October 1997.

GROSS MARGIN

Total gross margin was a loss of $383,000 for the three months ended 
September 30, 1998 compared to a loss of $24,000 for the three months ended 
September 30, 1997. The loss from product revenues at the gross margin level 
was $661,000 for the quarter ended September 30, 1998, as compared to a loss 
of $938,000 for the quarter ended September 30, 1997. The loss at the gross 
margin level in the current period reflects the poor yields on the .7 micron 
product associated with manufacturing difficulties. Gross profit from service 
revenue was $278,000, or 44% of service revenue, for the three months ended 
September 30, 1998 compared to $914,000, or 36% of the service revenue for 
the three months ended September 30, 1997. This increase in gross profit from 
service revenues in 1998 as compared to 1997 was partly due to the 
dispositions in 1997 mentioned above and the reduction of certain operating 
expenses in the Design Services Business in 1998.

Total gross profit was $1.0 million and $1.4 million for the nine month 
periods ended September 30, 1998 and 1997, respectively or 16% and 11% of 
total revenue. Gross margin from product revenues was $739,000 for the nine 
month period ended September 30, 1998 as compared to a loss of $2.0 million 
for the period ended September 30, 1997. Gross profit from service revenue 
was $293,000, or 8%, for the nine months ended September 30, 1998 compared to 
$3.4 million, or 41%, for the nine months ended September 30, 1997.

<PAGE>

OPERATING EXPENSES

SALES AND MARKETING

Sales and marketing expenses were $1.6 million for the quarter ended 
September 30, 1998 and $648,000 for the quarter ended September 30, 1997, 
which represents 159% of total revenues in 1998 and 15% of total revenues in 
1997. Sales and marketing expenses for the nine months ended September 30, 
1998 and September 30, 1997 were $3.9 million and $6.9 million, respectively. 
The increase in sales and marketing expenses for the current period 
represents cost associated with closing sales offices in Germany and Japan. 
The relatively high level of sales and marketing expenses as a percent of 
total revenue represent the disappointing sales performance of the .7 micron 
products versus their forecasts.

RESEARCH AND DEVELOPMENT

Research and development expenses decreased to $1.3 million for the three 
months ended September 30, 1998 compared to $1.8 million for the three months 
ended September 30, 1997. For the nine months ended September 30, 1998 
research and development expense were $4.0 million as compared to $6.6 
million for the same period in 1997. This decrease in quarterly expenses is 
due to tighter cost control in 1998 while the decrease in the nine month 
comparisons primarily reflects reduced headcount as a result of the sale of 
product families in 1997.

GENERAL AND ADMINISTRATIVE

General and administrative expenses for the three months ended September 30,
1998 and 1997 were $1.3 million and $1.8 million, respectively and $2.8 million
for both nine month periods ended September 30, 1998 and 1997. The relatively
high cost of these expenses as a percentage of revenue are primarily due to
lower than expected revenues and high legal expenses associated with the sales
of product families and issuance of stock in these periods.

OTHER INCOME AND EXPENSES

Other income for the quarter ended September 30, 1998 was $4.3 million as 
compared to other expenses of $122,000 for the quarter ended September 30, 
1997. Other income for the nine months ended September 30, 1998 was $4.1 
million compared to $3.0 million for the nine months ended September 30, 
1997. The differences between the periods were primarily due to a $3.3 
million gain on the sale of the Company's ownership interest in QSS, Inc. in 
May 1997 and a $4.5 million gain on the sale of the design services business 
in August 1998.

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 $6.3 million in the first nine months of 1998 compared 
to $9.5 million for the first nine months of 1997. This decrease in cash used 
in operations in 1998 compared to 1997 was primarily due to a reduced loss 
and to smaller reductions in the accounts receivable and accounts payable 
balances in the first nine months of 1998 as compared to the reductions 
experienced in those balances for the same period of 1997. Net cash provided 
by investing activities during the nine-month period ended September 30, 1998 
was $5.4 million as compared to $11.4 million during the same period ended 
September 30, 1997. This decrease in net cash provided by investing 
activities is primarily due to $13.0 million in proceeds from the sale of 
certain businesses in 1997. Net cash provided by financing activities was 
$7.9 million in the first nine months of 1998 compared to net cash used by 
financing activities in the amount of $1.6 million for the same nine 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 sale of $3.0 
million of Series C preferred stock in the current quarter.

At September 30, 1998, the Company had $11.3 million of cash and cash
equivalents and positive working capital of $2.9 million. 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 September 30, 1998. The Company is not currently in compliance
with certain covenants in the Credit Facility and, therefore, is not 
currently able to draw down any amount under the Credit Facility.


<PAGE>

In October 1998 certain holders of the Company's Series B Preferred Stock 
notified the Company of their intention to redeem $4.5 million of the Series 
B shares. A special subcommittee of the Board of Directors has been appointed 
and is currently assessing whether, or to what extent applicable law permits 
the redemption. The Company intends to meet its obligation for redemption to 
the extent permitted by applicable law. If the above Series B redemption is 
permitted and if the holders of the remaining 18,003 shares of Series B elect 
to redeem all their shares, then the holders of the Company's Series C 
Preferred Stock would have the right to request redemption of their shares 
for $3.0 million, again, to the extent permitted by applicable law.

The Company has historically funded its operations 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' interest.

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
1997 Annual Report on Form 10-K/A.

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 Actel's marketing and 
sales efforts to grow revenue for these new FPGA products. In addition, the 
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 and related development system 
software. 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 and improve its operational, 
management and financial systems, and controls and 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,


<PAGE>

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. In October 1998 certain holders of the 
Company's Series B Preferred Stock notified the Company of their intention to 
redeem $4.5 million of the Series B shares. See "Liquidity and Capital 
Resources" section for a discussion of the impact of the requested redemption 
on the liquidity of the Company.

YEAR 2000 ISSUES

The Company is aware that many existing information technology (IT) systems, 
such as computer systems and software products, as well as non-IT systems 
that include embedded technology, were not designed to correctly process 
dates after December 31, 1999. The Company is currently assessing the impact 
of such "Year 2000" issues on its internal IT and non-IT systems, as well as 
on its customers, suppliers and service providers. The Company has formed a 
"Year 2000 Team" to identify, access and resolve Year 2000 compliance issues. 
The Year 2000 Team is testing and evaluating the Company's products and the 
Company's IT systems and has recently begun compiling an inventory of all 
material Year 2000 issues.

To date, the Company has not identified any significant areas of 
non-compliance with respect to its products or IT systems and expects that 
the assessment and remedial action for all of its products, IT systems and 
non-IT systems will be completed by the end of calendar year 1999. The 
Company will take the necessary steps to make its systems Year 2000 
compliant. These steps may require the Company to modify, upgrade or replace 
some of its internal financial 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.

The Company is also compiling a list of significant customers, suppliers and 
services providers and intends to initiate discussions with them regarding 
their plans to address their Year 2000 issues. Although the Company 
anticipates cooperation in these efforts it may be difficult for the Company 
to obtain assurances of Year 2000 readiness from such third parties. If any 
customers, suppliers or service providers fail to appropriately address their 
year 2000 issues, such failure could have a material adverse effect in the 
Company's business, financial condition and results of operation. The Year 
2000 Team will develop contingency plans in the event any third party that 
provides goods or services essential to the Company's business fails to 
appropriately address their Year 2000 issues. Even if the Company's 
assessments, resolutions and contingency plans are completed and put in place 
on time, there can be no assurance that such actions will be sufficient to 
address any third party failures or that unresolved or undetected internal 
and external Year 2000 issues with third parties will not have a material 
adverse effect on the Company's business, financial condition and results of 
operations.

Although the Company believes that its Year 2000 Team will identify all of 
the Company's material Year 2000 issues, given the pervasiveness of Year 2000 
issues and the complex interrelationships among Year 2000 issues both 
internal and external to the Company, there can be no assurance that the 
Company will be able to identify and accurately evaluate all such issues. As 
the process of identifying, accessing and resolving Year 2000 compliance 
issues proceeds the Company may identify situations that present material 
Year 2000 risks and/or that will require substantial time and material 
expense to address. Even if the Company's assessments and resolutions are 
completed on time and put in place, there can be no assurance that such plans 
will be sufficient to address any failures or that unresolved or undetected 
internal and external Year 2000 issues will not have a material adverse 
effect on the Company's business, financial condition and results of 
operations.

<PAGE>

PART II.  OTHER INFORMATION

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits:

<TABLE>
<CAPTION>
Number             Description
------             -----------
<S>                <C>
2.1                Asset Purchase Agreement dated August 14, 1998, regarding 
                   the purchase of GateField Corporation's Design Services 
                   Business by Actel Corporation (incorporated by reference 
                   to Exhibit 2.1 to the Company's Current Report on Form 8-K 
                   filed on August 14, 1998).

3.1                Restated Certificate of Incorporation dated August 28, 
                   1998 (incorporated by reference to Exhibit 4.3 to the 
                   Company's Current Report on Form 8-KA dated August 31,
                   1998).

3.2                Certificate of Correction of Restated Certificate of 
                   Incorporation of GateField Corporation dated October 20,
                   1998.

3.3                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).

3.4                Certificate of Designations of Preferred Stock of GateField
                   Corporation to be Designated Series C Convertible Preferred
                   Stock of the Company (incorporated by reference to Exhibit 
                   3.3 to the Company's Quarterly Report on Form 10-Q for the 
                   quarter ended June 30, 1998).

3.5                Bylaws of the Company, as amended (incorporated by 
                   reference to Exhibit 3.4 to the Company's Quarterly Report 
                   on Form 10-Q for the quarter ended June 30, 1998).

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.

4.5                See Exhibit 10.24 referenced below.

4.6                See Exhibit 10.25 referenced below.

4.7                Series C Preferred Stock Purchase Agreement dated August 
                   14, 1998 between GateField Corporation and Actel 
                   Corporation (incorporated by reference to Exhibit 4.1 to 
                   the Company's Current Report on Form 8-KA dated August 31, 
                   1998).

4.8                Registration Rights Agreement dated August 14, 1998 
                   between GateField Corporation and Actel Corporation 
                   (incorporated by reference to Exhibit 4.2 to the Company's 
                   Current Report on Form 8-KA dated August 31, 1998).

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).

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 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 

<PAGE>

                   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).

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 

<PAGE>

                   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).

10.24              Product Marketing Agreement, dated August 14, 1998, 
                   between the Company and Actel Corporation.

10.25              License Agreement, dated August 14, 1998, between the 
                   Company and Actel Corporation.

10.26              License Agreement dated July 31, 1998 between GateField 
                   Corporation and Rohm Co., Ltd. (incorporated by reference 
                   to Exhibit 10.1 to the Company's Current Report on Form 
                   8-K filed on August 14, 1998).

10.27              Agreement for Wafer Production and Testing between 
                   GateField Corporation and Siemens Aktiengesellschaft 
                   (incorporated by reference to Exhibit 99.3 to the Company's
                   Current Report on Form 8-KA dated August 31, 1998).

27.1               Article 5 of Regulation S-X, Financial Data Schedule for
                   GateField Corporation for the quarter ended September 30,
                   1998.

99.1               GateField Corporation's press release dated November 3, 
                   1998, regarding redemption notice from Series B 
                   Convertible Preferred Stockholders.

99.2               GateField Corporation's press release dated August 14, 
                   1998 (incorporated by reference to Exhibit 99.1 to the 
                   Company's Current Report on Form 8-K filed on August 14, 
                   1998).

</TABLE>

(b) Reports on Form 8-K:

During the third quarter of 1998 the Company filed a current report on Form 
8-K dated August 14, 1998 and an amendment to that report, a Form 8-K/A, 
dated August 31, 1998. The Form 8-K was filed to report the consummation of 
certain transactions with Actel Corporation and to report the consummation of 
a licensing agreement with Rohm Co., Ltd. dated July 31, 1998. The Form 8-K/A 
was filed to report a reorganization of the Company's senior management in 
connection with the consummation of the transactions with Actel Corporation.

<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/  James R. Fiebiger
                                        -------------------------------------
                                        James R. Fiebiger
                                        CEO

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

Dated:  November 19, 1998