<PAGE>   1

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

                        FOR ANNUAL AND TRANSITION REPORTS
                     PURSUANT TO SECTIONS 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

[X]      Annual report pursuant to Section 13 or 15(d) of the Securities
         Exchange Act of 1934 For the fiscal year ended May 2, 1999, 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 0-21488

                          CATALYST SEMICONDUCTOR, INC.
             (Exact name of Registrant as specified in its charter)

                   DELAWARE                             77-0083129
        (State or other jurisdiction of              (I.R.S. Employer
        incorporation or organization)              Identification No.)

                1250 Borregas Avenue, Sunnyvale, California 94089
                    (Address of Principal Executive Offices)

       Registrant's telephone number, including area code: (408) 542-1000

        Securities registered pursuant to Section 12(b) of the Act: NONE

           Securities registered pursuant to Section 12(g) of the Act:
                          Common Stock, $.001 par value

Indicate by check mark whether Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Act of 1934 during the
preceding 12 months (or for such shorter period that Registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.

Yes  [X]     No  [ ]

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

The aggregate market value of voting stock held by non-affiliates of Registrant,
as of July 23, 1999, was approximately $8 million (based upon the average of the
closing bid and asked price for shares of Registrant's Common Stock as reported
by the OTC Bulletin Board for the last trading date prior to that date). Shares
of Common Stock held by each officer, director and holder of 5% or more of the
outstanding Common Stock (including shares with respect to which a holder has
the right to acquire beneficial ownership within 60 days) have been excluded in
that such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.

The number of shares of Registrant's Common Stock outstanding as of July 23,
1999 was 13,989,406.

                       DOCUMENTS INCORPORATED BY REFERENCE

Part III incorporates information by reference from the definitive Proxy
Statement for Registrant's 1999 Annual Meeting of Stockholders.


<PAGE>   2


                          CATALYST SEMICONDUCTOR, INC.



<TABLE>
<S>        <C>                                                                                            <C>
PART I

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


PART II


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


PART III


Item 10.   Directors and Executive Officers of Registrant............................................     Page 25
Item 11.   Executive Compensation....................................................................     Page 25
Item 12.   Security Ownership of Certain Beneficial Owners and Management............................     Page 25
Item 13.   Certain Relationships and Related Transactions............................................     Page 25

PART IV

Item 14.   Exhibits, Financial Statement Schedules and Reports on Form 8-K...........................     Page 25

Signatures...........................................................................................     Page 28

Index to Consolidated Financial Statements...........................................................     Page F-2
</TABLE>





















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                          CATALYST SEMICONDUCTOR, INC.

                                     PART I


ITEM 1.  BUSINESS

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

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

         The Company's business is highly cyclical and has been subject to
significant downturns at various times which have been characterized by reduced
product demand, production overcapacity, and significant erosion of average
selling prices. During most of fiscal 1999 and all of fiscal 1998, the market
for certain Flash and EEPROM devices, which comprise the majority of Catalyst's
business, experienced an excess market supply relative to demand which resulted
in a significant downward trend in prices. The Company could continue to
experience a downward trend in product pricing which could adversely affect the
Company's operating results.

         The Company's recent operating results have consumed substantial
amounts of cash. In fiscal 1998, the reduction in cash placed restrictions on
wafer purchases which, during the fourth quarter of fiscal 1998 and first
quarter of fiscal 1999, resulted in the cancellation of some customer sales
orders. In May 1998, the Company received gross proceeds of $1.5 million from
the sale of 1,500,000 shares of its Common Stock in a private placement.
Additionally, in September 1998, the Company received gross proceeds of $1.0
million from the same investor from the sale of 4,000,000 shares of its Common
Stock. Management believes, however, that it may require additional cash from
similar or related private placements or other sources of liquidity to meet the
Company's projected working capital and other cash requirements for fiscal 2000
and beyond.

         As a result of these circumstances, the Company's independent
accountants' opinion on the consolidated financial statements includes an
explanatory paragraph indicating that these matters raise a substantial doubt
about the Company's ability to continue as a going concern.

         As of April 30, 1999, the Company had approximately $2.9 million of
secured loans owed to its bank. As of April 30, 1999, under the terms of its
borrowing agreement, the Company was eligible to borrow approximately $1.0
million additional cash and had cash on hand of $1.9 million. For the period
from January 1998 through March 1999, as a result of the Company's financial
condition and results of operations, the bank had determined that the Company
was in default under various provisions of the loan agreement that would have
entitled the bank to terminate the loan agreement and declare the loans
immediately due and payable. During that period, the Company obtained letters of
forbearance from the bank taking any action with respect to the existing
conditions of default. In March 1999, the bank credit line automatically renewed
and in April 1999, various terms and conditions of the agreement were
renegotiated, reducing the borrowing limit from $13.5 million to $5.0 million,
reducing the interest rate and changing the covenant requiring a minimum net
worth such that the Company was in compliance as of April 30, 1999. The Company
is also indebted to other creditors in the amount of approximately $6.0 million.
This amount is comprised of approximately $5.0 million for wafers and inventory
processing and approximately $1.0 million for other goods and services.






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<PAGE>   4

         Additionally, although the Company is current on its lease payments
under the lease of its headquarters facility, as a result of its financial
condition, the Company is in violation of certain terms of its lease. Similar
violations have resulted under certain equipment lease agreements and the
Company has obtained a letter of forbearance from the principal equipment lessor
agreeing to not take any action on the existing condition of default through
April 2000.

         Total revenues for the quarter and the fiscal year ended April 30, 1999
were $8.1 million and $32.0 million, respectively, compared to revenues of $4.8
million and $34.6 million for the comparable periods of the prior year. In
addition, the Company earned net profits for the quarter and for the year ended
April 30, 1999 of $0.9 million and $0.2 million, respectively, compared to net
losses of $10.1 million and $18.9 million for the comparable periods in the
prior year. However, there can be no assurances that the Company will be able to
continue the recent profitable results. During fiscal 1999, the Company received
an aggregate of $1.7 million in credits and adjustments as the result of various
negotiations and settlements with vendors including the following three
adjustments. First, in the first quarter, renegotiation of amounts due under a
licensing agreement resulted in $0.5 million reduction to cost of sales. Second,
in the second quarter, $0.7 million was credited to the Company in return for
payment of $7.0 million due under an inventory purchasing arrangement. Third, in
the fourth quarter, $0.5 million benefit was recognized as the result of
successful payment of amounts due under the terms of a licensing agreement
settlement. The Company's last previous profitable year was the fiscal year
ended April 30, 1996.

         The Company has taken many steps to reduce its operating expenses
including reducing its number of full time equivalent employees from 71 in
December 1996 to 43 in April 1999. This reduction in employees has in part been
accomplished by subcontracting certain engineering activities to Essex com SRL
in Romania and certain assembly, test and other operations and manufacturing
activities to NS Electronics Bangkok LTD. and Triotek in Bangkok. Although
reductions in the number of employees could help the Company meet its operating
expense objectives, such reductions could adversely affect the Company's sales,
marketing and product development efforts.

         There can be no assurance that the Company can generate revenue growth,
or that any revenue growth that is achieved can be sustained. To the extent that
increases in operating expenses precede and are not subsequently followed by
increased revenues, the Company's business, results of operations and financial
condition would be materially adversely affected. There can be no assurance that
the Company will be able to sustain its recent profitability.

         The Company markets its products through a direct sales force and a
worldwide network of independent distributors and sales representatives. For the
year ended April 30, 1999, international sales represented 41% of product sales.
End user customers of the Company's products include Cisco, Compaq, Fujitsu,
Hewlett Packard, IBM, Matsushita Communications, Motorola, Quantum, Siemens and
Sony.

INDUSTRY BACKGROUND

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






                                      -4-
<PAGE>   5

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

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

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

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

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

PRODUCTS AND APPLICATIONS

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

         Serial EEPROM. The Company offers a broad range of serial EEPROM
products compatible with the three popular industry standard bus interface
protocols: the Inter-Integrated Circuit ("I2C") bus interface of Philips
Electronics, the Microwire interface protocol of National Semiconductor and the
Serial Peripheral Interface ("SPI") bus protocol. Additionally, Catalyst offers
4-wire bus interface protocol type products and secure access designed for
applications requiring security lock for data protection. Products are offered
in wide density (1K to 256K) and voltage (1.8V to 6V) ranges. Serial EEPROM
products are used in many applications to store user reconfigurable data. Some
of the more common applications are disk drives, modems, cellular phones, VCRs,
CD players, hearing aids, PCMCIA cards, cordless phones, laser printers,
computers and pagers.






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<PAGE>   6

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

         Flash Memory. The Company currently offers Intel-licensed, 12-volt
Flash memory devices in densities ranging from 256 kilobit to 2 megabit (Mb).
The Company's BIOS Flash family is targeted toward personal computer OEMs for
BIOS code storage. This family includes Intel-licensed boot block and bulk erase
technologies available in 1 Mb, 1.5 Mb and 2 Mb densities. The 1.5 Mb devices
are unique to Catalyst. These products were developed to exploit the trend for
PC BIOS requirements that exceed 1 Mb but do not require a 2 Mb solution. The
Company's 1 Mb wordwide (x16) Flash memory product is targeted at disk drive
applications. There can be no assurance that the Company will receive additional
significant orders for this product or that it will achieve more wide-spread
market acceptance.

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

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

         The Company has recently developed and introduced the following two
product lines. However, to date in fiscal 1999, the revenue contribution has not
been material.

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

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

SALES AND DISTRIBUTION

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

         The Company seeks to develop strategic relationships with major OEM and
other customers. The Company offers a broad range of NVM devices compatible with
the most common industry standards, and also works closely with customers to
provide semi-custom solutions to address individual customers' needs. In fiscal
1999, the Company shipped products directly or through its distribution network
to customers in the computer, consumer electronics, telecommunications,
automotive, data communication and other industries. OEM customers






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of the Company's products include Cisco, Compaq, Fujitsu, Hewlett Packard, IBM,
Matsushita Communications, Motorola, Quantum, Siemens and Sony.

         During fiscal 1999, no customer represented more that ten percent of
Catalyst's product revenue. During fiscal years 1998 and 1997, the only customer
which represented more than ten percent of Catalyst's product revenue was
Marubun Corporation, a Japanese distributor (21% and 14% of product revenues,
respectively). In December 1997, Marubun resigned as a distributor effective in
or about March 1998. International product sales represented approximately 41%,
63% and 60% of the Company's product sales in fiscal 1999, 1998 and 1997,
respectively. The decrease in percentage of international sales in fiscal 1999
is primarily attributable to the resignation of Marubun at the end of fiscal
1998. The Company has taken steps to address this problem by appointing Internix
Inc., Unidex Inc. and USC Corporation as distributors in Japan. However, there
can be no assurance that these distributors will effectively replace the loss of
sales formerly contributed by Marubun. International sales are primarily billed
in U.S. dollars. Due to the magnitude of its international sales, the Company is
subject to the risks of conducting business internationally, including
unexpected changes in regulatory requirements, fluctuations in the U.S. dollar,
which could increase the sales price of the Company's products in local
currencies, tariffs and other barriers and restrictions and the burdens of
complying with a variety of foreign laws.

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

MANUFACTURING

         The Company subcontracts the manufacture of all of its products through
independent semiconductor manufacturers, primarily through Oki, its
semiconductor fabricator and NS Electronics Bangkok (1993), Ltd. (NSEB), its
principal provider of assembly and test services. The Company also subcontracts
certain production planning, product engineering, shipping, and tape and reel
activities to NSEB and Trio-Tech in Bangkok, Thailand, which utilize the
services of approximately 40 people in performing these services for the
Company. The Company has designed its proprietary circuit designs and
fabrication processes to operate within the overall semiconductor manufacturing
processes of its contract manufacturers. The Company's designs are manufactured
utilizing Oki's processes developed for high volume and high yield production of
DRAMs. The Company also endeavors to develop its processes in a manner that
permits the manufacture of its products in the fabrication facilities of
different semiconductor manufacturing suppliers. If the Company were forced to
switch manufacturing from Oki, its production and delivery of products would be
delayed which could adversely affect the Company's business, financial condition
and results of operations.

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




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

         As a result of the Company's dependence on foreign subcontractors and
test facilities, the Company's business is subject to the risks generally
associated with doing business abroad, such as fluctuations in currency exchange
rates, foreign government regulations, political unrest, disruptions or delays
in shipments and changes in economic conditions in countries in which the
Company's manufacturing and assembly and test sources are located. Due to the
Company's limited cash resources, the Company may not be able to maintain
payments to wafer and other subcontractor creditors which are within these
supplier's credit terms. Accordingly, these suppliers may restrict the Company's
future purchases and accordingly may restrict sales of the Company's products.

RESEARCH AND DEVELOPMENT

         The Company continues to invest significant sums in research and
development to improve its fabrication processes and develop additional products
with higher performance and reliability, lower voltage requirements, smaller die
sizes and improved manufacturability. The Company's development efforts include
the development of successive generations of its EEPROM and Flash memory
products, scaled to smaller geometries and mixed signal, and micro-controller
supervisory circuits with embedded EEPROM technologies. As of April 30, 1999,
the Company employed 11 persons in research and development activities, compared
to 13 and 30 as of April 30, 1998 and 1997, respectively. The Company invested
$2.3 million, $4.5 million and $5.8 million in research and development
activities in fiscal 1999, 1998 and 1997, respectively.

         In addition, the Company has an arrangement to obtain engineering
services from Essex com SRL ("Essex"), a wholly owned Romanian subsidiary of Lxi
Corporation, a California corporation ("Lxi"), a provider of engineering
services. As of April 30, 1999, Essex employed approximately 12 engineers to
perform the services on behalf of Catalyst. The services relate to key
development projects of the Company including development, design, layout and
test program development services. Messrs. Vanco, Voicu and Gay own
approximately 91%, 3% and 1%, respectively, of Lxi. The fees for such
engineering services are on terms believed by the Company to be fair to the
Company and no less favorable to the Company than arms length commercial terms.
During the fiscal years ended April 30, 1999 and April 30, 1998 the Company
recorded $437,000 and $413,000 respectively of engineering fees to Essex and Lxi
for engineering design services. As of April 30, 1999 the total amount owed to
Essex and Lxi was $275,000. Messrs. Vanco, Voicu and Gay received no payments
during the fiscal years ended April 30, 1999 and April 30, 1998, except Mr. Gay
who received $1,200 and $3,000 from Lxi during such respective periods. Such
payments to Mr. Gay were made for services rendered prior to his joining the
Company in connection with his duties as Treasurer of Lxi. Mr. Gay resigned such
position immediately prior to joining the Company. Mr. Gay continues to serve as
a director of Lxi.

PATENTS AND LICENSES

         As of April 30, 1999, the Company owned fifteen U.S. patents, one
international patent and had one additional U.S. patent application pending. The
process of seeking patent protection can be expensive and time consuming. There
can be no assurance that patents will issue from pending or future applications
or that, if patents are issued, they will provide meaningful protection or other
commercial advantage to the Company. Moreover,






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<PAGE>   9

there can be no assurance that patent rights will be upheld in the future or
that the Company will be able to preserve its other intellectual property
rights.

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

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

COMPETITION

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

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

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

EMPLOYEES

         As of April 30, 1999, the Company had 43 employees, of whom 11 were
engaged in research and development. The Company's future success will depend on
its ability to attract, train, retain and motivate highly qualified employees,
who are in great demand. The Company's employees are not represented by any
collective bargaining organization, and the Company has never experienced any
work stoppage. The Company believes that its employee relations are good.

EXECUTIVE OFFICERS AND KEY PERSONNEL

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






                                      -9-
<PAGE>   10

<TABLE>
<CAPTION>
NAME                                   AGE         POSITION(S)
----                                   ---         -----------
<S>                                     <C>    <C>
Radu M. Vanco.....................      49     President, Chief Executive Officer and Director
Marc H. Cremer....................      35     Vice President Strategic Business Development
Thomas E. Gay III.................      50     Vice President of Finance and Administration
                                                   and Chief Financial Officer
Bassam I. Khoury..................      39     Vice President of Marketing
 Irv Kovalik......................      62     Vice President of Sales
Gelu Voicu........................      49     Vice President of Product Engineering and
                                                   Manufacturing
</TABLE>

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

         Mr. Cremer has served the Company as Vice President of Strategic
Business Development since December 1998 and served the Company as Vice
President of Sales from March 1998 to December 1998. From April 1997 to March
1998, he served the Company as Director of North American Sales and as Eastern
U.S. Area Sales Manager from February 1997 when he joined the Company until
April 1997. From 1995 to 1997, Mr. Cremer held various sales management
positions at Exel Microelectronics, Inc., a semiconductor company, most recently
as national sales manager. From 1993 to 1995, Mr. Cremer held the position of
sales engineer at Sales Engineering Concepts, Inc., a manufacturers
representative. Mr. Cremer holds a B.S. in Electrical Engineering from
Northeastern University.

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

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

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

         Mr. Voicu has served the Company as Vice President, Product Engineering
and Manufacturing since April 1998. From July 1995 to April 1998 he was Director
of Flash Product Line for the Company. From October 1993 to July 1995 he was
Manager of Product Engineering of the Company. From June 1991 to October 1993 he
served with Cypress Semiconductor, Inc., a semiconductor company, most recently
as Senior Product Engineer. Mr. Voicu holds a M.S. in Electrical Engineering
from the Polytechnical Institute, Bucharest, Romania.






                                      -10-
<PAGE>   11

INSURANCE

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

         IN ORDER TO TAKE ADVANTAGE OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, THE COMPANY HEREBY NOTIFIES
READERS THAT THE FACTORS SET FORTH IN "CERTAIN FACTORS THAT MAY AFFECT THE
COMPANY'S FUTURE RESULTS" AS SET FORTH BELOW IN ITEM 7 BELOW, AS WELL AS OTHER
FACTORS, IN THE PAST HAVE AFFECTED AND IN THE FUTURE COULD AFFECT THE COMPANY'S
ACTUAL RESULTS, AND COULD CAUSE THE COMPANY'S RESULTS FOR FUTURE PERIODS TO
DIFFER MATERIALLY FROM THOSE EXPRESSED IN ANY FORWARD LOOKING STATEMENTS MADE BY
OR ON BEHALF OF THE COMPANY, INCLUDING WITHOUT LIMITATION THOSE MADE IN THIS
REPORT.

ITEM 2.  PROPERTIES

         The Company rents its 42,500 square foot principal facility in
Sunnyvale, California, pursuant to a lease that expires in July 2006. As
permitted in the lease, the Company has subleased out 17,000 square feet of such
office space which it does not need at this time. The sublease will expire in
December 1999. The Company also has domestic sales personnel in Southern
California, Connecticut, Florida, Georgia and Illinois and international sales
offices in England, Taiwan and Japan. The Company believes that its existing
facilities are adequate to meet its current needs and that additional or
alternative space will be available in the future on commercially reasonable
terms. Additionally, although the Company is current on its lease payments under
the lease of its headquarters facility, as a result of its financial condition,
the Company is in violation of certain terms of its lease.

ITEM 3.  LEGAL PROCEEDINGS

         On June 26, 1998 Micro-Comp Industries filed a complaint against the
Company in Santa Clara County Superior Court. The complaint alleged that the
Company failed to pay for integrated circuits delivered to the Company by UMC
and sought $1.6 million in damages. The Company filed an answer and
cross-complaint in July 1998. In April 1999, the parties agreed to settle their
complaints. The settlement terms call for the Company to make an immediate
payment of $0.4 million and eight monthly payments of $50,000 each (an aggregate
of an additional $0.4 million) with the final payment to be made in December
1999. Successful and timely completion of all payments due under the agreement
will constitute satisfactory resolution of the complaint and result in a credit
to income of $0.8 million to the Company

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

         No matters were submitted to a vote of security holders during the
fourth quarter for the fiscal year ended April 30, 1999.






















                                      -11-

<PAGE>   12

                                     PART II


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

COMMON STOCK MARKET PRICES AND DIVIDENDS

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

<TABLE>
<CAPTION>
                                                                       HIGH        LOW
                                                                       ----        ---
         <S>                                                          <C>         <C>
         FISCAL YEAR ENDED APRIL 30, 1998
                  Quarter ended July 31, 1997.....................    3 1/16      1 15/32
                  Quarter ended October 31, 1997..................    3 7/16      1 13/16
                  Quarter ended January 31, 1998..................    2 1/8         27/32
                  Quarter ended April 30, 1998....................    1 3/8          5/8

         FISCAL YEAR ENDED APRIL 30, 1999
                  Quarter ended July 31, 1998.....................    29/32       15/32
                  Quarter ended October 31, 1998..................     1/2         3/64
                  Quarter ended January 31, 1999..................     9/16        3/16
                  Quarter ended April 30, 1999....................     1/2        19/64
</TABLE>

         As of July 23, 1999, there were approximately 162 registered holders of
record of the Company's Common Stock including a number of holders who are
nominees for an undetermined number of beneficial holders.

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

RECENT SALES OF UNREGISTERED SECURITIES

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























                                      -12-
<PAGE>   13

ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

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

<TABLE>
<CAPTION>
                                                                                  YEAR ENDED
                                                     ----------------------------------------------------------------
                                                                           APRIL 30,
                                                     --------------------------------------------------      MARCH 31,
                                                       1999          1998          1997         1996(1)        1995
                                                     --------      --------      --------      --------      --------
<S>                                                  <C>           <C>           <C>           <C>           <C>
STATEMENT OF OPERATIONS DATA:                                       (IN THOUSANDS, EXCEPT PER SHARE DATA)

Net revenues ...................................     $ 31,987      $ 34,579      $ 47,094      $ 60,186      $ 48,764

Cost of revenues ...............................       20,909        39,025        36,720        42,199        33,910
                                                     --------      --------      --------      --------      --------

Gross profit (loss) ............................       11,078        (4,446)       10,374        17,987        14,854
Operating expenses:
   Research and development ....................        2,335         4,462         5,771         4,407         4,252
   Selling, general and administrative .........        7,718         9,111         8,437         9,733         8,263
                                                     --------      --------      --------      --------      --------

Income (loss) from operations ..................        1,025       (18,019)       (3,834)        3,847         2,339

Interest income (expense), net .................         (802)         (847)         (205)         (225)         (223)
                                                     --------      --------      --------      --------      --------

Income (loss) before income taxes ..............          223       (18,866)       (4,039)        3,622         2,116

Income tax provision ...........................           --            --            --            48            94
                                                     --------      --------      --------      --------      --------

Net income (loss) ..............................     $    223      $(18,866)     $ (4,039)     $  3,574      $  2,022
                                                     ========      ========      ========      ========      ========
Net income (loss) per share:
   Basic .......................................     $   0.02      $  (2.28)     $  (0.51)     $   0.44      $   0.29
                                                     ========      ========      ========      ========      ========
   Diluted .....................................     $   0.02      $  (2.28)     $  (0.51)     $   0.43      $   0.27
                                                     ========      ========      ========      ========      ========
Weighted average common shares:
   Basic .......................................       12,189         8,263         7,918         8,144         6,976
                                                     ========      ========      ========      ========      ========
   Diluted .....................................       13,678         8,263         7,918         8,241         7,409
                                                     ========      ========      ========      ========      ========
</TABLE>

<TABLE>
<CAPTION>
                                                                           APRIL 30,
                                                     --------------------------------------------------      MARCH 31,
                                                       1999          1998          1997         1996(1)        1995
                                                     --------      --------      --------      --------      --------
<S>                                                  <C>           <C>           <C>           <C>           <C>
BALANCE SHEET DATA:

Cash and cash equivalents ......................     $  1,852      $    534      $  2,695      $  2,966      $  5,246

Total current assets ...........................        9,627        16,105        28,646        36,225        26,587

Total assets ...................................       11,566        18,939        32,553        39,275        30,817

Total current liabilities ......................       12,697        22,307        16,631        21,194        20,104

Long-term debt and capital lease obligations ...           81           501         1,885           571         1,347

Stockholders' equity (deficit) .................       (1,212)       (3,869)       14,037        17,510         9,366
</TABLE>

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






                                      -13-
<PAGE>   14


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

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

OVERVIEW

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

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


         The Company's recent operating results have consumed substantial
amounts of cash. The reduction in cash has also placed restrictions on wafer
purchases which, during the fourth quarter of fiscal 1998 and the first quarter
of fiscal 1999, resulted in the cancellation of some customer sales orders. In
May 1998, the Company received gross proceeds of $1.5 million from the sale of
1,500,000 shares of its Common Stock in a private placement and in September
1998, received gross proceeds of $1.0 million from the sale of 4,000,000
additional shares of its Common Stock to the same investor in a private
placement Management believes, however, that it may require additional cash from
similar or related private placements or other sources of liquidity to meet the
Company's projected working capital and other cash requirements for fiscal 2000,
and is currently pursuing these sources of liquidity.

         As a result of these circumstances, the Company's independent
accountants' opinion on the consolidated financial statements includes an
explanatory paragraph indicating that these matters raise substantial doubt
about the Company's ability to continue as a going concern.

RESULTS OF OPERATIONS

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

         Revenues. Total revenues consist primarily of net product sales. A
substantial portion of net product sales has been made through independent
distributors. Revenue from product sales to original equipment manufacturers and
from sales to distributors who have no, or limited, product return rights and no
price protection rights, is recognized upon shipment net of allowances for
estimated returns. When distributors have rights to return products or price
protection rights, the Company defers revenue recognition until the distributor
sells the product to the end customer. Total revenues decreased by 8% to $32.0
million in fiscal 1999 from $34.6 million in fiscal 1998. The decrease was
primarily attributable to a decrease in sales of the Company's Flash products,
the resignation of the Company's Japanese distributor, price erosion caused by
excess supply and other adverse industry-wide conditions. Shipments of the
Company's Flash memory devices decreased by $9.3 million to $7.7 million or 24%
of revenues






                                      -14-
<PAGE>   15

in fiscal 1999 compared to 49% of revenues or $17.0 million in the prior year.
The decrease in Flash product sales is attributable to ASP erosion and that the
majority of the market is for devices with larger memory capacity than the 2
megabyte devices that the Company has developed. Marubun, the Japanese
distributor which resigned effective the end of fiscal 1998, represented sales
of approximately $7.2 million or 21% of total revenues in fiscal 1998, compared
to revenues of $1.1 million through replacement distributors in fiscal 1999.
Additionally, the Company was unable to purchase sufficient wafers during the
fourth quarter of fiscal 1998 due to lack of working capital, contributing to an
inability to fill some orders in a timely manner in the first quarter of fiscal
1999. The Company is reliant upon receiving and fulfilling orders within the
same quarter to meet or exceed its current revenue levels. A continuation of
weak demand, capital deficiencies and price erosion for the Company's products
could lead to poor operating results. In May and June of 1998, the Company
received substantial cancellations of the backlog existing at fiscal 1998 year
end. International sales contributed 41% of net product sales in fiscal 1999 as
compared to 64% in fiscal 1998. The decrease in international revenues is
attributable to the loss of the Company's Japanese distributor and the Company's
inability to compete effectively at the low prices prevalent in certain markets
in the Far East. All sales of the Company's products are in US dollars,
minimizing the effects of currency fluctuations.

         Gross Profit (Loss). Gross profit for fiscal 1999 was $11.1 million, or
a gross profit of 35% of revenues, compared to gross loss of $4.4 million, or a
gross loss of 13% of revenues, for fiscal 1998. The increase in absolute dollars
from a gross loss of $4.4 million to a gross profit of $11.1 million is
primarily attributable to decreased costs of wafers, assembly and testing
services and $1.7 million in credits received from various negotiations and
settlements with certain vendors in fiscal 1999, compared to $7.5 million in
charges taken in fiscal 1998 for inventory valuation adjustments and other costs
of reworking and expediting inventory. In the first quarter of fiscal 1999,
renegotiation of amounts due under a licensing agreement resulted in $0.5
million reduction to cost of sales. In the second quarter of fiscal 1999, $0.7
million was credited to the Company in return for payment of $7.0 million due
under an inventory purchasing arrangement. In the fourth quarter of fiscal 1999,
a $0.5 million benefit was recognized as the result of successful payment of
amounts due under the terms of a licensing agreement settlement. The inventory
valuation adjustments in 1998 were primarily due to the rapid decrease in demand
for and the selling prices for the Company's products. In addition, the
Company's ability to forecast future demand and selling prices diminished. It is
the policy of the Company to fully reserve all inventory that is not expected to
be sold in a reasonable period of time from the balance sheet date, generally
within the ensuing six months. As a result of a reduction in estimated demand
for the Company's products, the Company provided additional reserves for excess
quantities and obsolescence for certain products, primarily the Company's Flash
and EEPROM products. The rapid erosion of selling prices also left the Company
with significant amounts of inventory with a carrying value that exceeded its
current selling price resulting in adjustments to the carrying value of the
inventory to the lower of cost or market value. Additionally, certain masks
valued at $0.6 million and other manufacturing assets valued at $0.2 million
associated with the production of the Company's inventory were written off in
1998. The increase in gross profit percentage is due to decreased per unit
wafer, assembly and testing costs, the $1.7 million in credits from vendors and
the Company reducing the level of sales of products with lower gross margins.
The Company pays certain foreign manufacturing expenses in local currency,
primarily Baht in Thailand and Yen in Japan. Such expenses are not material to
the Company and are paid mostly within 30 days, minimizing the effects of
currency fluctuations.

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

         Selling, General and Administrative. Selling, general and
administrative ("SG&A") expenses consist principally of salaries for sales,
marketing and administrative personnel, commissions, promotional activities and
directors and officers ("D&O") insurance. SG&A expenses decreased 15% to $7.7
million in fiscal 1999 from $9.1 million in fiscal 1998. This decrease was
primarily attributable to $0.5 million of bad debt expenses in 1998 as






                                      -15-
<PAGE>   16

compared to $0.1 million such expense in 1999 and $0.7 million of severance
expenses in fiscal 1998 compared to $0.1 million of such expenses in 1999. As a
percentage of revenues, SG&A expenses decreased to 24% from 26%. The primary
reason for the decrease in the percentage of revenue is the decrease in revenues
primarily attributable to the erosion of prices to the Company's customers.

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

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

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

FISCAL YEAR ENDED APRIL 30, 1998 COMPARED TO FISCAL YEAR ENDED APRIL 30, 1997

         Revenues. Total revenues decreased by 27% to $34.6 million in fiscal
1998 from $47.1 million in fiscal 1997. The decrease was primarily attributable
to price erosion caused by excess supply and other adverse industry-wide
conditions. Additionally, the Company was unable to purchase sufficient wafers
during the fourth quarter of fiscal 1998 due to lack of working capital. The
Company is reliant upon receiving and fulfilling orders within the same quarter
to meet or exceed its current revenue levels. A continuation of weak demand,
capital deficiencies and price erosion for the Company's products could lead to
continued poor operating results. In May and June of 1998, the Company received
substantial cancellations of the backlog existing at fiscal year end.
International sales contributed 64% of net product sales in fiscal 1998 as
compared to 63% in fiscal 1997.

         Gross Profit (Loss). Gross loss for fiscal 1998 was $4.4 million, or a
gross loss of 13% of revenues, compared to gross profit of $10.4 million, or a
gross profit of 22% of revenues, for fiscal 1997. The decreases in absolute
dollars were primarily attributable to reduced revenues and $7.5 million in
charges taken in the third and fourth quarters of fiscal 1998. These charges
were taken primarily to adjust the value of certain inventories to reflect
reductions in current market pricing below the cost to produce the inventory and
to adjust the value of certain inventories for which the Company has quantities
that exceed forecasted demand. Gross margins were also adversely affected by
excess supplies of competitive products and other adverse industry-wide
conditions, lower than anticipated yields achieved on the Company's 0.6 micron
version of its Flash memory devices, rework charges incurred to re-mark and
re-test certain products in preparation of shipping those products to customers
of the Company, and expedite charges incurred to ensure that delivery was made
in time to meet customer schedules.

         Research and Development. R&D expenses decreased 22% to $4.5 million in
fiscal 1998 from $5.8 million in fiscal 1997. The decrease in dollars was
primarily attributable to decreases in R&D personnel costs. As of April 30,
1998, the Company employed 13 persons in research and development activities,
compared to 30 as of April 30, 1997. As a percentage of revenues, R&D expenses
increased to 13% from 12%. This increase was primarily attributable to decreased
sales.

         Selling, General and Administrative. SG&A expenses increased 8% to $9.1
million in fiscal 1998 from $8.4 million in fiscal 1997. This increase was
primarily attributable to bad debt expenses of $0.5 million and severance
expenses of $0.7 million in fiscal 1998. As a percentage of revenues, SG&A
expenses increased to 26% from 18%. The increase in SG&A as a percentage of
revenues was attributable to absolute spending increasing while revenues
decreased.

         Net Interest Expense. Net interest expense increased by 313% to
$847,000, or 2% of revenues, in fiscal 1998, as compared to $205,000, or .4% of
revenues, in fiscal 1997. The increase was primarily attributable to






                                      -16-
<PAGE>   17

increased average outstanding borrowings. Increased borrowings were not offset
by increased balances in interest bearing cash accounts.

         Income Tax Provision. As a result of the Company's loss, the provision
for income taxes remained at zero in fiscal 1998.

         As of April 30, 1998 the Company had available net operating loss
carryforwards of approximately $37.6 million and credit carryforwards of
approximately $1.0 million for federal tax purposes, which begin to expire in
fiscal 2001. Availability of the net operating loss and general business credit
carryforwards may potentially be reduced in the event of substantial changes in
equity ownership.


LIQUIDITY AND CAPITAL RESOURCES

         Total cash decreased $4.4 million to $1.9 million as of April 30, 1999
from $6.3 million (including $5.8 million of restricted cash) as of April 30,
1998. The decrease was primarily attributable to the use of the $5.8 million of
the total cash that was pledged as security on letters of credit in payment of
the secured debt. Net cash provided by the sale of common stock totaled $2.4
million during fiscal 1999. Approximately $1.1 million was used to reduce vendor
obligations.

         As of April 30, 1999, the Company had approximately $2.9 million of
secured loans owed to its bank. As of April 30, 1999, under the terms of its
borrowing agreement, the Company was eligible to borrow approximately $1.0
million additional cash and had cash on hand of $1.9 million. For the period
from January 1998 through March 1999, as a result of the Company's financial
condition and results of operations, the bank had determined that the Company
was in default under various provisions of the loan agreement that would have
entitled the bank to terminate the loan agreement and declare the loans
immediately due and payable. During that period, the Company obtained letters of
forbearance from the bank taking any action with respect to the existing
conditions of default. In March 1999, the bank credit line automatically renewed
and in April 1999, various terms and conditions of the agreement were
renegotiated, reducing the borrowing limit from $13.5 million to $5.0 million,
reducing the interest rate and changing the covenant requiring a minimum net
worth, to allow the Company to be in compliance at April 30, 1999. The Company
is also indebted to other creditors in the amount of approximately $6.0 million.
This amount is comprised of approximately $5.0 million for wafers and inventory
processing and approximately $1.0 million for other goods and services.
Additionally, although the Company is current on its lease payments under the
lease of its headquarters facility, as a result of its financial condition, the
Company is in violation of certain terms of its lease. Similar violations have
resulted under certain equipment lease agreements and the Company has obtained a
letter of forbearance from the principal equipment lessor agreeing to not take
any action on the existing condition of default through April 2000.

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

         Although management believes the Company may have sufficient working
capital resources to continue its operations, the Company is seeking additional
equity or debt financing to address its working capital needs and to provide
funding for capital expenditures. There can be no assurances, however, that
financing will be available on terms acceptable to the Company, if at all. If
the Company is not successful in raising additional capital the Company can not
reasonably assess how long its current cash balances, cash generated from
operations and borrowings available under any remaining loans or lines of credit
and from equipment financing, even with reductions in operating expenses and
limited capital expenditures, will permit the Company to continue operations.

YEAR 2000 COMPLIANCE

         The Company uses a number of computer software programs and operating
systems and intelligent hardware devices in its internal operations, including
information technology (IT) and non-IT systems used in the design, manufacture
and marketing of Company products. These items are considered to be year 2000
"objects" and to the extent that these objects are unable to correctly recognize
and process date dependent information beyond the year 1999, some level of
modification or replacement is necessary. Most computer programs were designed
to perform data computations on the last two digits of the numerical value of a
year. When a computation referencing the year 2000 is performed, these systems
may interpret "00" as the year 1900 and could either stop processing
date-related computations or could process them incorrectly. Computations
referencing the year 2000 might be invoked at any time, but are likely to begin
occurring in the year 1999.

         The Company is currently conducting a company-wide year 2000 readiness
assessment and is undertaking changes to computer programs which the Company
believes will be year 2000 compliant. During fiscal years 1999 and 1998, the
Company spent approximately $5,000 in connection with its year 2000 activities,
and expects future costs during fiscal 2000 of less than $20,000.

         The Company could possibly be materially adversely impacted by the year
2000 issues faced by major distributors, suppliers, subcontractors, customers,
vendors, and financial service organizations with which the Company interacts.
The Company is in the process of determining the impact of the Company's
operations as a result of the year 2000 readiness of these third parties. In the
event year 2000 issues relating to key customers and suppliers are not
successfully resolved, based on information available to us at present, the
Company believes that the most reasonably likely worse case scenario is a
temporary disruption in infrastructure service, which could adversely impact
supplier deliveries or customer shipments. If severe disruptions occur in these
areas and are not corrected in a timely manner, a revenue or profit shortfall
may result in fiscal year 2000. The Company is in the process of assessing year
2000 readiness of its major suppliers and vendors and is in the process of
developing a contingency plan, which it expects to complete by September 1999,
at which time the Company will be able to evaluate its most reasonable likely
worst case year 2000 scenarios.

         Year 2000 compliance issues could have a significant impact on the
Company's operations and its financial results if the new information systems
are not completely implemented in a timely manner; unforeseen needs or problems
arise; or, if the systems operated by the Company's customers, vendors or
subcontractors are not year 2000 compliant. The dates on which the Company
believes its year 2000 readiness will be completed are based on the Company's
management's best estimates, which were derived utilizing numerous assumptions
of future events, including the continued availability of certain resources,
third-party modification plans and other factors. However, there can be no
guarantee that these estimates will be achieved, or that there will not be a
delay in, or increased costs associated with, the implementation of year 2000
compliant solutions. Specific factors that might cause differences between the
estimates and actual results include, but are not limited to, the availability
and cost of personnel trained in these areas, the ability to locate and correct
all relevant computer code, timely responses to and corrections by third-parties
and suppliers, the ability to implement interfaces between the new systems and
the systems not being replaced, and similar uncertainties. Due to the general
uncertainty inherent in the year 2000 problem, resulting in part from the
uncertainty of the year 2000 readiness of third-parties and the interconnection
of global businesses, the Company cannot ensure its ability to timely and
cost-effectively resolve problems associated with the year 2000 issue that may
affect its operations and business, or expose it to third-party liability.




                                      -17-
<PAGE>   18

CERTAIN FACTORS THAT MAY AFFECT THE COMPANY'S FUTURE RESULTS

         THE COMPANY DESIRES TO TAKE ADVANTAGE OF CERTAIN PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, ENACTED IN DECEMBER 1995 (THE
"REFORM ACT") THAT PROVIDES A "SAFE HARBOR" FOR FORWARD-LOOKING STATEMENTS MADE
BY OR ON BEHALF OF THE COMPANY. THE COMPANY HEREBY CAUTIONS STOCKHOLDERS,
PROSPECTIVE INVESTORS IN THE COMPANY AND OTHER READERS THAT THE FOLLOWING
IMPORTANT FACTORS, AMONG OTHERS, IN SOME CASES HAVE AFFECTED, AND IN THE FUTURE
COULD AFFECT, THE COMPANY'S STOCK PRICE OR CAUSE THE COMPANY'S ACTUAL RESULTS
FOR THE FISCAL QUARTER ENDING JULY 31, 1999, FOR THE FISCAL YEAR ENDING APRIL
30, 2000, AND FUTURE FISCAL YEARS AND QUARTERS TO DIFFER MATERIALLY FROM THOSE
EXPRESSED IN ANY FORWARD-LOOKING STATEMENTS, ORAL OR WRITTEN, MADE BY OR ON
BEHALF OF THE COMPANY.

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

         Defaults under Outstanding Loans; Risk of Bankruptcy. The Company had
approximately $2.9 million of secured loans owing to its bank at April 30, 1999.
As a result of the Company's financial condition and results of operations in
1998, the bank had determined that the Company was in default under various
provisions of the loan agreement that would entitle the bank to terminate the
loan agreement and declare the loans immediately due and payable. The Company
was able to obtain letters of forbearance from the bank taking any action with
respect to the existing defaults until March 1999. In that regard the Company
received $2.5 million in equity financing during fiscal 1999 and a twelve month
right to obtain up to an additional $1.0 million of equity financing. There can
be no assurance that efforts to obtain additional funding will be successful or,
if successful, on terms acceptable to the Company. In March 1999, the bank
credit line automatically renewed and in April 1999, various terms and
conditions of the agreement were renegotiated, reducing the borrowing limit from
$13.5 million to $5.0 million, reducing the interest rate and changing the
covenant requiring a minimum net worth, to allow the Company to be in compliance
at April 30, 1999. As a result of the Company's limited cash resources, the
Company may seek to obtain additional equity or other funding to increase the
cash available for operations and other purposes. The Company is also indebted
to other creditors in the amount of approximately $6.0 million. Continued
operation of the Company would also require lenders to forbear taking action or
waiving defaults under such other debt. In addition, although the Company is
current on its lease payments under the lease of its headquarters facility, as a
result of its financial condition, the Company is in violation of certain terms
of its lease. Similar violations have resulted under certain equipment lease
agreements and the Company has obtained a letter of forbearance from the
principal equipment lessor agreeing to not take any action on the existing
condition of default through April 2000.

         Expected Need for Additional Capital. The Company has incurred
significant losses or experienced significant negative cash flow from operations
for more than three years. Such negative cash flow has significantly reduced the
Company's available capital. During fiscal 1999, the Company was successful in
having its lenders agree to waive or forbear actions on defaults under existing
loans or to renegotiate the terms of such loans to enable the Company to be in
conformance with the terms and conditions negotiated If the Company is not
successful in raising additional capital, in view of the uncertainties relating
to arrangements with its bank and other lenders the Company can not reasonably
assess how long its current cash balances, cash generated from operations and
borrowings available under any remaining loans or lines of credit and from
equipment financing, even with substantial reductions in operating expenses and
capital expenditures, will permit the Company to continue operations. There can
be no assurance that the Company will continue to generate sufficient revenue to
fund its operations in the absence of additional funding sources. The Company
has pursued and continues to pursue measures designed to reduce expenses and
conserve cash such as deferring payments to vendors and other suppliers,
headcount reductions, deferrals of planned expenditures, other expense
reductions and other measures. Although such activities help preserve cash and
enable the Company to continue operations, the lack of available capital hinders
the Company's ability to continue manufacturing, sales, product development and
other ongoing operational activities necessary to generating revenues. Such
activities can have a material, adverse affect on the Company's business,
financial condition and operating results. Furthermore, to the extent the
Company suffers further adverse effects to its revenues or margins because of
delays in new product introductions, price competition or other competitive
factors, the Company's cash position and its business, operating results and
financial condition will be further adversely affected.






                                      -18-
<PAGE>   19

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

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

         Dependence on a Sole Source Manufacturer; The Company does not
manufacture the semiconductor wafers used for its products. Although Oki has
provided wafers to the Company since 1987, since March 1998, Oki has been the
sole foundry source for the Company's principal raw material, semiconductor
wafers. The Company does not have a wafer supply agreement with Oki at this
time. Although the Company has a purchase agreement with UMC for certain Flash
products which runs through February 2006, due to declining Flash bookings and
other circumstances, the Company has not ordered any wafers from UMC since
December 1997.

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






                                      -19-
<PAGE>   20

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

         Due to the foregoing factors, quarterly revenue and operating results
are difficult to forecast. The Company's expense levels are based, in
significant part, on the Company's expectations as to future revenue and are
therefore relatively fixed in the short term. If revenue levels fall below
expectations, as has occurred during the years ended April 30, 1999, 1998 and
1997, net income is likely to be disproportionately adversely affected because a
proportionately smaller amount of the Company's expenses varies with its
revenue. There can be no assurance that the Company will be able to achieve or
maintain profitability on a quarterly or annual basis in the future. Due to the
foregoing factors, the Company's operating results may fall below the
expectations of investors, which could have a material adverse effect on the
market price of the Company's Common Stock. Reductions in revenue expectations
can also require the Company to take additional reserves against inventory
valuations based upon the reduced likelihood that the Company will be able to
liquidate its inventories at profitable prices.

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

         Competition. The semiconductor industry is intensely competitive and
has been characterized by rapid price erosion, declining gross margins, rapid
technological change, product obsolescence and heightened international
competition in many markets. Average selling prices in the semiconductor
industry generally, and for the Company's products in particular, have decreased
significantly and rapidly over the life of each product. The






                                      -20-
<PAGE>   21

Company expects that average selling prices for its existing products will
continue to decline rapidly for the foreseeable future and that average selling
prices for each new product will decline significantly over the life of the
product. Declines in average selling prices for the Company's products, if not
offset by reductions in the cost of producing those products or by sales of new
products with higher gross margins, would decrease the Company's overall gross
margins, could cause a negative adjustment to the valuation of the Company's
inventories and could materially and adversely affect the Company's operating
results.

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

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


                                      -21-
<PAGE>   22
         International Operations. For fiscal 1999, 1998 and 1997 international
sales accounted for approximately 41%, 64% and 63%, respectively, of the
Company's product sales. The decrease in international sales is attributable to
the transition in Japan from Marubun who resigned in fiscal 1998 to various
smaller alternative distributors that serve similar markets and the inability of
the Company to compete with the low selling prices in certain Far East markets.
The Company expects that international sales will continue to represent a
significant portion of its product sales in the future. The Company's
international operations may be adversely affected by fluctuations in exchange
rates, imposition of government controls, political and financial instability,
trade restrictions, changes in regulatory requirements, difficulties in staffing
international operations and longer payment cycles. Except for a few sales
through the Company's subsidiary in Japan, NCKK, all sales are invoiced and paid
in dollars, reducing the Company's direct exposure to currency fluctuations.
Except for Yoshikawa Semiconductor in Japan, and some payroll and incidental
manufacturing supply purchases in Thailand, over 95% of the Company's purchases
are in US dollars, minimizing any direct currency fluctuation risk. However,
recent adverse developments in the economic environment in the Far East may have
a material adverse effect on the Company's subcontractors. In addition, the
Company's business is subject to other risks generally associated with doing
business with foreign subcontractors including, but not limited to, foreign
government regulations, political and financial unrest which may cause
disruptions or delays in shipments to the Company's customers or access to the
Company's inventories. There can be no assurance these or other factors related
to international operations will not have a material adverse affect on the
Company's business, financial condition and results of operations.

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

         Flash Memory Market. A significant amount of the Company's net revenues
during 1998 and 1999 were derived from sales of Flash memory products. The
market for Flash memory products has been characterized by intense price
competition, long production cycles, inconsistent yields, competing
technologies, rapidly declining average selling prices, declines in gross
margins and intense overall competition. The Company's fiscal 1997, 1998 and
1999 operating results were adversely affected by intense price competition
caused by increased supplies of products and other adverse industry-wide
conditions. Intel and other competitors (which include Advanced Micro Devices,
Atmel, Fujitsu, Hitachi, Micron, Mitsubishi, SGS-Thomson, Sharp, Texas
Instruments and Toshiba) are expected to further increase Flash memory
production. There can be no assurance that the Company will be able to sustain
the market acceptance for its Flash memory products. The Company anticipates
continued price and other competitive pressures, which adversely affected fiscal
1997, 1998 and 1999 operating results to continue to adversely affect the
Company's future operating results.

         Semiconductor Industry. The semiconductor industry is highly cyclical
and has been subject to significant economic downturns at various times,
characterized by diminished product demand, accelerated erosion of average
selling prices and gross margins, and production overcapacity. Accordingly, the
Company may experience substantial period to period fluctuations in future
operating results due to general semiconductor industry conditions, overall
economic conditions or other factors. For example, the Company experienced and
continues to experience accelerated erosion of average selling prices caused by
adverse industry-wide conditions in fiscal years 1997, 1998 and 1999.

         Dependence on Proprietary Technology; Risk of Intellectual Property
Litigation. In the semiconductor industry companies place extensive reliance
upon their intellectual property and proprietary technology and it is typical
for companies to receive notices from time to time that allege infringement of
patents or other intellectual






                                      -22-
<PAGE>   23

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

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

         Customer Concentration. A relatively small number of customers have
accounted for a significant portion of the Company's net revenue in the past.
During fiscal years 1999, 1998 and 1997, the only customer which represented
more than ten percent of Catalyst's product revenue was Marubun Corporation, a
Japanese distributor (0%, 21% and 14%, respectively). In December 1997, Marubun
resigned as a distributor effective in or about March 1998. The Company is
working to develop alternative distributors in Japan to replace Marubun. Such
efforts take substantial time and may not completely replace the sales volumes
achieved through Marubun. Loss of one or more of the Company's current customers
could materially and adversely affect the Company's business, operating results
and financial condition. In addition, the Company has experienced and may
continue to experience lower margins on sales to significant customers as a
result of volume pricing arrangements.

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


                                      -23-
<PAGE>   24
         New Accounting pronouncements. In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133,"Accounting for Derivative Instruments and
Hedging Activities." SFAS No. 133 requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. It further provides
criteria for derivative instruments to be designated as fair value, cash flow
and foreign currency hedges, and establishes respective accounting standards for
reporting changes in the fair value of the instruments. The statement is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
Upon adoption of SFAS No. 133, we will be required to adjust hedging instruments
to fair value in the balance sheet, and recognize the offsetting gain or loss as
transition adjustments to be reported in net income or other comprehensive
income, as appropriate, and presented in a manner similar to the cumulative
effect of a change in accounting principle. We believe the adoption of this
statement will not have a significant effect on our results of operations.

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

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

ITEM 7A.   QUANTITATIVE AND CUMULATIVE DISCLOSURES ABOUT MARKET RISK

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




                                      -24-
<PAGE>   25

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

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


ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

           (a) FINANCIAL STATEMENTS

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

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

           None


                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

         Information relating to the Company's directors required by this item
is incorporated herein by reference to the section entitled "Proposal 1 --
Election of Directors" in the 1999 Proxy Statement. Information relating to the
Company's executive officers required by this item appears in "Item 1 --
Executive Officers and Key Personnel" of this report. Additional information
relating to the Company's directors and executive officers required by this item
is incorporated herein by reference to the section entitled "Additional
Information -- Compliance with Section 16(a) of the Securities Exchange Act" in
the 1999 Proxy Statement.

ITEM 11.  EXECUTIVE COMPENSATION

         The information required by this item is incorporated herein by
reference to the sections entitled "Proposal 1 -- Election of Directors -
Compensation of Directors" and "Additional Information - Executive Compensation"
in the 1999 Proxy Statement.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

          The information required by this item is incorporated herein by
reference to the sections entitled "Additional Information - Security Ownership"
in the 1999 Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information required by this item is incorporated herein by
reference to the sections entitled "Additional Information - Certain
Relationships and Related Transactions" in the 1999 Proxy Statement.


                                     PART IV

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

         (a)(1) FINANCIAL STATEMENTS

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

         (a)(2) FINANCIAL STATEMENT SCHEDULES






                                      -25-
<PAGE>   26
         See Item 14(a)(1) above. Schedules other than those included in
referenced Index have been omitted because they are not required or are not
applicable.

      (a)(3)   EXHIBITS

 3.2 (11)      Restated Certificate of Incorporation of Registrant.

 3.4 (10)      Bylaws of Registrant

 4.1  (5)      Preferred Shares Rights Agreement, dated as of December 3, 1996,
               between Catalyst Semiconductor, Inc. and First National Bank of
               Boston, including the Certificate of Designation of Rights,
               Preferences and Privileges of Series A Participating Preferred
               Stock, the Form of Rights Certificate and the Summary of Rights
               attached thereto as Exhibits A, B and C respectively.

 4.2  (6)      Amendment No. 1 to Preferred Shares Rights Agreement dated as of
               May 22, 1998 between Registrant and BankBoston, N. A., as rights
               agent.

 4.3  (9)      Amendment No. 2 to Preferred Shares Rights Agreement dated as of
               September 14, 1998 between Registrant and BankBoston, N. A., as
               rights agent.

10.3  (1)*     Stock Purchase Agreement dated March 31, 1992 between Kamlesh
               Kumari and Registrant, together with Promissory Note and
               Guarantee by B.K. Marya.

10.7 (11)*     Stock Option Plan.

10.8  (1)*     1993 Employee Stock Purchase Plan.

10.9     *     1993 Director Stock Option Plan.

10.12 (1)      Distributor Agreement dated February 1990 between Arrow
               Electronics, Inc. and Registrant.

10.14 (1)      Distributor Agreement dated June 30, 1986 between Registrant and
               Marubun Corporation.

10.15 (1)      Irrevocable License Agreement dated May 8, 1988 between Seiko
               Instruments, Inc. and Registrant.

10.16 (1)      64 KBIT CMOS EEPROM, 1M BIT CMOS EEPROM and 256 KBIT CMOS EEPROM
               Consulting and Design Work Agreement dated March 26, 1986 between
               OKI Electric Industry Co., Ltd. and the Registrant.

10.17 (1)      FLASH EEPROM Development and License Agreement dated July 18,
               1988 between OKI Electric Co., Ltd. and Registrant.

10.18 (1)      4M FLASH Development and License Agreement dated May 27, 1992
               between OKI Electric Co., Ltd. and Registrant.

10.27 (1)*     Form of Indemnification Agreement entered into by Registrant with
               each of its directors and executive officers.

10.34 (2)      Wafer Supply Agreement dated February 24, 1995 between OKI
               Electric Industry Co., Ltd. and the Registrant.

10.36 (3)+     License Agreement dated August 18, 1995 between Intel Corporation
               and Registrant

10.38 (4)      Standard Industrial Lease dated March 22, 1996 between Marin
               County Employees Retirement Association and Registrant.

10.39 (4)+     Master Agreement dated February 7, 1996 between United
               Microelectronics Corporation and the Registrant.

10.41 (4)+     Amendment dated May 20, 1996 to the Wafer Supply Agreement dated
               February 24, 1994 between OKI Electric Industry Co., Ltd. and
               Registrant.

10.42 (4)*     Separation and Consulting Agreements dated August 14, 1995
               between B.K. Marya and Registrant.

10.46 (4)*     Employment Agreement dated October 14, 1995 between Radu Vanco
               and Registrant.

10.48 (4)*     Loan Forgiveness Agreement dated March 12, 1996 between Radu
               Vanco and Registrant.

10.49 (6)      Loan and Security Agreement dated June 19, 1997 between Coast
               Business Credit, a division of Southern Pacific Thrift & Loan
               Association ("Coast"), and Registrant.

10.50 (6)      Loan and Security Agreement (CEFO Facility) dated June 19, 1997
               between Coast Business Credit, a division of Southern Pacific
               Thrift & Loan Association ("Coast"), and Registrant.

10.51 (6)      Commercial Security Agreement dated April 1, 1998 between
               Registrant and Oki Electric Industry Co., Ltd.

10.52 (6)      Wafer Purchase Agreement dated March 23, 1998 between Registrant
               and Trio-Tech International PTE LTD with Variation Agreement
               dated April 16, 1998 between Registrant and Trio-Tech.





                                      -26-
<PAGE>   27
10.53 (6)*     Addendum dated May 29, 1998 to Employment Agreement dated October
               14, 1995 between Radu Vanco and Registrant.

10.54 (6)*     Severance Agreement dated April 28, 1998 between Sorin Georgescu
               and Registrant.

10.55 (6)*     Severance Agreement dated April 28, 1998 between Gelu Voicu and
               Registrant.

10.57 (6)*     Severance Agreement dated April 28, 1998 between Marc H. Cremer
               and Registrant.

10.58 (6)*     Severance Agreement dated April 28, 1998 between Bassam Khoury
               and Registrant.

10.59 (6)*     Severance Agreement dated June 1, 1998 between Thomas E. Gay III
               and Registrant.

10.61 (6)      Common Stock Purchase Agreement dated as of May 26, 1998 between
               Registrant and Elex N. V. ("Elex") with Standstill Agreement
               dated as of May 26, 1998 between Registrant and Elex.

10.62 (6)      Letter Agreement dated August 6, 1998 between Coast and
               Registrant concerning default and forbearance under the Company's
               bank agreements.

10.63 (7)*     Agreement dated August 14, 1995 between Registrant and Lionel M.
               Allan.

10.64 (8)      Common Stock Purchase Agreement dated as of September 14, 1998
               between Registrant and Elex N.V. with Standstill Agreement dated
               as of September 14, 1998 between Registrant and Elex, N.V.

10.65 (8)      Letter Agreement dated September 21, 1998 between Coast Business
               Credit and Registrant concerning forbearance under the Company's
               Bank Agreement.

10.67(12)*     Modification dated January 1, 1999 of Consulting Agreement dated
               August 14, 1995 between the Company and Allan Advisors, Inc.

10.68(13)      Amendment No. One to Loan and Security Agreement dated as of
               April 21, 1999 between Registrant and Coast Business Credit, a
               division of Southern Pacific Bank.

10.69(11)      1998 Special Equity Incentive Plan

10.70*         Employment Agreement dated August 18,1998 between Radu Vanco and
               Registrant

10.71*         Severance Agreement dated May 11, 1999 between Irv Kovalik and
               Registrant.

21.1 (1)       List of Subsidiaries of Registrant.

23.1           Consent of Independent Accountants.

24.1           Power of Attorney (reference is made to page 28 of this report on
               Form 10-K).

27.1           Financial Data Schedule.

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

 (1)  Incorporated by reference to Registrant's Registration Statement on Form
      S-1 filed with the Commission on May 11, 1993 (File No. 33-60132), as
      amended.
 (2)  Incorporated by reference to Registrant's Form 10-K filed for the year
      ended March 31, 1995.
 (3)  Incorporated by reference to Registrant's Form 10-Q filed for the quarter
      ended September 30, 1995.
 (4)  Incorporated by reference to Registrant's Form 10-K filed for the year
      ended April 30, 1996.
 (5)  Incorporated by reference to Exhibit 1 to Registrant's Form 8-A filed on
      January 22, 1997.
 (6)  Incorporated by reference to Registrant's Form 10-K filed for the year
      ended May 3, 1998.
 (7)  Incorporated by reference to Registrant's Form 10-K/A (Am. No. 1) filed
      for the year ended May 3, 1998.
 (8)  Incorporated by reference to Registrant's Form 10-Q filed for the quarter
      ended August 2, 1998.
 (9)  Incorporated by reference to Registrant's Form 10-Q filed for the quarter
      ended November 1, 1998.
(10)  Incorporated by reference to Registrant's Form 10-Q/A (Am. No. 1) filed
      for the quarter ended November 1, 1998.
(11)  Incorporated by reference to an Appendix to Registrant's Definitive Proxy
      Statement filed December 18, 1998.
(12)  Incorporated by reference to Registrant's Form 10-Q filed for the quarter
      ended January 21, 1999.
(13)  Incorporated by reference to Registrant's Form 8-K, Date of Report: April
      15, 1999.
  +   Confidential treatment has been granted as to a portion of this Exhibit.
      Such portion has been redacted and filed separately with the Securities
      and Exchange Commission.
  *   Constitutes a management contract or compensatory plan or arrangement
      required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.

         (b) REPORTS ON FORM 8-K

         Form 8-K - Date of Report (Date of Earliest Event Reported): April 15,
1999.




                                      -27-
<PAGE>   28

                                   SIGNATURES


         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized, in the City of Sunnyvale
and State of California, on August 2, 1999.


                         CATALYST SEMICONDUCTOR, INC.



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


                                POWER OF ATTORNEY

         KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Radu M. Vanco and Thomas E. Gay III, his
attorney-in-fact, with the power of substitution, for him in any and all
capacities, to sign any amendments to this Report on Form 10-K, and to file the
same, with exhibits thereto and other documents in connection therewith with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-fact, or his substitute or substitutes may do or cause to be
done by virtue hereof.

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

<TABLE>
<S>                               <C>
Date:   August 2, 1999           By:  /s/ Radu M. Vanco
     ----------------------          -----------------------------------------------------
                                           Radu M. Vanco
                                           President, Chief Executive Officer and Director
                                           (Principal Executive Officer)


Date:   August 2, 1999           By:  /s/ Thomas E. Gay III
     ----------------------          -----------------------------------------------------
                                           Thomas E. Gay III
                                           Vice President of Finance and Administration
                                              and Chief Financial Officer
                                           (Principal Financial and Accounting Officer)


Date:   August 2, 1999           By:  /s/ Lionel M. Allan
     ----------------------          -----------------------------------------------------
                                           Lionel M. Allan
                                           Director


Date:                            By:
     ----------------------          -----------------------------------------------------
                                           Hideyuki Tanigami
                                           Director


Date:   August 2, 1999           By:  /s/ Patrick Verderico
     ----------------------          -----------------------------------------------------
                                           Patrick Verderico
                                           Director
</TABLE>



















                                      -28-

<PAGE>   29









                          CATALYST SEMICONDUCTOR, INC.

                        CONSOLIDATED FINANCIAL STATEMENTS

                          AS OF APRIL 30, 1999 AND 1998


                                       AND


         FOR THE THREE FISCAL YEARS ENDED APRIL 30, 1999, 1998 AND 1997
                     WITH REPORT OF INDEPENDENT ACCOUNTANTS
























                                      F-1

<PAGE>   30


                          CATALYST SEMICONDUCTOR, INC.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



<TABLE>
<CAPTION>
                                                                                                  PAGES
                                                                                                  -----
<S>                                                                                                <C>
Report of Independent Accountants............................................................      F-3

Consolidated Balance Sheets as of April 30, 1999 and 1998....................................      F-4

Consolidated Statements of Operations for the years ended April 30, 1999, 1998 and 1997 .....      F-5

Consolidated Statements of Stockholders' Equity for the years ended April 30, 1999,
    1998 and 1997............................................................................      F-6

Consolidated Statements of Cash Flows for the years ended April 30, 1999, 1998 and 1997 .....      F-7

Notes to Consolidated Financial Statements...................................................      F-8 - F-19
</TABLE>



























                                      F-2

<PAGE>   31


                        REPORT OF INDEPENDENT ACCOUNTANTS



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


   In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity (deficit) and of
cash flows present fairly, in all material respects, the financial position of
Catalyst Semiconductor, Inc. and its subsidiary at April 30, 1999 and 1998, and
the results of their operations and their cash flows for each of the three years
in the period ended April 30, 1999, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.

   The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and has a net stockholders' deficit that raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.



PRICEWATERHOUSECOOPERS LLP


San Jose, California
June 24, 1999






















                                      F-3

<PAGE>   32

                          CATALYST SEMICONDUCTOR, INC.

                           CONSOLIDATED BALANCE SHEETS
                      (in thousands, except par value data)



<TABLE>
<CAPTION>
                                                                                   April 30,
                                                                           -----------------------
                                                                             1999           1998
                                                                           --------       --------
<S>                                                                        <C>            <C>
     ASSETS

Current assets:
   Cash .............................................................      $  1,852       $    534
   Restricted cash ..................................................            --          5,750
   Accounts receivable, net .........................................         5,119          5,139
   Inventories ......................................................         1,914          3,867
   Other assets .....................................................           742            815
                                                                           --------       --------
       Total current assets .........................................         9,627         16,105
Property and equipment, net .........................................         1,939          2,834
                                                                           --------       --------
                                                                           $ 11,566       $ 18,939
                                                                           ========       ========

   LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
   Line of credit ...................................................      $  2,942       $  3,225
   Accounts payable .................................................         5,770         13,263
   Accounts payable - related party .................................           275            137
   Accrued expenses .................................................         1,508          3,736
   Deferred gross profit on shipments to distributors ...............         1,061            475
   Current portion of long-term debt and capital lease obligations ..         1,141          1,471
                                                                           --------       --------
       Total current liabilities ....................................        12,697         22,307
Long-term debt and capital lease obligations ........................            81            501
                                                                           --------       --------
       Total liabilities ............................................        12,778         22,808
                                                                           --------       --------

Commitments and contingencies (Notes 4 and 9)

Stockholders' equity (deficit):
   Preferred stock, $.001 par value, 2,000 shares authorized;
      zero shares issued and outstanding ............................            --             --
   Common stock and paid-in-capital in excess of $.001 par value,
       45,000 shares authorized; 13,958 and 8,445 shares
       issued and outstanding .......................................        45,223         42,789
   Accumulated deficit ..............................................       (46,435)       (46,658)
                                                                           --------       --------
       Total stockholders' equity (deficit) .........................        (1,212)        (3,869)
                                                                           --------       --------
                                                                           $ 11,566       $ 18,939
                                                                           ========       ========
</TABLE>



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






                                      F-4
<PAGE>   33

                          CATALYST SEMICONDUCTOR, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (in thousands, except per share data)



<TABLE>
<CAPTION>
                                                          Year ended April 30,
                                                 --------------------------------------
                                                   1999           1998           1997
                                                 --------       --------       --------
<S>                                              <C>            <C>            <C>
Net revenues ..............................      $ 31,987       $ 34,579       $ 47,094

Cost of revenues ..........................        20,909         39,025         36,720
                                                 --------       --------       --------
Gross profit (loss) .......................        11,078         (4,446)        10,374

Research and development ..................         2,335          4,462          5,771
Selling, general and administrative .......         7,718          9,111          8,437
                                                 --------       --------       --------
Income (loss) from operations .............         1,025        (18,019)        (3,834)

Interest income (expense), net ............          (802)          (847)          (205)
                                                 --------       --------       --------
Net income (loss) .........................      $    223       $(18,866)      $ (4,039)
                                                 ========       ========       ========

Net income (loss) per share:
   Basic ..................................      $   0.02       $  (2.28)      $  (0.51)
                                                 ========       ========       ========

   Diluted ................................      $   0.02       $  (2.28)      $  (0.51)
                                                 ========       ========       ========

Weighted average common shares outstanding:
   Basic ..................................        12,189          8,263          7,918
                                                 ========       ========       ========

   Diluted ................................        13,678          8,263          7,918
                                                 ========       ========       ========
</TABLE>



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






                                      F-5
<PAGE>   34

                          CATALYST SEMICONDUCTOR, INC.

           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                                 (in thousands)



<TABLE>
<CAPTION>
                                                         COMMON STOCK
                                               ---------------------------------
                                                                      ADDITIONAL
                                                              PAR      PAID IN    ACCUMULATED
                                                SHARES       VALUE     CAPITAL      DEFICIT       TOTAL
                                               --------    --------   ----------  -----------   --------
<S>                                               <C>      <C>         <C>         <C>          <C>
Balance at April 30, 1996 .................       7,790    $      8    $ 41,255    $(23,753)    $ 17,510

Issuance of common stock for employee stock
  purchase plan ...........................          47          --         120          --          120
Exercise of stock options .................         152          --         400          --          400
Amortization of deferred
  compensation ............................          --          --          46          --           46
Net loss ..................................          --          --          --      (4,039)      (4,039)
                                               --------    --------    --------    --------     --------

Balance at April 30, 1997 .................       7,989           8      41,821     (27,792)      14,037

Issuance of common stock to an investor ...         259          --         675          --          675
Issuance of common stock for employee stock
  purchase plan ...........................          87          --          87          --           87
Exercise of stock options .................         110          --         198          --          198
Net loss ..................................          --          --          --     (18,866)     (18,866)
                                               --------    --------    --------    --------     --------

Balance at April 30, 1998 .................       8,445           8      42,781     (46,658)      (3,869)

Issuance of common stock to an investor ...       5,500           6       2,426          --        2,432
Issuance of common stock for employee stock
  purchase plan ...........................           3          --           1          --            1
Exercise of stock options .................          10          --           1          --            1
Net income ................................          --          --          --         223          223
                                               --------    --------    --------    --------     --------

Balance at April 30, 1999 .................      13,958    $     14    $ 45,209    $(46,435)    $ (1,212)
                                               ========    ========    ========    ========     ========

</TABLE>



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






                                      F-6
<PAGE>   35

                          CATALYST SEMICONDUCTOR, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)



<TABLE>
<CAPTION>
                                                                                Year ended April 30,
                                                                       --------------------------------------
                                                                         1999           1998           1997
                                                                       --------       --------       --------
<S>                                                                    <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income (loss) ...........................................       $    223       $(18,866)      $ (4,039)
   Adjustments to reconcile net income (loss)
     to net cash used in operating activities:
      Depreciation and amortization ............................          1,202          2,629          1,731
      Changes in assets and liabilities:
       Accounts receivable .....................................             20         2,348          3,396
       Inventories .............................................          1,953          8,538          3,461
       Other assets ............................................             73             80            451
       Accounts payable (including related party) ..............         (7,355)         3,133         (5,179)
       Accrued expenses ........................................         (2,228)         2,381           (863)
       Deferred gross profit on shipments to distributors ......            586             97           (731)
                                                                       --------       --------       --------
         Net cash provided by (used in) operating activities ...         (5,526)           340         (1,773)
                                                                       --------       --------       --------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Cash used for the acquisition of equipment ..................           (307)        (1,556)        (2,734)
   Proceeds from the disposal of equipment .....................             --             --            146
                                                                       --------       --------       --------
         Cash provided by (used in) investing activities .......           (307)        (1,556)        (2,588)
                                                                       --------       --------       --------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Common stock transactions, net ..............................          2,434            285            566
   Net proceeds from (payment of) line of credit ...............           (283)          (224)         3,319
   Payment of long-term debt and capital lease obligations .....           (750)          (506)          (633)
   Proceeds from long-term debt and capital lease obligations ..             --             --            838
   Change in restricted cash ...................................          5,750           (500)            --
                                                                       --------       --------       --------
         Cash provided by financing activities .................          7,151           (945)         4,090
                                                                       --------       --------       --------

Net increase (decrease) in cash and cash equivalents ...........          1,318         (2,161)          (271)
Cash at beginning of the period ................................            534          2,695          2,966
                                                                       --------       --------       --------

Cash at end of the period ......................................       $  1,852       $    534       $  2,695
                                                                       ========       ========       ========

Supplemental disclosures:
   Cash paid during the year for:
     Interest ..................................................       $    927       $  1,425       $    541
                                                                       ========       ========       ========
     Income taxes ..............................................       $      1       $     15       $     41
                                                                       ========       ========       ========
</TABLE>



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






                                      F-7
<PAGE>   36

                          CATALYST SEMICONDUCTOR, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

   OPERATIONS

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

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

      The Company's recent operating results have consumed substantial amounts
of cash. The reduction in cash has also placed restrictions on wafer purchases
which, during the fourth quarter of 1998 and first quarter of 1999, resulted in
the cancellation of some customer sales orders. In May 1998, the Company
received net proceeds of $1.5 million from the sale of 1,500,000 shares of its
Common Stock in a private placement. In September 1998, the Company received net
proceeds of $0.9 million from the sale of 4,000,000 shares of its Common Stock
in a second private placement with the same investor. Management believes,
however, that it will require additional cash from similar or related private
placements or other sources of liquidity to meet the Company's projected working
capital and other cash requirements for fiscal 2000 and beyond, and is currently
pursuing other sources of liquidity.

   BASIS OF PRESENTATION

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

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

   FOREIGN CURRENCY TRANSLATION

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






                                      F-8
<PAGE>   37

                          CATALYST SEMICONDUCTOR, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


   REVENUE RECOGNITION

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

   INVENTORIES

      Inventories are stated at the lower of cost, determined on the first-in,
first-out basis, or market.

   PROPERTY AND EQUIPMENT

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

   FAIR VALUE OF FINANCIAL INSTRUMENTS

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

   CONCENTRATION OF CREDIT RISK

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

      One customer accounted for 0%, 21% and 14% of revenues during the years
ended April 30, 1999, 1998 and 1997, respectively.

   DEPENDENCE ON WAFER SUPPLIERS

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






                                      F-9
<PAGE>   38


                          CATALYST SEMICONDUCTOR, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


   VENDOR SETTLEMENTS AND NEGOTIATIONS

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

      On June 26, 1998 Micro-Comp Industries filed a complaint against the
Company in Santa Clara County Superior Court. The complaint alleged that the
Company failed to pay for integrated circuits delivered to the Company by UMC
and sought $1.6 million in damages. The Company filed an answer and
cross-complaint in July 1998. In April 1999, the parties agreed to settle their
complaints. The settlement terms call for total payments of $0.8 million
consisting of an immediate payment of $0.4 million and eight monthly payments of
$50,000 each (an aggregate of an additional $0.4 million) with the final payment
to be made in December 1999. Successful and timely completion of all payments
due under the agreement will constitute satisfactory resolution of the complaint
and result in a reduction in the liability of $0.8 million.

   STOCK-BASED COMPENSATION

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

   NET INCOME (LOSS) PER SHARE

      Basic EPS is computed by dividing net income available to common
stockholders (numerator) by the weighted average number of common shares
outstanding (denominator) during the period. Diluted EPS gives effect to all
dilutive potential common shares outstanding during a period. In computing
diluted EPS, the average price for the period is used in determining the number
of shares assumed to be purchased from exercise of stock options.




















                                      F-10
<PAGE>   39

                          CATALYST SEMICONDUCTOR, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


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

<TABLE>
<CAPTION>
                                                  Year ended April 30,
                                          -------------------------------------
                                            1999          1998           1997
                                          --------      --------       --------
                                          (in thousands, except per share data)
<S>                                       <C>           <C>            <C>
Net income (loss) ..................      $    223      $(18,866)      $ (4,039)
                                          ========      ========       ========
Shares calculation:
Average shares outstanding--basic ..        12,189         8,263          7,918
Effect of dilutive securities:
      Stock options ................         1,489            --             --
                                          --------      --------       --------
Average shares outstanding--diluted         13,678         8,263          7,918
                                          ========      ========       ========

Net income (loss) per share--basic .      $   0.02      $  (2.28)      $  (0.51)
                                          ========      ========       ========

Net income (loss) per share--diluted      $   0.02      $  (2.28)      $(0.51)
                                          ========      ========       ========

</TABLE>

    Options to purchase 1,372,000 shares at prices ranging from $0.69 to $6.30
per share were outstanding during 1999 and were excluded from the computation of
diluted EPS because they were above the weighted average fair market value of
the Company's common stock as of April 30, 1999. Options to purchase 2,547,000
shares of common stock at prices ranging from $0.40 to $6.30 per share were
outstanding during 1998 and 2,466,000 shares of common stock at prices ranging
from $1.08 to $6.30 per share were outstanding during 1997, and were not
included in the computation of diluted EPS because the inclusion of such options
and shares would have been antidilutive.

   COMPREHENSIVE INCOME

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

   SEGMENT REPORTING

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











                                      F-11

<PAGE>   40

                          CATALYST SEMICONDUCTOR, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


RECENTLY ISSUED ACCOUNTING STANDARDS

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

RECLASSIFICATIONS

     Certain items previously reported in specific financial statement captions
have been reclassified to conform with the 1999 presentation.

NOTE 2 - BALANCE SHEET COMPONENTS (IN THOUSANDS):

<TABLE>
<CAPTION>
                                                                       April 30,
                                                                -----------------------
                                                                  1999           1998
                                                                --------       --------
     <S>                                                        <C>            <C>
     Accounts receivable:
        Accounts receivable ..............................      $  5,405       $  5,465
        Less:  Allowance for doubtful accounts ...........          (286)          (326)
                                                                --------       --------
                                                                $  5,119       $  5,139
                                                                ========       ========
     Inventories:
        Work-in-process ..................................      $  1,507       $  2,410
        Finished goods ...................................           407          1,457
                                                                --------       --------
                                                                $  1,914       $  3,867
                                                                ========       ========
     Property and equipment:
        Engineering and test equipment ...................      $  7,193       $  7,691
        Computer hardware and software ...................         3,485          3,470
        Furniture and office equipment ...................         1,281          1,275
                                                                --------       --------
                                                                  11,959         12,436
        Less: accumulated depreciation and amortization ..       (10,020)        (9,602)
                                                                --------       --------
                                                                $  1,939       $  2,834
                                                                ========       ========

     Accrued expenses:
        Accrued employee compensation ....................      $    467       $    692
        Accrued royalties ................................            --            962
        Other ............................................         1,041          2,082
                                                                --------       --------
                                                                $  1,508       $  3,736
                                                                ========       ========
</TABLE>








                                      F-12

<PAGE>   41

                          CATALYST SEMICONDUCTOR, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 3 - LINE OF CREDIT:

     Under the terms of a bank revolving line of credit in place at April 30,
1999, the Company could borrow the lesser of $5.0 million or an amount
determined by a formula applied to eligible accounts receivable. The line of
credit bears interest at a variable rate equal to the bank's prime lending rate
plus 4.5% (12.25% at April 30, 1999). The revolving line of credit expires on
June 30, 2001. Amounts borrowed on the line of credit are secured by accounts
receivable and inventory and subject to compliance with loan covenants.

     As of April 30, 1999, the Company had approximately $2.9 million of secured
loans owed to a bank. As of April 30, 1999, under the terms of its borrowing
agreement, the Company was eligible to borrow approximately $1.0 million
additional cash and had cash on hand of $1.9 million. For the period from
January 1998 through March 1999, as a result of the Company's financial
condition and results of operations, the bank had determined that the Company
was in default under various provisions of the loan agreement that would have
entitled the bank to terminate the loan agreement and declare the loans
immediately due and payable. During that period, the Company obtained letters of
forbearance from the bank taking any action with respect to the existing
conditions of default. In March 1999, the bank credit line automatically renewed
and in April 1999, various terms and conditions of the agreement were
renegotiated, reducing the borrowing limit from $13.5 million to $5.0 million,
reducing the interest rate and changing the covenant requiring a minimum net
worth to allow the Company to be in compliance at April 30, 1999.

     The Company is also indebted to other creditors in the amount of
approximately $6.0 million. This amount is comprised of approximately $5.0
million for wafers and inventory processing and approximately $1.0 million for
other goods and services.

     On February 15, 1997, a vendor loaned $1.2 million to the Company in
settlement of billings for assembly and test services totaling the same amount.
The loan bore interest at 18% and was originally due and payable on May 15,
1998. During fiscal 1999, the interest payments were kept current and the
principal was reduced by $0.4 million. The loan is classified under the current
portion of long-term debt at April 30, 1999. In May 1999, the note was paid in
full and a new note for $0.7 million was negotiated bearing interest at 12.25%
interest and monthly payments of $75,000.

NOTE 4 - LEASES:

     At April 30, 1999 and 1998, the net book value of assets recorded as
property and equipment under capital leases aggregated $0.3 million and $0.7
million, which is net of accumulated amortization of $0.5 million and $1.5
million, respectively. The amortization of assets recorded under capital leases
is included with depreciation and amortization expense.

     The Company leases its office facilities under operating leases. Total rent
expense under these leases was $558,000, $416,000 and $498,000 for fiscal 1999,
1998 and 1997, respectively.

     Although the Company is current on its lease payments under the lease of
its headquarters facility, as a result of its financial condition, the Company
is in violation of certain terms of its lease. Similar violations have resulted
under certain equipment lease agreements and the Company has obtained a letter
of forbearance from the principal equipment lessor agreeing to not take any
action on the existing condition of default through April 2000.






                                      F-13
<PAGE>   42

                          CATALYST SEMICONDUCTOR, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


      The aggregate future minimum lease payments, by fiscal year, under capital
and non-cancelable operating leases with initial terms of one year or more at
April 30, 1999 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                         Capital     Operating
                                                         Leases       Leases
                                                         ------      ---------
     <S>                                                 <C>          <C>
     2000 .........................................      $  223       $  413
     2001 .........................................         245          413
     2002 .........................................          43          424
     2003 .........................................          --          437
     2004 .........................................          --          450
     Thereafter ...................................          --        1,020
                                                         ------       ------
     Total minimum payments .......................         511       $3,157
                                                                      ======
     Less: amount representing interest ...........         (59)
                                                         ------
     Present value of future minimum lease payments         452
     Current portion of capital lease obligations .        (371)
                                                         ------
     Long-term portion of capital lease obligations      $   81
                                                         ======
</TABLE>

NOTE 5 - INCOME TAXES:

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

<TABLE>
<CAPTION>
                                                                April 30,
                                                        -----------------------
                                                          1999           1998
                                                        --------       --------
     <S>                                                <C>            <C>
     Deferred income and sales returns reserves ..      $    371       $    250
     Loss carryforwards ..........................        12,950         13,150
     Research and development credit carryforwards           959            959
     Non deductible reserves and accruals ........         1,175          1,482
     Other .......................................             0            500
                                                        --------       --------
       Total deferred tax assets .................        15,455         16,341
     Valuation allowance .........................       (15,455)       (16,341)
                                                        --------       --------
                                                        $     --       $     --
                                                        ========       ========
</TABLE>

     Tax loss carryforwards at April 30, 1999 are approximately $37.0 million
for federal purposes. These carryforwards begin to expire in fiscal 2007. The
research and development credits begin to expire in fiscal 2001. Availability of
the net operating loss and credit carryforwards may potentially be reduced in
the event of certain substantial changes in equity ownership.

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

<TABLE>
<CAPTION>
                                                      Year ended April 30,
                                                  ---------------------------
                                                   1999       1998       1997
                                                  -----      -----      -----
     <S>                                            <C>       <C>        <C>
     Statutory federal tax rate ..............       34%       (34)%      (34)%
     Tax benefits not currently recognized....      (34)        34         34
                                                  -----      -----      -----
           Effective tax rate ................       --%        --%        --%
                                                  =====      =====      =====
</TABLE>

     No provision is made for income taxes relating to potential future
distributions of accumulated earnings from the Company's foreign subsidiary,
which at April 30, 1999 were not significant, since it is the Company's
intention to reinvest substantially all of the undistributed earnings in its
foreign operations.






                                      F-14
<PAGE>   43

                          CATALYST SEMICONDUCTOR, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 6 - STOCK PLANS:

   STOCK OPTION PLANS

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

     During 1993, the Company adopted a Director Stock Option Plan (the
"Director Plan") which provides for the grant of nonstatutory stock options to
nonemployee directors. A total of 220,000 shares of Common Stock have been
reserved for issuance under the Director Plan. Options granted under the
Director Plan are for periods not to exceed five years. Option grants under the
Director Plan must be at prices equal to 100% of the fair market value of the
stock at the date of grant. Options vest over a period of three years. As of
April 30, 1999 a total of 193,000 options at exercise prices ranging from $0.40
to $6.00 per share, have been granted under the Director Plan, 90,000 of which
were exercisable.

     During fiscal 1993, the Company issued to certain employees stock options
at prices which gave rise to deferred compensation expense. In connection with
the issuance of these stock options, the Company recorded $316,000 as deferred
compensation and recognized $46,000 and $81,000 as compensation expense for
fiscal 1997 and 1996, respectively. The remaining $189,000 was recognized in
years prior to fiscal 1996.

     In December 1998, the Company adopted an additional stock option plan
entitled the Special Equity Incentive Plan ("Special Option Plan") for incentive
stock options and non-statutory stock options for certain directors, officers
and consultants of the Company. A total of 3.5 million shares of Common Stock
have been reserved for issuance under the Special Option Plan. Options granted
under the Special Option Plan are for periods not to exceed ten years. Options
generally vest over four year periods. During 1999, options totaling 3.3 million
shares were granted under the plan at a price of $0.125 per share when the
market was at $0.26 per share. As a result, an aggregate of $417,000 of
compensation expense will be recognized over the four year vesting period of the
options, $57,000 of which was recognized during the year ended April 30, 1999.

























                                      F-15

<PAGE>   44

                          CATALYST SEMICONDUCTOR, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


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

<TABLE>
<CAPTION>
                                           Options                        Weighted
                                          Available       Options         Avg Price
                                          for Grant     Outstanding       Per Share
                                          ---------     -----------       ---------
                                                      (in thousands)
<S>                                        <C>             <C>             <C>
Balance at April 30, 1996 ........           (436)          2,383          $ 3.80

Additional shares reserved .......            880              --
Granted ..........................         (2,205)          2,205          $ 2.74
Canceled .........................          1,970          (1,970)         $ 4.66
Exercised ........................             --            (152)         $ 2.06
                                           ------          ------
Balance at April 30, 1997 ........            209           2,466          $ 2.41

Granted ..........................         (2,995)          2,995          $ 1.15
Canceled .........................          2,804          (2,804)         $ 2.20
Exercised ........................             --            (110)         $ 1.82
                                           ------          ------
Balance at April 30, 1998 ........             18           2,547          $ 1.26

Additional shares reserved .......          5,300              --
Granted ..........................         (5,758)          5,758          $ 0.17
Canceled .........................          1,485          (1,485)         $ 1.02
Exercised ........................             --             (10)         $ 0.13
                                           ------          ------
Balance at April 30, 1999 ........          1,045           6,810          $ 0.56
                                           ------          ======
</TABLE>

     The Range of Exercise Prices table below summarizes information regarding
stock options outstanding at April 30, 1999.

<TABLE>
<CAPTION>
                                                        Range of Exercise Prices
                                   -------------------------------------------------------------------
                                   0.11-0.13    0.25-0.47    0.69-1.08  1.69-3.00  5.00-6.30     Total
                                   ---------    ---------    ---------  ---------  ---------     -----
<S>                                    <C>          <C>          <C>        <C>        <C>       <C>
Options Outstanding:
--------------------
Number outstanding ............        4,610        1,050          740        340         70     6,810
Weighted-average remaining
   contractual life (years) ...          9.4          9.0          3.2        1.4        1.8       8.2
Weighted-average exercise price        $0.12        $0.31        $1.05      $2.01      $5.36     $0.40

Options Exercisable:
--------------------
Number exercisable ............          918           27          725        333         70     2,073
Weighted-average exercise price        $0.13        $0.30        $1.05      $2.02      $5.36     $0.93
</TABLE>

     In January 1998, the Board of Directors offered employee holders of options
the opportunity to cancel such options and receive an equal amount of options
with an exercise price per share equal to the then current fair market value. As
a result, options to purchase approximately 1.8 million shares were canceled and
an equal number were granted at an exercise price of $1.0625.

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






                                      F-16
<PAGE>   45

                          CATALYST SEMICONDUCTOR, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


   OTHER STOCK PLANS

     The Board of Directors and Stockholders approved the Company's Employee
Stock Purchase Plan (the "Purchase Plan") in March 1993. A total of 250,000
shares of Common Stock have been reserved for issuance under the Purchase Plan.
Sales made through this plan will be at the lower of 85% of the market price at
the date of purchase or on the first day of each six-month offering period. The
Purchase Plan was suspended effective June 1998 due to the Company's delisting
from the NASDAQ stock market in August 1998. As of April 30, 1999, a total of
231,000 shares have been issued under the Purchase Plan.

   PRO FORMA STOCK COMPENSATION DISCLOSURE

     The fair value of each option granted under the Option Plan, the Director
Plan and the Special Option Plan is estimated on the date of grant using the
Black-Scholes option-valuation model with the following weighted-average
assumptions used for options granted in 1999, 1998 and 1997, respectively:
dividend yield of 0 percent for all years, expected volatility of 100, 79 and 80
percent, risk free interest rates of 4.54, 5.50 and 6.12, and expected lives of
3 years for non-officer/director employees and 4 years for officers and
directors for all years.

     The fair value of each share granted under the Purchase Plan is estimated
on the date of grant using the Black-Scholes option-valuation model with the
following weighted-average assumptions used for shares granted in 1999, 1998 and
1997, respectively: dividend yield of 0 percent for all years, expected
volatility of none, 79 and 86 percent, risk free interest rates of none, 5.36
and 5.32, and expected lives of 0.5 years for non-officer/director employees and
officers and directors for 1998 and 1997. The Purchase Plan was suspended
effective June 1998 due to the Company's delisting from the NASDAQ stock market
in August 1998. As a result of such suspension, no fair value for the Purchase
Plan was calculated under the Black-Scholes option-valuation model for fiscal
1999.

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

<TABLE>
<CAPTION>
                                                     Year ended April 30,
                                             ---------------------------------
                                               1999        1998          1997
                                             -------     --------      -------
   <S>                                       <C>         <C>           <C>
   Pro-forma net income (loss):              $   (31)    $(20,226)     $(5,750)

   Pro-forma net income (loss) per share:
        Basic:                               $(0.003)    $  (2.45)     $ (0.73)
        Diluted:                             $(0.003)    $  (2.45)     $ (0.73)
</TABLE>

     The above pro forma amounts include compensation expense based on the fair
value of options vesting during the years ended April 30, 1999, 1998 and 1997
and exclude the effects of options granted prior to May 1, 1995. Accordingly,
the above pro forma net income (loss) and net income (loss) per share are not
representative of the effects of computing stock option compensation expense
using the fair value method for future periods.

















                                      F-17

<PAGE>   46

                          CATALYST SEMICONDUCTOR, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 7 - SALE OF COMMON STOCK:

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

NOTE 8 - SEGMENT REPORTING:

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

      Revenues from export sales were as follows (in thousands):

<TABLE>
<CAPTION>
                                               Year ended  April 30,
                                       -----------------------------------
                                         1999          1998          1997
                                       -------       -------       -------
      <S>                              <C>           <C>           <C>
      Japan ....................       $ 2,773       $ 8,883       $ 9,321
      Other Far East ...........         5,605         8,122        10,771
      Europe ...................         6,116         5,263         9,501
                                       -------       -------       -------
         Total export sales ....       $14,494       $22,268       $29,593
                                       =======       =======       =======
</TABLE>

      The Company sold product to its former Japanese distributor who resigned
effective April 1998, which is also a stockholder. Revenue from this stockholder
represented $0.0 million, $7.2 million and $6.5 million or approximately 0%, 21%
and 14% of product sales for the years ended April 30, 1999, 1998 and 1997,
respectively. No other customer accounted for 10% or more of product sales.

      Sales and purchase transactions are denominated in U.S. dollars, except
for certain sales and purchases which were denominated in Japanese yen and which
were insignificant for the years ended April 30, 1999, 1998 and 1997.

NOTE 9 - LEGAL MATTERS AND OTHER CONTINGENCIES:

      In September 1997, the Company settled certain actions filed by Samsung
and another party against the Company. In connection with these settlements, the
Company paid $200,000 in cash and issued 259,000 shares of its common stock in
exchange for full settlement of certain accounts payable balances owed by the
Company.

      In April 1999, the Company agreed to settle a complaint filed against it
for $1.6 million by Micro-Comp for wafers delivered in 1998. The terms call for
an immediate payment of $0.4 million and eight monthly payments of $50,000 each
(an aggregate of $0.4 million) with the final payment to be made in December
1999. Successful and timely completion of all payments due under the agreement
will constitute satisfactory resolution of the complaint and result in a credit
of $0.8 million to the Company.









                                      F-18
<PAGE>   47

                          CATALYST SEMICONDUCTOR, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


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

NOTE 10 - RELATED PARTY TRANSACTIONS:

     The Company has an arrangement to obtain engineering services from Essex
com SRL ("Essex"), a wholly owned Romanian subsidiary of Lxi Corporation, a
California corporation ("Lxi"), a provider of engineering services. As of April
30, 1999, Essex employed approximately 12 engineers to perform the services on
behalf of Catalyst. The services relate to key development projects of the
Company including development, design, layout and test program development
services. Officers of the Company own approximately 95% of Lxi. The fees for
such engineering services are on terms believed by the Company to be fair to the
Company and no less favorable to the Company than arms length commercial terms.
During the fiscal years ended April 30, 1999 and April 30, 1998 the Company
recorded $437,000 and $413,000, respectively, of engineering fees to Essex and
Lxi for engineering design services. As of April 30, 1999 the total amount owed
to Essex and Lxi was $275,000. The officers received no payments during the
fiscal years ended April 30, 1999 and April 30, 1998, except one officer who
received $1,200 and $3,000 from Lxi during such respective periods. Such
payments to such officer were made for services rendered prior to his joining
the Company in connection with his duties as Treasurer of Lxi. Such officer
resigned such position immediately prior to joining the Company. Such officer
continues to serve as a director of Lxi.





























                                      F-19

<PAGE>   48
                                 EXHIBIT INDEX


 3.2 (11)      Restated Certificate of Incorporation of Registrant.

 3.4 (10)      Bylaws of Registrant.

 4.1  (5)      Preferred Shares Rights Agreement, dated as of December 3, 1996,
               between Catalyst Semiconductor, Inc. and First National Bank of
               Boston, including the Certificate of Designation of Rights,
               Preferences and Privileges of Series A Participating Preferred
               Stock, the Form of Rights Certificate and the Summary of Rights
               attached thereto as Exhibits A, B and C respectively.

 4.2  (6)      Amendment No. 1 to Preferred Shares Rights Agreement dated as of
               May 22, 1998 between Registrant and BankBoston, N. A., as rights
               agent.

 4.3  (9)      Amendment No. 2 to Preferred Shares Rights Agreement dated as of
               September 14, 1998 between Registrant and BankBoston, N. A., as
               rights agent.

10.3  (1)*     Stock Purchase Agreement dated March 31, 1992 between Kamlesh
               Kumari and Registrant, together with Promissory Note and
               Guarantee by B.K. Marya.

10.7 (11)*     Stock Option Plan.

10.8  (1)*     1993 Employee Stock Purchase Plan.

10.9     *     1993 Director Stock Option Plan.

10.12 (1)      Distributor Agreement dated February 1990 between Arrow
               Electronics, Inc. and Registrant.

10.14 (1)      Distributor Agreement dated June 30, 1986 between Registrant and
               Marubun Corporation.

10.15 (1)      Irrevocable License Agreement dated May 8, 1988 between Seiko
               Instruments, Inc. and Registrant.

10.16 (1)      64 KBIT CMOS EEPROM, 1M BIT CMOS EEPROM and 256 KBIT CMOS EEPROM
               Consulting and Design Work Agreement dated March 26, 1986 between
               OKI Electric Industry Co., Ltd. and the Registrant.

10.17 (1)      FLASH EEPROM Development and License Agreement dated July 18,
               1988 between OKI Electric Co., Ltd. and Registrant.

10.18 (1)      4M FLASH Development and License Agreement dated May 27, 1992
               between OKI Electric Co., Ltd. and Registrant.

10.27 (1)*     Form of Indemnification Agreement entered into by Registrant with
               each of its directors and executive officers.

10.34 (2)      Wafer Supply Agreement dated February 24, 1995 between OKI
               Electric Industry Co., Ltd. and the Registrant.

10.36 (3)+     License Agreement dated August 18, 1995 between Intel Corporation
               and Registrant.

10.38 (4)      Standard Industrial Lease dated March 22, 1996 between Marin
               County Employees Retirement Association and Registrant.

10.39 (4)+     Master Agreement dated February 7, 1996 between United
               Microelectronics Corporation and the Registrant.

10.41 (4)+     Amendment dated May 20, 1996 to the Wafer Supply Agreement dated
               February 24, 1994 between OKI Electric Industry Co., Ltd. and
               Registrant.

10.42 (4)*     Separation and Consulting Agreements dated August 14, 1995
               between B.K. Marya and Registrant.

10.46 (4)*     Employment Agreement dated October 14, 1995 between Radu Vanco
               and Registrant.

10.48 (4)*     Loan Forgiveness Agreement dated March 12, 1996 between Radu
               Vanco and Registrant.

10.49 (6)      Loan and Security Agreement dated June 19, 1997 between Coast
               Business Credit, a division of Southern Pacific Thrift & Loan
               Association ("Coast"), and Registrant.

10.50 (6)      Loan and Security Agreement (CEFO Facility) dated June 19, 1997
               between Coast Business Credit, a division of Southern Pacific
               Thrift & Loan Association ("Coast"), and Registrant.

10.51 (6)      Commercial Security Agreement dated April 1, 1998 between
               Registrant and Oki Electric Industry Co., Ltd.

10.52 (6)      Wafer Purchase Agreement dated March 23, 1998 between Registrant
               and Trio-Tech International PTE LTD with Variation Agreement
               dated April 16, 1998 between Registrant and Trio-Tech.
<PAGE>   49
10.53 (6)*     Addendum dated May 29, 1998 to Employment Agreement dated October
               14, 1995 between Radu Vanco and Registrant.

10.54 (6)*     Severance Agreement dated April 28, 1998 between Sorin Georgescu
               and Registrant.

10.55 (6)*     Severance Agreement dated April 28, 1998 between Gelu Voicu and
               Registrant.

10.57 (6)*     Severance Agreement dated April 28, 1998 between Marc H. Cremer
               and Registrant.

10.58 (6)*     Severance Agreement dated April 28, 1998 between Bassam Khoury
               and Registrant.

10.59 (6)*     Severance Agreement dated June 1, 1998 between Thomas E. Gay III
               and Registrant.

10.61 (6)      Common Stock Purchase Agreement dated as of May 26, 1998 between
               Registrant and Elex N. V. ("Elex") with Standstill Agreement
               dated as of May 26, 1998 between Registrant and Elex.

10.62 (6)      Letter Agreement dated August 6, 1998 between Coast and
               Registrant concerning default and forbearance under the Company's
               bank agreements.

10.63 (7)*     Agreement dated August 14, 1995 between Registrant and Lionel M.
               Allan.

10.64 (8)      Common Stock Purchase Agreement dated as of September 14, 1998
               between Registrant and Elex N.V. with Standstill Agreement dated
               as of September 14, 1998 between Registrant and Elex, N.V.

10.65 (8)      Letter Agreement dated September 21, 1998 between Coast Business
               Credit and Registrant concerning forbearance under the Company's
               Bank Agreement.

10.67(12)*     Modification dated January 1, 1999 of Consulting Agreement dated
               August 14, 1995 between the Company and Allan Advisors, Inc.

10.68(13)      Amendment No. One to Loan and Security Agreement dated as of
               April 21, 1999 between Registrant and Coast Business Credit, a
               division of Southern Pacific Bank.

10.69(11)      1998 Special Equity Incentive Plan

10.70    *     Employment Agreement dated August 18,1998 between Radu Vanco and
               Registrant

10.71    *     Severance Agreement dated May 11, 1999 between Irv Kovalik and
               Registrant.

21.1 (1)       List of Subsidiaries of Registrant.

23.1           Consent of Independent Accountants.

24.1           Power of Attorney (reference is made to page 28 of this report on
               Form 10-K).

27.1           Financial Data Schedule.

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

 (1)  Incorporated by reference to Registrant's Registration Statement on Form
      S-1 filed with the Commission on May 11, 1993 (File No. 33-60132), as
      amended.
 (2)  Incorporated by reference to Registrant's Form 10-K filed for the year
      ended March 31, 1995.
 (3)  Incorporated by reference to Registrant's Form 10-Q filed for the quarter
      ended September 30, 1995.
 (4)  Incorporated by reference to Registrant's Form 10-K filed for the year
      ended April 30, 1996.
 (5)  Incorporated by reference to Exhibit 1 to Registrant's Form 8-A filed on
      January 22, 1997.
 (6)  Incorporated by reference to Registrant's Form 10-K filed for the year
      ended May 3, 1998.
 (7)  Incorporated by reference to Registrant's Form 10-K/A (Am. No. 1) filed
      for the year ended May 3, 1998.
 (8)  Incorporated by reference to Registrant's Form 10-Q filed for the quarter
      ended August 2, 1998.
 (9)  Incorporated by reference to Registrant's Form 10-Q filed for the quarter
      ended November 1, 1998.
(10)  Incorporated by reference to Registrant's Form 10-Q/A (Am. No. 1) filed
      for the quarter ended November 1, 1998.
(11)  Incorporated by reference to an Appendix to Registrant's Definitive Proxy
      Statement filed December 18, 1998.
(12)  Incorporated by reference to Registrant's Form 10-Q filed for the quarter
      ended January 21, 1999.
(13)  Incorporated by reference to Registrant's Form 8-K, Date of Report: April
      15, 1999.
  +   Confidential treatment has been granted as to a portion of this Exhibit.
      Such portion has been redacted and filed separately with the Securities
      and Exchange Commission.
  *   Constitutes a management contract or compensatory plan or arrangement
      required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.