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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


|   |  |                                                                                             
|-- |  | --------------------------------------------------------------------------------------------
|þ  |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|  
|   |  | For the fiscal year ended May 2,
    2004                                                   
|  
|OR
|  
|o  |  | 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
    incorporation or organization) |  | (I.R.S. Employer
    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 þ          No o

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.     o

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

The aggregate market value of voting stock held
by non-affiliates of the registrant as of October 24, 2003,
the last day of the registrants most recently completed
second quarter, was $82.3 million based upon the last sales
price reported for such date on the Nasdaq National Market. For
purposes of disclosure, shares of common stock held by persons
who hold more than 5% of the outstanding shares of common stock
and shares held by executive officers and directors of the
registrant have been excluded in that such persons may be deemed
to be affiliates. This determination is not necessarily
conclusive.

The number of shares of Registrants Common
Stock outstanding as of June 15, 2004 was 16,431,705.



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CATALYST SEMICONDUCTOR, INC.

|                                               |  |                                                                                                                     |     |      |    | 
|---------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------- | --- | ---- | -- | 
|                                               |  |                                                                                                                     |     | Page
|                                               |  |                                                                                                                     |     |     
|PART I                                        
|Item 1.                                        |  | Business                                                                                                            |     |      | 1  | 
|Item 2.                                        |  | Properties                                                                                                          |     |      | 11 | 
|Item 3.                                        |  | Legal Proceedings                                                                                                   |     |      | 11 | 
|Item 4.                                        |  | Submission of Matters to a
    Vote of Security Holders                                                             |     |      | 11 | 
|PART II                                       
|Item 5.                                        |  | Market for Registrants
    Common Stock, Related Stockholder Matters and Issuer Purchases
    of Equity Securities |     |      | 12 | 
|Item 6.                                        |  | Selected Consolidated
    Financial Data                                                                            |     |      | 13 | 
|Item 7.                                        |  | Managements Discussion
    and Analysis of Financial Condition and Results of Operations                           |     |      | 14 | 
|Item 7A.                                       |  | Quantitative and Qualitative
    Disclosures about Market Risk                                                      |     |      | 34 | 
|Item 8.                                        |  | Financial Statements and
    Supplementary Data                                                                     |     |      | 34 | 
|Item 9.                                        |  | Changes in and Disagreements
    with Accountants on Accounting and Financial Disclosure                            |     |      | 35 | 
|Item 9A.                                       |  | Controls and Procedures                                                                                             |     |      | 35 | 
|PART III                                      
|Item 10.                                       |  | Directors and Executive
    Officers of the Registrant                                                              |     |      | 35 | 
|Item 11.                                       |  | Executive Compensation                                                                                              |     |      | 38 | 
|Item 12.                                       |  | Security Ownership of
    Certain Beneficial Owners and Management and Related Stockholder
    Matters              |     |      | 40 | 
|Item 13.                                       |  | Certain Relationships and
    Related Transactions                                                                  |     |      | 42 | 
|Item 14.                                       |  | Principal Auditors Fees and
    Services                                                                            |     |      | 43 | 
|PART IV                                       
|Item 15.                                       |  | Exhibits, Financial
    Statement Schedules and Reports on Form 8-K                                                 |     |      | 44 | 
|Signatures                                     |  |                                                                                                                     | 47  |     
|Index to Consolidated
    Financial Statements |  |                                                                                                                     | F-1 |     
|EXHIBIT 10.87                                 
|EXHIBIT 23.1                                  
|EXHIBIT 31.1                                  
|EXHIBIT 31.2                                  
|EXHIBIT 32                                    





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CATALYST SEMICONDUCTOR, INC.

EXPLANATORY NOTE

This report contains forward-looking
statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Words such as projected,
expects, believes, intends
and assumes and similar expressions are used to
identify forward-looking statements. These statements are made
based upon current expectations and projections about our
business and the semiconductor industry and assumptions made by
our management are not guarantees of future performance, nor do
we assume any obligation to update such forward-looking
statements after the date this report is filed. Our actual
results could differ materially from those projected in the
forward-looking statements for many reasons, including the risk
factors listed in Part II, Item 7
Managements Discussion & Analysis of
Financial Conditions and Results of Operations 
Certain Risks that May Affect Our Future Results and
elsewhere in, or incorporated by reference into, this
report.




PART I






|        |         
|------- | --------
|Item 1. | Business

Overview

We design, develop and market a broad line of
reprogrammable non-volatile memory products and analog and
mixed-signal products. Our products are used by manufacturers of
electronic products in a wide range of consumer, computing,
communications, industrial and automotive applications. We
target high volume markets for our cost effective, high quality
semiconductor products. We have been a committed long term
supplier of memory products even through periods of tight
manufacturing capacity and cyclical market downturns. We are
leveraging our extensive experience in high volume,
reprogrammable memory products to develop complementary analog
and mixed-signal products that offer our customers a more
complete system solution. We supply semiconductor products in
high volumes to our diverse customer base of more than 3,000
customers and shipped more than 100 million units in each
of the last three fiscal quarters.

We outsource the fabrication of our products to
third party foundries for a high quality, low cost and long term
supply of our products. We focus our internal efforts on product
design, testing and sales. In fiscal 2003, we strengthened and
expanded the expertise of our research and development team by
establishing our own development center in Bucharest, Romania
and by hiring additional engineers in Romania and in our
Sunnyvale, California headquarters. We continue to make
substantial investments in research and development to advance
our non-volatile memory products, as well as to broaden our
product line of analog and mixed-signal products.

We incorporated in California in October 1985. In
May 1993, we reincorporated in Delaware. Our principal executive
offices are located at 1250 Borregas Avenue, Sunnyvale,
California 94089, our telephone number is (408) 542-1000
and our website is www.catalyst-semiconductor.com. Information
contained on or accessible through our website does not
constitute a part of this report.

Our fiscal year ends on the Sunday closest to
April 30 of each year. We refer to the fiscal year ended
April 30, 2000 as fiscal 2000, the fiscal year ended
April 29, 2001 as fiscal 2001, the fiscal year ended
April 28, 2002 as fiscal 2002, the fiscal year ended
April 27, 2003 as fiscal 2003 and the fiscal year ended
May 2, 2004 as fiscal 2004. Fiscal 2005 will end on
May 1, 2005. For presentation purposes only, we refer in
this report to April 30 as the end of each fiscal year.

Industry Background

Semiconductor devices may be divided into three
broad categories: analog, digital and mixed-signal. Analog
products monitor and manipulate real world signals such as
sound, light, pressure, motion, temperature and electrical
current. Digital circuits, such as microprocessors, use
threshold voltages which function as on and off switches, which
are expressed in binary code as ones and zeros. The digital
components process and

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manipulate the data while the analog components
condition the inputs or signals. Mixed-signal devices
incorporate both analog and digital functions into a single
semiconductor device. In most cases, these mixed-signal devices
convert analog signals to digital signals or vice versa, or
these devices may be used to improve the performance of the
specific analog application. Non-volatile memory devices require
certain building blocks that have analog characteristics
included within them in order to perform their memory functions.


Non-Volatile
Memory Products

The principal distinguishing characteristic of
non-volatile memory is that it does not require a continuous
application of power to retain data while volatile memory, such
as dynamic random access memory, or DRAM, requires continuous
power. While non-volatile memory products are often considered
digital semiconductor devices, these non-volatile memory devices
incorporate certain high performance analog blocks. Electronic
systems primarily use non-volatile memory to store critical data
when the power to the system is turned off. Virtually all
electronic systems that use a digital processor or controller,
including personal computers, printers, cellular handsets,
digital cameras, optical networks, wireless local area networks,
digital set-top boxes and automotive systems, incorporate
non-volatile memory products such as electrically erasable
programmable read only memory, or EEPROM, and/or flash memory.
Many electronic systems utilize a combination of volatile and
non-volatile memory.

System manufacturers generally prefer
non-volatile memory devices that can be reprogrammed efficiently
in the system in order to achieve several important advantages
over non-volatile memory devices that are not reprogrammable or
which require physical removal for reprogramming. With
reprogrammable memory, manufacturers can cost effectively change
program codes in response to accelerated product cycles and
changing market specifications. Reprogrammable memory greatly
simplifies inventory management and manufacturing processes and
allows the manufacturer to reconfigure or update a system either
locally or remotely through a network connection. In addition,
consumers use non-volatile memory devices that can be programmed
and reprogrammed to store user selected system configurations in
consumer electronics devices, such as phone numbers in mobile
telephones. Major non-volatile memory classifications include
EEPROM and flash.

EEPROM provides significant programming
flexibility to system designers. This non-volatile memory can be
erased and reprogrammed electrically within the system hundreds
of thousands to millions of times and can be altered one byte or
several bytes at a time. In an EEPROM device, each cell, which
is 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. Serial EEPROM
transmits data through a single input, output port and parallel
EEPROM transmits data through multiple input output ports
concurrently. In March 2004, Gartner Dataquest estimated the
total market for EEPROM in 2003 was $686 million.

Flash provides significant programming
flexibility to system designers at higher density than EEPROM.
Although flash can be reprogrammed electrically within the
system, the number of reprogramming cycles is generally less
than EEPROM and only a memory block can be rewritten, not an
individual byte. In flash, a block consists of an array of
memory cells. Flash products can be manufactured with storage
densities, transfer rates and data alterability comparable to
DRAM and can achieve a relatively low manufacturing cost at
higher densities. For low density memory used in high volume
applications, flash is not cost effective relative to EEPROM.
Because of its limitations and cost at low densities, flash is
not used in certain system critical applications.

The EEPROM market is characterized by high unit
volumes sold at relatively low per unit prices. The EEPROM
market has a limited number of vendors. Each participant in the
EEPROM market has relatively weak pricing power because of
interchangeability of one vendors parts for
anothers. EEPROM prices are largely a function of the
demand for electronic devices in which they are incorporated,
available memory manufacturing capacity, product availability
and memory density. In light of these competitive dynamics, some
suppliers have exited the EEPROM market, leaving fewer
alternatives for original equipment manufacturer, or OEM,
customers. Manufacturers customarily use flash and EEPROM to
address different needs but often within the same electronic
system. Since most consumer and industrial electronic devices

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continue to use EEPROM either separately or in
conjunction with other memory, OEM customers want to develop
relationships with memory vendors who are likely to be long term
vendors of EEPROM and those vendors which are developing and
supplying a broad range of products.


Analog and
Mixed-Signal

The analog and mixed-signal market is generally
broken into two major product categories depending on how the
devices are used by system designers:



| |   |                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------
| |  | general purpose analog and mixed-signal products
    for standard designs; and                       
|
| |  | analog and mixed-signal application specific
    standard products, or ASSPs, for customized designs.

General purpose analog and mixed-signal products
that perform a given function usually are interchangeable with
standard components from another supplier. Similarly, in the
memory market, most non-volatile memory components are general
purpose or industry standard parts and are interchangeable with
parts from other suppliers.

General purpose analog and mixed-signal products
include power management products, which control and regulate
the amount of power delivered to an electronic system. Power
management products are critical to overall system performance
and cost. These products include direct current to direct
current, or DC to DC, converters, switching regulators, low drop
out voltage regulators and voltage references. Suppliers of
power management products are increasingly integrating discrete
power management components into multi-function devices to
reduce design time and lower system costs by consuming less
board space and power.

ASSPs are a superior solution for systems that
have special requirements, such as portability, size constraints
or functionality. The relationship between customer and supplier
tends to be more dynamic and intertwined in this market with
greater reliance on each other. On one hand, the customer has to
have enough trust in the supplier to take the risk of committing
its supply chain to a single vendor. On the other hand, the
supplier faces the risk of investing significant research and
development resources to design and develop a customized
solution with the uncertainty of the market acceptance of the
customers end product. Suppliers servicing the ASSPs
market typically have greater pricing power and receive higher
margins.

The analog and mixed-signal market is highly
fragmented into many segments with numerous vendors serving one
or more of the various segments. The general purpose analog and
mixed-signal semiconductor market is characterized by long
product cycles with a broad, diverse base of customers. As a
result, general purpose analog and mixed-signal product prices
tend to be more stable than those for non-volatile memory
products. In April 2004, Gartner Dataquest estimated that the
total general purpose analog and mixed-signal product market was
$10.6 billion in 2003.

Our Competitive Strengths

We have nearly two decades of experience in the
design, testing and sale of reprogrammable non-volatile memory
products, including EEPROM and low density flash. We believe we
have established a brand name that our OEM and distribution
customers associate with cost effective, high quality and high
value products supported by excellent customer service. These
strengths have helped us grow in the competitive non-volatile
memory market. On April 30, 2004, we completed our sixth
consecutive fiscal year of profitability. We intend to leverage
our OEM customer base and the design and operational expertise
developed in our non-volatile memory products to increase our
revenues from our non-volatile memory and analog and
mixed-signal product offerings.

We believe the following are our key competitive
strengths:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | High Quality Design.We have invested and intend to continue to invest substantial
    resources in research and development to improve our memory,
    analog and mixed-signal products. To complement our Sunnyvale,
    California engineering capabilities, in 2003, we established our
    own design and development center in Bucharest, Romania. We
    previously used contract personnel in Romania but now have an
    integrated design organization. In addition, we have
    subsequently added engineers in both Romania and

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | California. Through the development of our EEPROM
    products, we also routinely design and develop high performance
    analog and mixed-signal functions for use in our non-volatile
    memory products. As a result, our design personnel have
    extensive experience in designing high performance analog
    blocks, which we believe will enable us to expand our focus to
    the complementary analog and mixed-signal product market.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | Expertise in High Volume, Low Cost
    Manufacturing.The markets for our
    non-volatile memory products are characterized by high unit
    volumes sold at competitive prices. To reduce cost, we are
    developing successive generations of our memory products scaled
    to smaller process geometries, such as our current efforts to
    transition a portion of our products to 0.50 micron and 0.35
    micron, which is intended to result in reduced die sizes and
    lower cost per unit. We conduct a portion of our sort operations
    in our Sunnyvale, California headquarters and take other steps
    to maintain and improve the quality of our products. These
    efforts have improved the yield on our products. We use third
    party contractors for a majority of our manufacturing,
    packaging, testing and shipping activities in order to control
    our costs and to be able to respond quickly to customer requests.
|
| | Long Term, Established Foundry
    Relationships.We have worked with our
    primary foundry partner, Oki Electronic Industry Co., Ltd., or
    Oki, for more than 19 years. This long standing foundry
    relationship has enabled us to optimize our designs for
    Okis high volume and high yield processes. To reduce our
    reliance on a single wafer foundry, we also developed our
    processes so that different fabrications facilities could easily
    replicate them. In 2000, we also began volume shipments of our
    products from X-FAB Texas, Inc., or X-FAB, which currently
    produces our analog and mixed-signal products and acts as a
    second fabrication facility for some of our non-volatile memory
    products.                                                                                                                                                                                                    
|
| | Comprehensive EEPROM Product
    Line.We believe that we offer one of
    the most comprehensive lines of serial and parallel EEPROM
    products in the industry. Our EEPROM products support industry
    requirements and are available in a broad selection of densities
    and voltages. Our EEPROM product line includes a wide array of
    performance characteristics which electronic system
    manufacturers need, such as interfaces, memory densities,
    voltages and bus speeds.                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | Diverse End Markets and
    Applications.Through direct and
    indirect sales channels, we sell our products in a variety of
    end markets, including consumer, computing, communications,
    industrial and automotive. Our solutions are used in a broad
    array of applications within each of these markets, such as
    automotive systems, cordless telephones, digital cameras,
    digital video players, digital set-top boxes, mobile phones,
    optical networks, personal computers and wireless local area
    networks. Due to the diversity of our markets and applications,
    we are not dependent on any individual industry or end user
    product. In addition, we believe we have the opportunity to take
    advantage of the markets and growth in any of the industries we
    serve.                                                                                                                                      
|
| | Strong Customer
    Base.We are one of the largest
    suppliers of EEPROM in the world and we have relationships with
    many customers including large OEMs, through direct sales and
    distributors. During fiscal 2004, we served more than 3,000
    customers. Through our collaborations with OEM customers in an
    interactive product design and development process, we have
    established durable relationships, solidified our customer base
    and defined the next generation of our products. Consequently,
    we believe that we are well positioned to continue to sell our
    existing and future analog and mixed-signal products to these
    customers, which could use many of these products in conjunction
    with our memory products.                                                                                                                                                                                  

Our Strategy

We intend to continue to provide our customers
with a reliable source of industry standard non-volatile memory
products. We also intend to further improve our non-volatile
memory products and become a systems knowledgeable partner to
our customers by providing a broad range of standard and custom
analog and mixed-signal products. Our strategy includes the
following:



| |                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Strengthen and Expand EEPROM Product
    Offerings.We intend to continue to
    develop high performance EEPROM products and reduce our costs by
    continuing to migrate to smaller process

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | geometries. We intend to continue to increase the
    breadth of our non-volatile memory offerings and continue to
    provide high quality, competitively priced products with higher
    data transfer speeds and a broad range of densities and
    voltages. As a result, we intend to strengthen our position in
    the EEPROM market.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| | Broaden Standard Analog and Mixed-signal
    Product Offerings.We have developed a
    range of industry standard analog and mixed-signal products that
    serve high volume markets. Leveraging our large OEM customer
    base and efficient, low cost manufacturing process, we intend to
    become a reliable, high volume, cost effective supplier of
    standard analog and mixed-signal products to existing and new
    OEM customers. We intend to continue to introduce additional
    industry standard analog and mixed-signal products to increase
    net revenues, address new applications and increase our
    portfolio of analog building blocks for internal reuse in other
    products, such as application specific analog and mixed-signal
    products. We reuse proven design blocks, which enables us to
    reduce the design and manufacturing risks associated with new
    products and assists us in reducing development times and in
    achieving higher reliability and manufacturing yields.                                                                                                                                                                                         
|
| | Expand Proprietary Analog and Mixed-signal
    Product Offerings.We have introduced
    a range of proprietary analog products, which often integrate
    analog elements with reprogrammable non-volatile memory, such as
    digital potentiometer products, or DPPs, and processor
    supervisors. We intend to continue to introduce additional
    embedded memory products and to leverage our non-volatile memory
    and analog design expertise. We intend to continue to have these
    products built for us by our foundry partners using our
    proprietary process technology, which supports both analog and
    non-volatile memory elements in a single manufacturing process
    technology. Some of our non-volatile memory customers, who
    include industry leading OEMs, are also beginning to purchase
    our standard analog products. We are now working with selected
    customers to develop more highly integrated, high value added
    products customized for specific applications. We are targeting
    selected applications in large segments, such as solid state
    illumination, which is lighting for displays, consumer
    electronic devices, automotive and other purposes.

We intend to implement our strategies by:



| |   |                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | leveraging our design portfolio and ongoing
    research and development activities;                                                                             
|
| |  | expanding engineering resources in low cost
    areas, such as our Bucharest, Romania design center;                                                             
|
| |  | expanding our design portfolio and making
    selective acquisitions of complementary companies or
    technologies;                                             
|
| |  | using third party foundries to provide wafer
    fabrication for our products;                                                                                   
|
| |  | developing our processes in a manner that permits
    the manufacture of our products in the fabrication facilities of
    different semiconductor foundries; and
|
| |  | taking advantage of the flexible capacity and
    lower fixed costs of the outsourced manufacturing model.                                                       

Products

We use our expertise in non-volatile memory to
develop a broad range of EEPROM products and selected flash
products. In addition, we are expanding our focus to include
analog and mixed-signal products.

Parallel and
Serial EEPROM

We offer a broad range of serial EEPROM products
compatible with the three popular industry standard bus
interface protocols: the inter-integrated circuit, or
I2C, bus interface of Philips Electronics, the
microwire interface protocol of National Semiconductor and the
serial peripheral interface, or SPI, bus protocol of Motorola.
Additionally, we offer four wire bus interface protocol type
products, primarily for Japanese customers. We offer products in
a wide variety of density from 1 kilobit, or Kbit, to 256 Kbit,
and voltage ranges from 1.8 volts to 6.0 volts. Serial EEPROM
products are used in many applications to store user

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reconfigurable data. Some of the more common
applications are digital cameras, disk drives, digital video and
compact disc players, cordless phones, laser printers, memory
modules for computers, mobile phones, remote controls and
various automotive applications.


We offer both standard 5.0 volt and 3.3 volt
parallel EEPROM, the latter of which meets battery operated
application requirements. We offer products with a broad range
of densities, such as 16 Kbit to 512 Kbit densities. Parallel
EEPROM provides faster transfer rates than serial EEPROM, which
transfers data through a single port. Because of the higher
number of drivers and packaging, parallel EEPROM is larger and
more costly to manufacture than serial EEPROM and, accordingly,
is used primarily in high performance applications. Parallel
EEPROM is primarily used in applications such as point of sale
terminals, industrial controllers, local area network adapters
and telecommunication switches.

Flash
Memory

We currently offer flash memory in a small number
of densities. We offer Intel licensed flash memory devices in
densities ranging from 512 Kbit to 2 megabit, or Mb. This family
includes Intel licensed boot block and bulk erase technologies
available in 1 Mb and 2 Mb densities.

Analog and
Mixed-Signal

Although we have not received a substantial
portion of our net revenues to date from analog and mixed-signal
products, we have undertaken development programs and we are now
beginning to release standard and ASSP products to the market.
We believe that there is a substantial market opportunity for
analog and mixed-signal products and have begun to leverage our
design, development and sales skills to accomplish these
objectives. Because applications for non-volatile memory
incorporate microcontrollers or microprocessors, we have been
developing products which would interface with the controllers
in various applications such as power management, systems
supervision and interface support.

Supervisory Products with
EEPROM.We have introduced a family of
microcontroller supervisory products, which combine serial
EEPROM with the reset and watchdog functions required by many
microcontrollers to ensure safe sustained operation and allow
systems to recover more efficiently from power disruptions.
These products integrate two functions in the same semiconductor
to provide savings in printed circuit board space and component
costs. Our initial products are designed for use by the
automotive industry and for power metering functions. Currently,
we offer 2 Kbit, 16 Kbit and 64 Kbit of EEPROM with embedded
supervisory functions. Other memory products of other densities
are under development. We believe that we are one of the few
analog semiconductor companies with floating gate EEPROM
technology, which is the basis of this family of products.

Supervisory Products without
Memory.We have also introduced a
family of multi-industry supervisory products without EEPROM
memory, based on our patent pending floating gate technology,
which replaces bandgap technology, allows low standby power and
provides electronic system designers with the ability to program
the critical threshold voltage after packaging, which reduces
our inventory costs while providing higher precision to the OEM
customer more cost effectively.

Digitally Programmable Potentiometers
(DPP).We have introduced a number of
solid state DPP products, which replace mechanical
potentiometers used to fine tune and trim electronic circuitry
in a variety of applications. DPP products are built using the
same processes as our EEPROM products. We have released 35 DPP
products to the market thus far. Our DPP products have been
included in digital cameras and optical transceivers.

White LED Drivers.We have introduced several products intended to drive the white
light emitting diodes, or LED, drivers used as backlights in
color liquid crystal display, or LCD, screens in cell phones,
digital cameras, MP3 music players, personal digital assistants,
industrial instrumentation and home appliances. Color displays
require more specialized LED drivers than monochrome displays.
Our products tightly regulate the current to the LEDs to ensure
the uniform brightness and color purity necessary for the
clarity in viewing the color displays.

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DC to DC Converters.Converting one current voltage to another within an electronic
system is a common requirement, particularly in battery powered
applications where the power available from the batteries will
decline over time and use. Our designs allow smooth operation of
a system throughout the battery life. Our first generation of DC
to DC converters are pin compatible with industry standard
circuits.

I2C Interface Input/ Output
Expanders.As consumers demand greater
functionality in consumer electronics products, such as cell
phones, the input/output demands of those applications exceed
those which can be economically incorporated into
microcontrollers. Our Input/ Output Expanders support adding
eight or 16 input/output ports to those of the microcontroller
to use less circuit board space and at low cost. We also make
LED dimmers which offload control of LED lighting from the
microcontroller. These dimmers control up to 16 LEDs.

All of the products described above are, or are
expected to be, available in environmentally friendly packages.

Customers and Markets

The following is a representative list by
industry of our end customers:

|                   |  |                       |  |                                                         
|------------------ |  | --------------------- |  | --------------------------------------------------------
|Industry           |  | Customer              |  | Application                                             
|                   |  |                       |  |                                                         
|Automotive         |  | Denso                 |  | powertrain control systems                              
|Computing          |  | Asustech              |  | desktop computers; motherboards                         
|                   |  | Hewlett-Packard       |  | printers                                                
|                   |  | Infineon Technologies |  | dual in-line memory modules, or DIMMs                   
|                   |  | Samsung               |  | DIMMs                                                   
|Consumer           |  | LG Electronics        |  | LCD monitors; digital video and compact disc
    players
|                   |  | Lite-on               |  | digital video and compact disc players                  
|Telecommunications |  | CCT                   |  | cordless telephones                                     
|                   |  | VTech                 |  | cordless telephones                                     

Sales and Marketing

The majority of our customers order our products
through our manufacturers representatives, distributors
and resellers. These manufacturers representatives,
distributors and resellers also create demand for our products,
generally focusing on OEM customers who are not directly served
by our internal sales managers. For example, our distributors
sell to OEM customers or those OEMs contract manufacturers.

As of April 30, 2004, we employed 24 people
in our sales organization. In addition to our Sunnyvale,
California headquarters facility, we have sales operations in
Southern California, Illinois, California, China, England,
Germany, Japan, South Korea and Taiwan. Our sales offices
support both OEMs and manufacturers representatives,
distributors and resellers. In addition, our Japanese operation
works closely with Oki, one of our foundries, OEM customers and
their contract manufacturers, as well as our Japanese
manufacturers representatives, distributors and resellers.

Currently, we have eight distributors and one
reseller in North and South America and a network of more than
28 distributors and seven resellers throughout Asia, Europe and
Africa to support our international business. These firms work
with our regional sales managers in discovering new
opportunities, providing technical support and other value-added
services.

We often seek to develop strategic relationships
with major OEMs and other customers by providing a high level of
customer support and rapid problem solving. Our product
knowledge includes a broad range of non-volatile memory and
analog and mixed-signal technology compatible with the common
industry

7



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##### Table of Contents



standards. We also seek to work closely with our
customers to provide solutions to address an individual
customers needs.


Our marketing activities consist of several key
components:



| |   |                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------
| |  | targeted print advertising in trade, technical
    and business publications;                                
|
| |  | online advertising on our website;                                                                           
|
| |  | cooperative marketing programs with
    manufacturers representatives, distributors and other
    resellers;
|
| |  | participation in seminars and tradeshows; and                                                                
|
| |  | direct mailings to both prospective and existing
    customers.                                              

Research and Development

We have made and expect to continue to make
substantial investments in research and development and to
participate in the development of new and existing industry
standards. As of April 30, 2004, our research and
development staff consisted of 70 full time equivalent employees
working primarily in Sunnyvale, California and Bucharest,
Romania.

Our memory engineering group develops
non-volatile memory products. Our analog and mixed-signal
development group develops products with logic as well as analog
circuitry contents. In connection with the development of our
EEPROM products, we also routinely design and develop high
performance analog and mixed-signal functions used in our
non-volatile memory products. As a result, we have extensive
experience in designing high performance analog blocks. Our
technology development group develops advanced processes in
cooperation with our foundries and also supports the design
engineers with device modeling and characterization. Our
computer aided design engineering group supports the design
tools used by our design and layout engineers and converts the
design data into mask shop usable format. Our test engineering
group develops test programs for validating the electrical
performance of our products in wafer and packaged form.

Intellectual Property

We rely on a combination of patents, copyrights
and trade secrets to establish and protect our intellectual
property rights. As of April 30, 2004, we owned 18
U.S. patents and have nine pending applications for
additional U.S. patents. The expiration dates of our
patents range from January 2008 to September 2021. As a result
of the rapid changes in technology, the lives of these patents
will likely last longer than the economic lives of the
technologies they cover. We also have a number of trademarks.
There can be no assurance that our pending patent or trademark
applications will be allowed or that the issued or pending
patents will not be challenged or circumvented by competitors.
We also protect our numerous original mask sets under the
copyright laws.

We also own a substantial body of proprietary
techniques and trade secrets. We seek to protect our trade
secrets and proprietary technology, in part, through
confidentiality agreements with employees, consultants and other
parties. There can be no assurance that these agreements will
not be breached, that we will have adequate remedies for any
breach or that our trade secrets will not otherwise become known
to or independently developed by others. In addition, the laws
of some foreign countries do not offer protection of our
proprietary rights to the same extent as the laws of the United
States, which is an increasing concern as more of our production
is located in foreign countries.

We may become involved in patent or other
intellectual property disputes or actions. From time to time, we
receive letters alleging patent infringement or inviting us to
take a license to other parties patents. We evaluate these
letters on a case by case basis. Offers such as these may lead
to litigation if we reject the opportunity to obtain the license
or reject the other partys demands. Adverse determinations
in any litigation could subject us to significant liabilities to
third parties, require us to seek licenses from third parties
and prevent us from manufacturing and selling our products. Any
of these situations could have a material adverse effect on our
business.

8



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##### Table of Contents



Manufacturing

We have established close relationships with our
foundry partners for our wafer fabrication in an effort to
ensure stability in our supply of products and focus our
internal efforts on product design and sales. We currently
outsource our wafer fabrication to Oki and X-FAB. Our designs
are manufactured utilizing processes developed jointly by us and
Oki or X-FAB, as the case may be. Oki currently manufactures a
majority of our high volume production. X-FAB currently
manufactures our analog and mixed-signal products as well as
some of our EEPROM products. We endeavor to develop our
processes in a manner that permits the portability of our
manufacturing processes. We currently purchase wafer supplies on
a purchase order basis from Oki and X-FAB. We also have a die
bank of wafers in order to be able to respond to customer orders
quickly and to attempt to manage our exposure to changes in
manufacturing capacity and wafer costs.

We have wafer sorting operations at our
headquarters facility in Sunnyvale to control quality and
improve yields and we also utilize a subcontractor in Japan for
this purpose. We perform circuit assembly and testing primarily
through our subcontractors located in Southeast Asia. In the
assembly process, the wafers are separated into individual die,
which are then assembled into packages. The packaged devices are
further tested and inspected pursuant to our quality assurance
program prior to shipment to our customers. The majority of our
assembly and test services are provided in Bangkok, Thailand by
NS Electronic Bangkok, or NSEB, and Millennium Microtech Holding
Corporation; in the Philippines by Orient Semiconductor
Electronics, Inc., or OSEP, and in China by ChipPAC Limited. We
also subcontract certain production planning, product
engineering, shipping and tape and reel activities to Trio Tech
International, NSEB and OSEP.

Competition

The semiconductor industry is competitive and has
been characterized by price competition, manufacturing capacity
constraints and product availability constraints. We compete
with major domestic and international semiconductor companies,
many of which have substantially greater financial, technical,
marketing, distribution and other resources.

Our non-volatile memory products, such as EEPROM
devices, compete on the basis of product performance, price,
product availability and customer service. We believe that we
compete successfully with respect to each of these competitive
factors. Price competition is significant and is expected to
continue. We believe our principal competitors for our EEPROM
products currently include Atmel, STMicroelectronics and
Microchip Technology.

We manufacture low density flash memory products,
which represent a small subsegment of the flash memory market.
This subsegment has been characterized by reduced demand for low
density memory, which has resulted in lower product availability
and higher cost, due to the shift by most customers to the
larger flash memory sizes that we do not offer. Our key
competitors for low density or similar flash memory products
include Silicon Storage Technology and Integrated Silicon
Solution.

We currently compete in the analog and
mixed-signal products on the basis of price, product
performance, product availability and customer support. The
analog and mixed-signal industry is highly fragmented with
competition varying with the applicable segment and subsegments,
including: Maxim Integrated Products, Linear Technology,
Intersil, Fairchild Semiconductor, National Semiconductor and
Texas Instruments.

Employees

As of April 30, 2004, we had a total of 130
employees worldwide. Our employees are also supported in part by
our subcontracting of certain other operations and manufacturing
activities to approximately 102 contract employees located in
Thailand and the Philippines. Our future success will depend on
our ability to attract, train, retain and motivate highly
qualified employees. Our employees are not represented by any
collective bargaining organization or labor unions. We have
never experienced any work stoppage and we believe that our
employee relations are favorable.

9



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Executive Officers

Set forth below is certain information as of
April 30, 2004, regarding each of our executive officers:

|                  |  |     |    |                      |  |                                                                             
|----------------- |  | --- | -- | -------------------- |  | ----------------------------------------------------------------------------
|Name              |  | Age |    | Principal Occupation
|                  |  |     |    |                     
|Gelu Voicu        |  |     | 54 |                      |  | President, Chief Executive Officer and Director                             
|Thomas E. Gay III |  |     | 55 |                      |  | Vice President of Finance and Administration and
    Chief Financial Officer
|Sorin Georgescu   |  |     | 52 |                      |  | Vice President of Technology Development                                    
|Irvin W. Kovalik  |  |     | 66 |                      |  | Vice President of Sales                                                     
|George Smarandoiu |  |     | 57 |                      |  | Vice President of Product Design                                            
|Barry H. Wiley    |  |     | 67 |                      |  | Vice President of Corporate Marketing                                       

Mr. Voicuhas
served as our president and chief executive officer and as a
director since October 2002. From August 2002 to October 2002,
he served as our executive vice president and chief operating
officer. From April 1998 to August 2002, he served as our vice
president of engineering and manufacturing. From July 1995 to
April 1998, Mr. Voicu was our director of flash product
lines. Mr. Voicu holds an M.S. in Electrical Engineering
from the Polytechnical Institute, Bucharest, Romania.

Mr. Gayhas
served as our vice president of finance and administration and
chief financial officer since May 1998. From August 1997 to May
1998, he was the controller of Wireless Access, Inc., a
communications device manufacturing company. From April 1993 to
May 1994, he was our controller and, from July 1994 to November
1996, he was a contract accountant for us. From July 1988 to
July 1992, Mr. Gay was controller of Sanmina Corporation, a
contract manufacturing company. Mr. Gay holds a B.S. in
Accounting from San Diego State University.

Mr. Georgescuhas served as our vice president of
technology development since October 2001. From October 1998 to
October 2001, he was director of process development at Tripath
Technology, Inc., a semiconductor manufacturer. From April 1998
to October 1998, he was our vice president of technology. From
October 1997 to April 1998, Mr. Georgescu was an
engineering manager at Sandisk Corporation, a semiconductor
manufacturer. From August 1994 to October 1997, he was our
director of process development. Mr. Georgescu holds an
M.S. in Electrical Engineering from the Polytechnical Institute,
Bucharest, Romania.

Mr. Kovalikhas
served as our vice president of sales since October 1998. From
January 1998 to October 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, Mr. Kovalik was director of strategic
sales for Sequel, Inc., a semiconductor company. From June 1992
to June 1995, he was our vice president of sales.
Mr. Kovalik holds a B.S. in Electrical Engineering for the
University of Illinois.

Dr. Smarandoiuhas served as our vice president of
design since December 2002. From 1992 to 2002, he served in a
variety of roles at Atmel Corporation, a semiconductor company,
most recently as director of mixed-mode product development.
Dr. Smarandoiu holds a Master of Engineering and Doctor of
Engineering from the University of California, Berkeley.

Mr. Wileyhas
served as our vice president of corporate marketing since
November 2000. From September 1999 to November 2000, he was our
vice president, programmable analog business unit. From July
1997 to September 1999, he was vice president marketing and
sales for IMP, Inc., a semiconductor manufacturer.
Mr. Wiley holds a B.A. in Physics from the University of
California, Berkeley, an M.B.A. from the Harvard School of
Business Administration and an M.A. in Physics from the
University of Southern California.

10



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##### Table of Contents



Website Postings

We make our annual report on Form 10-K,
quarterly reports on Form 10-Q and current reports on
Form 8-K, and amendments to such reports, available free of
charge through our website as soon as reasonably practicable
after we electronically file such material with, or furnish it
to, the United States Securities and Exchange Commission, at the
following address: www.catalyst-semiconductor.com. The
information in or that can be accessed through our website is
not part of this report.






|        |           
|------- | ----------
|Item 2. | Properties

Our principal administrative, sales, marketing,
research & development and sort facility is located in
a building of approximately 42,500 square feet in
Sunnyvale, California. The facility is leased through July 2006
with an option to renew. Our research and development facility
in Romania, consisting of 8,300 square feet, is leased
though December 2005. We also have office space in Illinois,
China, Japan, Korea and Taiwan. We believe that our existing
facilities are adequate to meet our current needs and that
additional or alternative space will be available in the future
on commercially reasonable terms.






|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

We are not party to any legal proceedings.






|        |                                                        
|------- | -------------------------------------------------------
|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 of the fiscal year ended
April 30, 2004.

11



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##### Table of Contents






PART II






|        |                                                                                                                    
|------- | -------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Stock,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities

Common Stock Market Prices and
Dividends

Our common stock is quoted on the Nasdaq National
Market under the symbol CATS. The following table
sets forth, for the periods indicated, the high and low sale
prices per share of our common stock as reported on the Nasdaq
National Market for the period from September 3, 2003 to
the present and on the Nasdaq SmallCap Market for the period
prior to September 3, 2003.

|                                     |                |             |   |      |  |  |   |      | 
|------------------------------------ | -------------- | ----------- | - | ---- |  |  | - | ---- | 
|                                     |                |            
|                                     |                | Price Range
|                                     |                |            
|                                     |                | High        |   | Low 
|                                     |                |             |   |     
|Fiscal year ended April 30,
    2003 |                |             |   |      |  |  |   |     
|                                     | First Quarter  |             | $ | 3.48 |  |  | $ | 2.32 | 
|                                     | Second Quarter |             |   | 2.77 |  |  |   | 1.95 | 
|                                     | Third Quarter  |             |   | 2.81 |  |  |   | 2.14 | 
|                                     | Fourth Quarter |             |   | 2.68 |  |  |   | 2.05 | 
|Fiscal year ended April 30,
    2004 |                |             |   |      |  |  |   |     
|                                     | First Quarter  |             | $ | 6.50 |  |  | $ | 2.51 | 
|                                     | Second Quarter |             |   | 7.99 |  |  |   | 4.60 | 
|                                     | Third Quarter  |             |   | 8.98 |  |  |   | 6.30 | 
|                                     | Fourth Quarter |             |   | 9.75 |  |  |   | 7.08 | 

On June 28, 2004, the reported last sale
price of our common stock on the Nasdaq National Market was
$6.75 per share. As of April 30, 2004, there were
approximately 147 holders of record of our common stock,
excluding those persons holding shares in street or nominee
name. The actual number of our stockholders is greater than this
number of holders of record.

Dividend Policy

We have never declared or paid any cash dividends
on our common stock or other securities. We currently expect to
retain future earnings for use in the operation and expansion of
our business and do not anticipate paying cash dividends in the
foreseeable future.

Purchases of Our Stock

The following table sets forth certain
information regarding purchases by us of shares of our common
stock during the fourth quarter of fiscal 2004.

|                                         |  |              |         |            |  |                     |      |                     |  |  |   |  |  |  |   | 
|---------------------------------------- |  | ------------ | ------- | ---------- |  | ------------------- | ---- | ------------------- |  |  | - |  |  |  | - | 
|                                         |  |              |         |            |  | Total Number of     |      | Maximum Number of  
|                                         |  |              |         |            |  | Shares Purchased as |      | Shares that may yet
|                                         |  | Total Number |         | Average    |  | Part of Publicly    |      | be Purchased       
|                                         |  | of Shares    |         | Price Paid |  | Announced Plans or  |      | Under the Plans    
|Period                                   |  | Purchased    |         | per Share  |  | Programs(1)         |      | or Programs        
|                                         |  |              |         |            |  |                     |      |                    
|February 2, 2004 - February 29,
    2004 |  |              |        |            |  |                     |     |                     |  |  |  |  |  |  |  | 
|March 1, 2004 - March 28, 2004           |  |              |        |            |  |                     |     |                     |  |  |  |  |  |  |  | 
|March 29, 2004 - April 30, 2004          |  |              | 600,000 | (2)        |  | $                   | 6.77 |                     |  |  |  |  |  |  |  | 
|                                         |  |              |         |            |  |                     |      |                     |  |  |   |  |  |  |   | 
|Total                                    |  |              | 600,000 |            |  | $                   | 6.77 |                     |  |  |  |  |  |  |  | 
|                                         |  |              |         |            |  |                     |      |                     |  |  |   |  |  |  |   | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In September 2001, our board of directors
    authorized a program for the open market purchase of up to an
    aggregate 1.5 million shares of our common stock, and in
    March 2003 increased the authorized limit to an aggregate of
    2 million shares. Our most recent purchases under this
    program were 74,000 shares in the first quarter of fiscal
    2004 and, to date, we have purchased an aggregate
    1,544,100 shares under the

12



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##### Table of Contents



| |                                                                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | program. A maximum of 455,900 shares may yet be
    repurchased under the program. See the section entitled
    Common Stock Repurchase Plan in Item 7 of this
    annual report for further information on this program.



|    |                                                                  
|--- | -----------------------------------------------------------------
|(2) | Represents shares purchased from Elex N.V. on
    April 22, 2004.






|        |                                         
|------- | ----------------------------------------
|Item 6. | Selected Consolidated Financial
    Data

The selected consolidated financial data set
forth below should be read together with Managements
Discussion and Analysis of Financial Condition and Results of
Operations and the consolidated financial statements and
notes thereto in this report. Historical results are not
necessarily indicative of results to be expected in the future.

|                                                |                        |                                       |        |        |  |      |        |        |  |      |        |        |  |   |        |        |  |   |        |        | 
|----------------------------------------------- | ---------------------- | ------------------------------------- | ------ | ------ |  | ---- | ------ | ------ |  | ---- | ------ | ------ |  | - | ------ | ------ |  | - | ------ | ------ | 
|                                                |                        |                                      
|                                                |                        | Years Ended April 30,                
|                                                |                        |                                      
|                                                |                        | 2004                                  |        | 2003   |  | 2002 |        | 2001   |  | 2000
|                                                |                        |                                       |        |        |  |      |        |        |  |     
|                                                |                        |                                      
|                                                |                        | (In thousands, except per share data)
|Consolidated Statements of Operations
    Data: |                        |                                       |        |        |  |      |        |        |  |      |        |        |  |   |        |        |  |   |        |       
|Net revenues                                    |                        | $                                     | 63,538 |        |  | $    | 48,221 |        |  | $    | 42,791 |        |  | $ | 98,015 |        |  | $ | 49,527 |       
|Cost of revenues                                |                        |                                       | 37,375 |        |  |      | 28,396 |        |  |      | 27,158 |        |  |   | 50,863 |        |  |   | 26,837 |       
|                                                |                        |                                       |        |        |  |      |        |        |  |      |        |        |  |   |        |        |  |   |        |       
|                                                | Gross profit           |                                       |        | 26,163 |  |      |        | 19,825 |  |      |        | 15,633 |  |   |        | 47,152 |  |   |        | 22,690 | 
|Research and development                        |                        |                                       | 7,130  |        |  |      | 5,223  |        |  |      | 4,380  |        |  |   | 4,543  |        |  |   | 2,846  |       
|Selling, general and administrative             |                        |                                       | 11,453 |        |  |      | 10,020 |        |  |      | 10,652 |        |  |   | 13,490 |        |  |   | 9,042  |       
|                                                |                        |                                       |        |        |  |      |        |        |  |      |        |        |  |   |        |        |  |   |        |       
|                                                | Income from operations |                                       |        | 7,580  |  |      |        | 4,582  |  |      |        | 601    |  |   |        | 29,119 |  |   |        | 10,802 | 
|Interest income (expense), net                  |                        |                                       | 379    |        |  |      | 382    |        |  |      | 663    |        |  |   | 793    |        |  |   | (492   | )     
|                                                |                        |                                       |        |        |  |      |        |        |  |      |        |        |  |   |        |        |  |   |        |       
|Income before income taxes                      |                        |                                       | 7,959  |        |  |      | 4,964  |        |  |      | 1,264  |        |  |   | 29,912 |        |  |   | 10,310 |       
|Income tax provision (benefit)                  |                        |                                       | (1,408 | )      |  |      | (1,354 | )      |  |      | 494    |        |  |   | 2,560  |        |  |   | 300    |       
|                                                |                        |                                       |        |        |  |      |        |        |  |      |        |        |  |   |        |        |  |   |        |       
|Net income(1)                                   |                        | $                                     | 9,367  |        |  | $    | 6,318  |        |  | $    | 770    |        |  | $ | 27,352 |        |  | $ | 10,010 |       
|                                                |                        |                                       |        |        |  |      |        |        |  |      |        |        |  |   |        |        |  |   |        |       
|Net income per share:                           |                        |                                       |        |        |  |      |        |        |  |      |        |        |  |   |        |        |  |   |        |       
|                                                | Basic                  |                                       | $      | 0.57   |  |      | $      | 0.38   |  |      | $      | 0.04   |  |   | $      | 1.63   |  |   | $      | 0.69   | 
|                                                |                        |                                       |        |        |  |      |        |        |  |      |        |        |  |   |        |        |  |   |        |       
|                                                | Diluted                |                                       | $      | 0.48   |  |      | $      | 0.34   |  |      | $      | 0.04   |  |   | $      | 1.36   |  |   | $      | 0.50   | 
|                                                |                        |                                       |        |        |  |      |        |        |  |      |        |        |  |   |        |        |  |   |        |       
|Weighted average common shares:                 |                        |                                       |        |        |  |      |        |        |  |      |        |        |  |   |        |        |  |   |        |       
|                                                | Basic                  |                                       |        | 16,567 |  |      |        | 16,721 |  |      |        | 17,829 |  |   |        | 16,744 |  |   |        | 14,552 | 
|                                                | Diluted                |                                       |        | 19,411 |  |      |        | 18,339 |  |      |        | 20,439 |  |   |        | 20,169 |  |   |        | 19,974 | 



---



|    |                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In fiscal 2004 and fiscal 2003, our net income
    was favorably impacted by $4.7 million and
    $1.9 million, respectively, due to the reversal of our tax
    valuation allowance.

|                                                              |  |                                       |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|------------------------------------------------------------- |  | ------------------------------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ |  |  | - | ------ | 
|                                                              |  |                                      
|                                                              |  | April 30,                            
|                                                              |  |                                      
|                                                              |  | 2004                                  |        | 2003 |  | 2002 |        | 2001 |  | 2000
|                                                              |  |                                       |        |      |  |      |        |      |  |     
|                                                              |  |                                      
|                                                              |  | (In thousands, except per share data)
|Consolidated Balance Sheet Data:                              |  |                                       |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|Cash, cash equivalents and short-term investments             |  | $                                     | 33,809 |      |  | $    | 27,906 |      |  | $    | 26,295 |  |  | $ | 30,534 |  |  | $ | 6,205  | 
|Total working capital                                         |  |                                       | 46,338 |      |  |      | 39,017 |      |  |      | 36,180 |  |  |   | 38,516 |  |  |   | 8,709  | 
|Total assets                                                  |  |                                       | 66,865 |      |  |      | 50,588 |      |  |      | 47,924 |  |  |   | 53,178 |  |  |   | 22,943 | 
|Total current liabilities                                     |  |                                       | 12,877 |      |  |      | 8,235  |      |  |      | 9,296  |  |  |   | 12,073 |  |  |   | 12,378 | 
|Total long-term liabilities and capital lease
    obligations |  |                                       |       |      |  |      |       |      |  |      | 3,262  |  |  |   | 1,992  |  |  |   | 64     | 
|Stockholders equity                                          |  |                                       | 53,988 |      |  |      | 42,353 |      |  |      | 35,366 |  |  |   | 39,113 |  |  |   | 10,501 | 

13



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|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

EXPLANATORY NOTE

The following discussion should be read
together with the consolidated financial statements and notes
thereto included in this annual report on Form 10-K.
Certain statements in this Managements Discussion
and Analysis of Financial Condition and Results of
Operations are forward-looking statements. These
forward-looking statements contained herein are based on current
expectations and involve various risks and uncertainties that
could cause actual results to differ materially from those
expressed in the forward-looking statements. See the risks and
uncertainties identified in Certain Risks that May Affect
Our Future Results below and in the documents filed by us
from time to time with the Securities and Exchange Commission.
We undertake no obligation to revise or update publicly any
forward-looking statements for any reason.

Overview

We design, develop and market a broad line of
reprogrammable non-volatile memory products and analog and
mixed-signal products. Our products are used by manufacturers of
electronic products in a wide range of consumer, computing,
communications, industrial and automotive applications. We
generally target high volume markets for our cost effective,
high quality products. We have been a committed long term
supplier of memory products even through periods of tight
manufacturing capacity and cyclical market downturns.

The market for our non-volatile memory is
competitive and market participants have relatively weak pricing
power. Although average selling prices of our non-volatile
memory products have declined over time, prices are sensitive to
conditions in our OEM customers target markets. For
example, the average selling prices for most of our EEPROM
products weakened initially but ultimately increased in fiscal
2004, whereas the market conditions improved and average selling
prices for our low density flash increased consistently during
the same period. In general, we expect the average selling
prices for a given memory product to decline in the future,
primarily due to market competition, product availability and
manufacturing capacity.

We are leveraging our extensive experience in
high-volume, reprogrammable memory products to develop
complementary analog and mixed-signal products that offer our
customers a more complete system solution. In fiscal 2003, we
strengthened and expanded the expertise of our research and
development team by establishing our own development center in
Bucharest, Romania and by hiring additional engineers in Romania
and in our Sunnyvale, California headquarters. We continue to
make substantial investments in research and development to
advance our non-volatile memory products, as well as develop a
broader solution with our line of analog and mixed-signal
products. Although analog and mixed-signal products comprised
2.9% of net revenues in the fourth quarter of fiscal 2004, we
expect net revenues from analog and mixed-signal products to
comprise a larger portion of our net revenues in the future.

Our business is less capital intensive than
traditional semiconductor companies since we outsource to third
parties the manufacturing, assembling and testing of our
products. We use Oki and X-FAB for foundry services and
primarily use NSEB for assembly and test services. We strive to
maintain long term relationships with our suppliers to ensure
stability in our supply of products at a low cost. In addition,
in an effort to alleviate any potential wafer capacity
constraints, we maintain a supply of wafers in a die bank for
selected high volume products.

We market and sell our products directly through
our sales force and indirectly through manufacturers
representatives, distributors and resellers. Indirect sales were
a majority of our total sales in fiscal 2004 and in fiscal 2003.
Our OEM customer base, including end customers of our
manufacturers representatives, distributors and resellers,
is relatively diverse and during fiscal 2004 consisted of more
than 3,000 customers. We have approximately 40
manufacturers representatives, distributors and resellers
but the only party that accounted for more than 10% of our net
revenues in fiscal 2004 was ALR Company Limited, a Chinese
reseller, which comprised of approximately 11% of our net
revenues.

Our sales are generated by purchase orders and
are typically shipped within a few weeks of receiving the order.
Since industry practice allows customers to reschedule or cancel
orders on relatively short notice, we do

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not use backlog to forecast our future net
revenues. Cancellations of customer orders or distributor price
protection and stock rotation rights, both industry standards,
could result in the loss of future net revenues without allowing
us sufficient time to reduce our inventory and operating
expenses.


Sales to customers outside the United States
comprised the vast majority of our net revenues in recent
periods. This increasing non-United States growth in net
revenues was consistent with the current trend towards
outsourcing of the manufacturing process, particularly to
companies located in Asia. Substantially all sales of our
products are denominated in U.S. dollars, minimizing the
effects of currency fluctuations.

Description of Operating Accounts

Net Revenues.Net
revenues consist of product sales, net of returns and allowances.

Gross Profit.Gross
profit is net revenues less cost of revenues and is affected by
a number of factors, including competitive pricing, product mix,
foundry pricing and yields. Cost of revenues consists primarily
of costs of manufacturing, assembly and testing of our products
as well as compensation and associated costs related to
manufacturing support, logistics and quality assurance
personnel. It also can include, on occasion, adjustments to
inventory valuations based on demand and average selling prices
expected in future periods.

Research and
Development.Research and development
expense consists primarily of compensation and associated costs
for engineering, technical and support personnel, contract
engineering services, depreciation of equipment and cost of
wafers and mask sets used to evaluate new products and new
versions of current products.

Selling, General and
Administrative.Selling, general and
administrative expense consists primarily of compensation and
associated costs for sales, marketing and administrative
personnel, commissions, promotional activities, professional
fees and director and officer insurance.

Proposed Changes in Accounting for Stock-Based
Compensation

We may be required to expense stock options and
other share-based payments to employees and directors, which
would mean that we would record a significant charge to
earnings. On March 31, 2004, the FASB issued an exposure
draft No. 1102-100, Proposed Statement of
Financial Accounting Standards  Share-Based
Payment,effective for fiscal periods beginning after
December 15, 2004. This exposure draft outlines a
methodology for the accounting treatment of stock options and
certain other share-based payments. It requires these payments
to be recorded as an operating expense. It will supersede
SFAS 123, which allows for disclosure of this expense on a
pro forma basis in notes to consolidated financial statements.
This pro forma compensation expense was $2.8 million for
fiscal 2004. Adoption of this accounting standard will have a
material adverse impact on our consolidated financial
statements. We are currently evaluating our stock-based
compensation programs to determine what actions we may elect to
take to reduce this potential charge if this exposure draft is
enacted. If we elect not to issue stock options at the levels we
have in the past, we believe we will face a more difficult time
in attracting and retaining the talented employees. We believe
it is likely that any expenses resulting from the implementation
of the exposure draft would be included in the income statement
line item where the related salary cost for the applicable
employee or consultant is recorded, and that as a result, it may
be difficult for investors to conduct period to period
comparisons of our expenses if this exposure draft is adopted.

Critical Accounting Estimates

The preparation of our consolidated financial
statements and related disclosures in conformity with generally
accepted accounting principles in the United States requires us
to make estimates and judgments that affect the amounts reported
in our financial statements and accompanying notes. We evaluate
our estimates and judgments based on historical experience and
apply them on a consistent basis. We believe that such
consistent application results in financial statements and
accompanying notes that fairly represent our financial
condition, operating results and cash flows for all periods
presented. However, any factual errors or

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errors in these estimates and judgments may have
a material impact on our financial conditions, operating results
and cash flows.




| |                        
| | -----------------------
| | Recognition of Revenues

We generally recognize revenues as products are
shipped if all of the following criteria are met:



| |   |                                                                                      
| | - | -------------------------------------------------------------------------------------
| |  | we have evidence that an arrangement exists;                                         
|
| |  | we have delivered the products;                                                      
|
| |  | we have performed the services, if any;                                              
|
| |  | the sales price is fixed or determinable;                                            
|
| |  | we believe that collection of the resulting
    receivable is reasonably assured; and
|
| |  | we can reasonably estimate product returns.                                          

We sell products directly to OEM customers and
indirectly through manufacturers representatives,
distributors and resellers. We recognize revenues upon delivery
to OEM customers and manufacturers representatives,
distributors and resellers who have no, or limited, product
return rights and no price protection rights. We deem that
delivery occurs when legal title and the risk of loss transfers
to the customer. Delivery is generally defined by the
customers shipping terms, as stated in the related
purchase order. If the customers purchase orders do not
define the shipping terms, the shipping terms will be Ex-Works
as defined in our invoice. We record an estimated allowance for
returns from OEM customers and manufacturers
representatives, based on a percentage of our revenues. This
estimate is based on historical averages.

We sell to some of our distributors under
agreements which provide for product return and price protection
rights. These agreements generally permit the distributor to
return up to 10% by value of the total products that the
distributor has purchased from us in a specified six month
period. We defer recognition of revenues until the time the
distributor sells the product to the end customer, at which time
the sales price becomes fixed. On a monthly basis, we receive
point of sales information from each distributor. Using this
information, we determine the amount of revenues to recognize.
For distributors who have product return rights, we also record
an inventory reserve to address the cost of products we
anticipate that we will not be able to resell after their return
by the distributors. For distributors who have price protection
rights, distributors may take credits immediately and in
general, we process the credits one or two months after the
credit is taken by the distributor. We record a reserve to cover
the estimated liability of those unprocessed credits. We
re-evaluate our policies periodically and no less often than
annually.



| |                    
| | -------------------
| | Inventory Valuation

We value our inventory at the lower of standard
cost or net realizable value. Standard cost approximates actual
cost on a first-in, first-out basis. We routinely evaluate the
value and quantities of our inventory in light of the current
market conditions and market trends and we record reserves for
quantities in excess of demand, cost in excess of market value
and product age. Our analysis may take into consideration
historical usage, expected demand, anticipated sales price, new
product development schedules, the effect new products might
have on the sales of existing products, product age, customer
design activity, customer concentration and other factors. Our
forecasts for our inventory may differ from actual inventory use
and the time we have held finished goods in inventory. The lives
of our products are usually long and obsolescence has not been a
significant factor historically in the valuation of our
inventories.

We maintain inventory reserves for quantities in
excess of demand equal to the cost of inventory that exceeds
expected demand for approximately the next 12 months. If
market conditions are less favorable than those we estimate, we
may be required to write down inventory. If we overestimate the
future selling prices, we will incur additional losses when the
inventory is sold for a lower price or when we establish
additional reserves to cover the even lower estimated sales
price. Once established, we do not reverse inventory reserves
until the associated inventory has been sold or physically
scrapped.

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| |                                    
| | -----------------------------------
| | Allowance for Doubtful
    Accounts

We estimate the collectibility of our accounts
receivable at the end of each reporting period. We analyze the
aging of accounts receivable and the bad debt history, payment
history, customer concentration, customer credit worthiness and
current economic trends when evaluating the adequacy of the
allowance for doubtful accounts. We maintain an allowance for
doubtful accounts, which is created by charges to selling,
general and administrative expenses. Our accounts receivable
balance was $12.5 million, net of allowance for doubtful
accounts of $138,000, as of April 30, 2004.



| |             
| | ------------
| | Income Taxes

As part of the process of preparing our
consolidated financial statements we are required to estimate
our income taxes in each of the jurisdictions in which we
operate. This process involves estimating our current tax
exposure and assessing temporary differences resulting from
differing treatment of items, such as deferred revenues, for tax
and accounting purposes. These differences result in deferred
tax assets and liabilities, which are included on our balance
sheet on a net basis. We then assess the likelihood that our
deferred tax assets will be recovered from future taxable income
and to the extent we establish a valuation allowance or increase
this allowance in a period, we include an expense in the tax
provision in the statement of operations.

We make significant judgments in determining our
provision for income taxes, our deferred tax assets and any
valuation allowance recorded against our net deferred tax asset.
As of April 30, 2004, our gross deferred tax assets,
consisting primarily of net operating loss carryforwards, tax
credit carryforwards and nondeductible reserves and accruals,
were valued at $9.1 million and our valuation allowance was
zero.

In fiscal 2004, we concluded that all of our
deferred tax assets will be realizable, based on available
objective evidence and our recent history of net income before
taxes. Accordingly, we reversed the $8.6 million valuation
allowance that we had previously established. When the valuation
allowance was reversed, $4.7 million benefited net income,
while $3.9 million was credited to additional paid in
capital. The amount credited to additional paid in capital was
attributable to deferred tax assets associated with employee
stock options.

Results of Operations

The following table sets forth the percentage of
net revenues for certain items in our consolidated statements of
operations for the periods indicated::

|                           |                                     |                       |       |      |      |      |       |      |      |   |       |      |     |  
|-------------------------- | ----------------------------------- | --------------------- | ----- | ---- | ---- | ---- | ----- | ---- | ---- | - | ----- | ---- | --- | -
|                           |                                     |                      
|                           |                                     | Years Ended April 30,
|                           |                                     |                      
|                           |                                     | 2004                  |       | 2003 |      | 2002
|                           |                                     |                       |       |      |      |     
|Net revenues               |                                     |                       | 100.0 | %    |      |      | 100.0 | %    |      |   | 100.0 | %   
|                           |                                     |                       |       |      |      |      |       |      |      |   |       |     
|                           | Gross profit                        |                       |       | 41.2 |      |      |       | 41.1 |      |   |       | 36.5 |    
|Operating expenses:        |                                     |                       |       |      |      |      |       |      |      |   |       |     
|                           | Research and development            |                       |       | 11.2 |      |      |       | 10.8 |      |   |       | 10.2 |    
|                           | Selling, general and administrative |                       |       | 18.0 |      |      |       | 20.8 |      |   |       | 24.9 |    
|                           |                                     |                       |       |      |      |      |       |      |      |   |       |     
|Income from operations     |                                     |                       | 12.0  |      |      |      | 9.5   |      |      |   | 1.4   |     
|                           | Interest income, net                |                       |       | 0.5  |      |      |       | 0.8  |      |   |       | 1.5  |    
|                           |                                     |                       |       |      |      |      |       |      |      |   |       |     
|Income before income taxes |                                     |                       | 12.5  |      |      |      | 10.3  |      |      |   | 2.9   |     
|                           | Income tax provision (benefit)      |                       |       | (2.2 | )    |      |       | (2.8 | )    |   |       | 1.1  |    
|                           |                                     |                       |       |      |      |      |       |      |      |   |       |     
|                           |                                     | Net income            |       |      | 14.7 | %    |       |      | 13.1 | % |       |      | 1.8 | %
|                           |                                     |                       |       |      |      |      |       |      |      |   |       |     

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The following table sets forth net revenues (in
thousands) and percentage of net revenues by product group:

|                        |              |                       |        |        |  |      |      |       |   |   |        |        |  |  |      |       |   |   |        |        |  |  |      |       |  
|----------------------- | ------------ | --------------------- | ------ | ------ |  | ---- | ---- | ----- | - | - | ------ | ------ |  |  | ---- | ----- | - | - | ------ | ------ |  |  | ---- | ----- | -
|                        |              |                      
|                        |              | Years Ended April 30,
|                        |              |                      
|                        |              |                       |        |        |  |     
|                        |              | 2004                  |        | 2003   |  | 2002
|                        |              |                       |        |        |  |     
|                        |              |                       |        |        |  |      |      |       |   |   |        |       
|EEPROM                  |              | $                     | 56,239 |        |  |      | 88.5 | %     |   | $ | 41,690 |        |  |  | 86.5 | %     |   | $ | 35,456 |        |  |  | 82.9 | %    
|Flash                   |              |                       | 5,988  |        |  |      | 9.4  |       |   |   | 5,786  |        |  |  | 12.0 |       |   |   | 6,907  |        |  |  | 16.1 |      
|Analog and mixed-signal |              |                       | 1,311  |        |  |      | 2.1  |       |   |   | 745    |        |  |  | 1.5  |       |   |   | 428    |        |  |  | 1.0  |      
|                        |              |                       |        |        |  |      |      |       |   |   |        |        |  |  |      |       |   |   |        |        |  |  |      |      
|                        | Net revenues |                       | $      | 63,538 |  |      |      | 100.0 | % |   | $      | 48,221 |  |  |      | 100.0 | % |   | $      | 42,791 |  |  |      | 100.0 | %
|                        |              |                       |        |        |  |      |      |       |   |   |        |        |  |  |      |       |   |   |        |        |  |  |      |      



| |                                                                
| | ---------------------------------------------------------------
| | Comparison of the Fiscal Year Ended
    April 30, 2004 and 2003

Net Revenues.Our
net revenues increased $15.3 million, or 31.8%, to
$63.5 million for fiscal 2004 from $48.2 million for
fiscal 2003. The increase in net revenues was primarily due to
the increased sales volume and shift in product mix of our
EEPROM product line, for which net revenues increased
$14.5 million, primarily from the growth in our
inter-integrated circuit, or I2C, product line. Our
flash product revenues continued to decline as a percentage of
net revenues but increased slightly in absolute dollars in
fiscal 2004 as a result of increased average selling prices and
increased sales volume, especially in the last quarter of fiscal
2004 as we began selling to new OEM customers in Europe. Our
analog and mixed-signal product revenues increased as we
introduced more products to market and established product
traction with our existing OEM customer base.

Sales to customers outside the United States
represented approximately 88% of net revenues in fiscal 2004 as
compared to 80% of net revenues in fiscal 2003.

Gross Profit.Gross
profit increased $6.3 million, or 32.0%, to $26.2 for
fiscal 2004 from $19.8 million for fiscal 2003. Gross
margin, the result of gross profit divided by net revenues, was
41.2% for fiscal 2004 and 41.1% for fiscal 2003. The
$6.3 million improvement in gross profit in fiscal 2004 was
primarily due to higher sales volume, lower average costs and
greater benefit from net movements in inventory reserves. This
improvement was offset by lower average selling prices and a
$1.4 million charge relating to a one-time payment we made
to the Philips Corporation in settlement of disputed royalty
obligations under a license agreement. In fiscal 2004 and fiscal
2003, charges to inventory reserves were $853,000 and
$2.7 million, respectively. The sales of previously
reserved inventory reduced cost of revenues by $2.0 million
for fiscal 2004 and $3.1 million for fiscal 2003. The net
impact of movements in inventory reserves was an improvement in
gross profit of $1.1 million in fiscal 2004 and of $495,000
in fiscal 2003.

Research and
Development.Research and development
expense increased $1.9 million, or 36.5%, to
$7.1 million for fiscal 2004 from $5.2 million for
fiscal 2003. As a percentage of net revenues, research and
development expense was 11.2% in fiscal 2004 and 10.8% in fiscal
2003. The increase in research and development expense in fiscal
2004 was primarily attributable to an increase in personnel
related expenses, including an increase in headcount.
Additionally, there was a $312,000 increase in the depreciation
and amortization of software, equipment and mask sets, which
were purchased for development purposes. As of April 30,
2004, we employed 70 people in research and development
activities, compared to 55 employees as of April 30, 2003.

Selling, General and
Administrative.Selling, general and
administrative expense increased $1.4 million, or 14.3%, to
$11.5 million for fiscal 2004 from $10.0 million for
fiscal 2003. As a percentage of net revenues, selling, general
and administrative expense was 18.0% in fiscal 2004 and 20.8% in
fiscal 2003. The increase in absolute dollars was primarily
attributable to a $886,000 increase in sales and marketing
personnel related expenses, an increase in commissions paid to
outside representatives of $191,000 and an increase of $213,000
for freight expense on higher shipping volume.

Net Interest Income and
Expense.We earned net interest income
of $379,000 in fiscal 2004 compared to net interest income of
$382,000 in fiscal 2003. Our rate of return on our average
balance of cash, cash

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equivalents and short-term investments was
approximately 1.2% in fiscal 2004 and approximately 1.4% in
fiscal 2003.


Income Tax Provision
(Benefit).The effective income tax
rate was a benefit of 17.7% in fiscal 2004, as compared to a
benefit of 27.3% in fiscal 2003. The difference between our
fiscal 2004 and fiscal 2003 effective tax rates was primarily
attributable to the reversal of our valuation allowance recorded
against our net deferred tax asset.



| |                                                                
| | ---------------------------------------------------------------
| | Comparison of the Fiscal Year Ended
    April 30, 2003 and 2002

Net Revenues.Our
net revenues increased $5.4 million, or 12.7%, to
$48.2 million for fiscal 2003 from $42.8 million for
fiscal 2002. The increase in net revenues was primarily due to a
$6.2 million increase in net revenues for our EEPROM
products. This increase was offset by a decline in net revenues
for our flash products due to deteriorating market conditions
for the lower density flash products that we produce. Net
revenues from our analog and mixed-signal products increased as
we began to offer a greater number of products for sale.

Sales outside the United States represented
approximately 80% of net revenues in fiscal 2003 as compared to
71% of net revenues in fiscal 2002. The increase in sales
outside the United States was primarily attributable to
increased sales in Japan and Europe.

Gross Profit.Gross
profit increased $4.2 million, or 26.8%, to
$19.8 million for fiscal 2003 from $15.6 million for
fiscal 2002. Gross margin was 41.1% for fiscal 2003 and 36.5%
for fiscal 2002. The $4.2 million improvement in gross
profit in fiscal 2003 was primarily due to higher sales volume
and lower costs, and a greater benefit from net movements in
inventory reserves. Charges to inventory reserves were
$2.7 million for fiscal 2003 and $2.1 million for
fiscal 2002. The sales of previously reserved inventory reduced
cost of revenues by $3.1 million for fiscal 2003 from
$2.0 million for fiscal 2002. The net impact on inventory
reserves was an improvement in gross profit of $495,000 for
fiscal 2003 and a decrease in gross profit of $72,000 for fiscal
2002.

Research and
Development.Research and development
expense increased $843,000, or 19.2%, to $5.2 million for
fiscal 2003 from $4.4 million for fiscal 2002. As a
percentage of net revenues, research and development expense was
10.8% for fiscal 2003 and 10.2% for fiscal 2002. The increase
was primarily attributable to a $690,000 increase in personnel
related expenses and a $97,000 increase in the depreciation of
software and equipment purchased for development purposes.

Selling, General and
Administrative.Selling, general and
administrative expense declined by $632,000, or 5.9%, to
$10.0 million for fiscal 2003 from $10.7 million for
fiscal 2002. As a percentage of net revenues, selling, general
and administrative expense was 20.8% for fiscal 2003 and 24.9%
for fiscal 2002. The decrease was primarily attributable to a
$416,000 decrease in commissions paid to outside representatives
and a $200,000 decrease in bad debt expense.

Net Interest Income and
Expense.We earned net interest income
of $382,000 in fiscal 2003 compared to net interest income of
$663,000 in fiscal 2002. Our rate of return on our average
balance of cash, cash equivalents and short-term investments was
approximately 1.4% in fiscal 2003 and approximately 2.3% in
fiscal 2002.

Income Tax Provision
(Benefit).The effective income tax
rate was a benefit of 27.3% in fiscal 2003, as compared to a
provision of 39.1% in fiscal 2002. The difference between our
fiscal 2003 and fiscal 2002 effective tax rates was primarily
attributable to the reversal in fiscal 2003 of a portion of our
valuation allowance recorded against our net deferred tax asset.

Liquidity and Capital Resources

At April 30, 2004, we had cash, cash
equivalents and short-term investments of $33.8 million.
Our historical sources of cash and capital expenditures have
come from our operating activities. In fiscal 2003, we began to
invest our excess cash in short-term financial instruments to
generate interest income. These

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instruments are U.S. government debt
securities, the majority of which have maturities that are less
than one year. They are highly liquid and can be converted to
cash at any time. They are classified as current assets in the
balance sheet but are not considered cash and cash equivalents
and are therefore excluded from our analysis of changes to cash
and cash equivalents in our consolidated statement of cash flows
included in this Form 10-K.




| |                                       
| | --------------------------------------
| | Net Cash from Operating
    Activities

In fiscal 2004, we had operating cash flows of
$10.7 million, which resulted from net income of
$9.4 million, adjusted for non-cash charges including
depreciation and amortization of $1.4 million, additions to
inventory reserves of $853,000, a reduction of gross inventories
of $2.6 million, an increase in accounts payable of
$1.3 million primarily due to the timing and amount of
inventory purchases, an increase in accrued expenses and other
liabilities of $891,000 related primarily to the tax provision
and an increase of $2.7 million for deferred gross profit
on distributor sales due to increased distributor inventories.
These increases were partially offset by releases of inventory
reserves of $2.0 million resulting from shipments of
previously reserved inventory and an increase in gross accounts
receivable of $4.7 million due to increased shipments.

In fiscal 2003, we had operating cash flows of
$6.3 million, which resulted from net income of
$6.3 million, adjusted for non-cash charges including
depreciation and amortization of $1.1 million, additions to
inventory reserves of $2.7 million, a reduction of gross
accounts receivable of $1.1 million, a reduction of gross
inventories of $821,000 and an increase in accrued expenses and
other liabilities of $1.1 million primarily from tax
related adjustments. These increases were partially offset by
releases of inventory reserves of $3.1 million resulting
from shipments of previously reserved inventory, a reduction in
accounts payable of $1.4 million primarily due to the
timing and amount of inventory purchases, an increase in
deferred tax assets of $1.9 million and a decrease in the
deferred gross profit on distributor sales due to decreased
inventories and margins at distributors of $399,000.

In fiscal 2002, we had operating cash flows of
$3.3 million, which resulted from net income of $770,000,
adjusted for non-cash charges including depreciation and
amortization of approximately $1.0 million, an addition to
the provision for doubtful accounts of $200,000, additions to
inventory reserves of $2.1 million, a decrease in gross
accounts receivable of $1.7 million related to decreased
sales, an increase in accounts payable of $852,000, related to
timing of our inventory purchases and an increase in other
credits of $1.3 million. These increases were partially
offset by releases of inventory reserves of $2.0 million
resulting from shipments of previously reserved inventory, an
increase in gross inventories of $472,000, an increase in other
current assets of $642,000 related to an expected refund of
income taxes paid in a previous year and a decrease in accrued
expenses of $1.1 million.



| |                                       
| | --------------------------------------
| | Net Cash from Investing
    Activities

In fiscal 2004, investing activities provided
$1.7 million. During fiscal 2004, our short-term
investments declined by $3.5 million as we transferred
those funds to cash and cash equivalents. We also used
$1.7 million primarily for the acquisition of test
equipment.

In fiscal 2003, investing activities used
$21.8 million. During fiscal 2003, we invested
$20.1 million in short-term investments and we used
$1.8 million primarily for the acquisition of design
software and equipment for research and development activities
and our manufacturing operations.

In fiscal 2002, investing activities used
$833,000 primarily for the purchase of equipment for our
manufacturing operations.



| |                                       
| | --------------------------------------
| | Net Cash from Financing
    Activities

In fiscal 2004, cash used by financing activities
was $3.0 million. In a private transaction we purchased
600,000 shares from Elex N.V., our largest stockholder, for
$6.77 per share and an aggregate of $4.1 million,
which represented a 13% discount from the closing market price
on the Nasdaq National Market on the last trading date prior to
the approval of the transaction by our Board of Directors.
Separately, we purchased

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74,000 shares of our common stock from the
open market as part of our open market repurchase program. We
also received $1.3 million of proceeds upon the exercise of
stock options by employees.


In fiscal 2003, cash used by financing activities
was $2.9 million. We used $3.2 million to purchase an
aggregate of 1,276,400 shares of our common stock in the
open market as part of our open market repurchase program. We
also received $296,000 of proceeds upon the exercise of stock
options by employees.

In fiscal 2002, cash used by financing activities
was $6.7 million. In a private transaction we purchased
1.5 million shares from Elex N.V. for $3.13 per share
and an aggregate of $4.7 million, which represented a 5%
discount from the closing market price on the Nasdaq National
Market on the date of the purchase. Separately, we purchased
193,700 shares of our common stock for an aggregate of
$417,000 from the open market as part of our open market
repurchase program. We used $2.0 million to pay off our
bank credit line and remaining capital lease obligations. We
also received $451,000 of proceeds upon the exercise of stock
options by employees.



| |                             
| | ----------------------------
| | Common Stock Repurchase Plan

In September 2001, our board of directors
authorized a program for the open market repurchase of up to
1.5 million shares of our common stock. In March 2003, the
board of directors increased the authorized limit to an
aggregate of 2 million shares. The purpose of this share
repurchase program is to reduce the long-term potential dilution
in earnings per share that might result from issuances under our
stock option plans and to take advantage of the relatively low
price of our common stock. The following table summarizes the
activity of the open market repurchase program through
April 30, 2004 and does not include our repurchases of
shares from Elex N.V.:

|                                  |  |                       |           |      |  |      |         |      |  |   |           |  |  |   |         | 
|--------------------------------- |  | --------------------- | --------- | ---- |  | ---- | ------- | ---- |  | - | --------- |  |  | - | ------- | 
|                                  |  |                      
|                                  |  | Years Ended April 30,
|                                  |  |                      
|                                  |  | Total                 |           | 2004 |  | 2003 |         | 2002
|                                  |  |                       |           |      |  |      |         |     
|Shares repurchased in open market |  |                       | 1,544,100 |      |  |      | 74,000  |      |  |   | 1,276,400 |  |  |   | 193,700 | 
|Total cost of shares              |  | $                     | 3,868,000 |      |  | $    | 216,000 |      |  | $ | 3,235,000 |  |  | $ | 417,000 | 
|Average cost per share            |  | $                     | 2.51      |      |  | $    | 2.92    |      |  | $ | 2.53      |  |  | $ | 2.15    | 



| |                                                       
| | ------------------------------------------------------
| | Contractual Obligations and Commercial
    Commitments

The following table summarizes our contractual
obligations as of April 30, 2004 and the effects these
obligations and commitments are expected to have on our
liquidity and cash flows in future periods (in thousands):

|                                   |                                        |                       |       |       |  |      |       |       |  |      |     |     |  |   |     |     |  |   |   |   | 
|---------------------------------- | -------------------------------------- | --------------------- | ----- | ----- |  | ---- | ----- | ----- |  | ---- | --- | --- |  | - | --- | --- |  | - | - | - | 
|                                   |                                        |                      
|                                   |                                        | Years Ended April 30,
|                                   |                                        |                      
|                                   |                                        | Total                 |       | 2005  |  | 2006 |       | 2007  |  | 2008
|                                   |                                        |                       |       |       |  |      |       |       |  |     
|Contractual cash obligations       |                                        |                       |       |       |  |      |       |       |  |      |     |     |  |   |     |     |  |   |   |  
|                                   | Operating leases(1)                    |                       | $     | 1,277 |  |      | $     | 621   |  |      | $   | 543 |  |   | $   | 113 |  |   | $ |  | 
|                                   | Sales-purchase promissory agreement(2) |                       |       | 2,200 |  |      |       | 2,200 |  |      |     |    |  |   |     |    |  |   |   |  | 
|                                   | Wafer purchases                        |                       |       | 5,691 |  |      |       | 5,691 |  |      |     |    |  |   |     |    |  |   |   |  | 
|                                   | Other purchase commitments             |                       |       | 258   |  |      |       | 258   |  |      |     |    |  |   |     |    |  |   |   |  | 
|                                   |                                        |                       |       |       |  |      |       |       |  |      |     |     |  |   |     |     |  |   |   |  
|Total contractual cash obligations |                                        | $                     | 9,426 |       |  | $    | 8,770 |       |  | $    | 543 |     |  | $ | 113 |     |  | $ |  |  
|                                   |                                        |                       |       |       |  |      |       |       |  |      |     |     |  |   |     |     |  |   |   |  



---



|    |                                                                                                                                                                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Our primary facility lease is our business office
    in Sunnyvale, California. This lease expires in 2006 and allows
    us to exercise an option to extend the term by an additional
    five years.                                                                                    
|   
|(2) | On November 6, 2003, we entered into a
    Sale-Purchase Promissory Agreement with S.C. Hathor Impex
    SRL to purchase a building for Catalyst Semiconductor Romania
    SRL. We expect to take possession of the building and complete
    the financial transaction by August 1, 2004.

As part of our ongoing business, we do not
participate in transactions that generate relationships with
unconsolidated entities of financial partnerships, such as
entities often referred to as structured finance or

21



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special purpose entities, or SPEs, which would
have been established for the purpose of facilitating
off-balance sheet arrangements or other contractually narrow or
limited purpose. As of April 30, 2004, we are not involved
in any SPE transactions.




| |                              
| | -----------------------------
| | Need for Additional Resources

On June 14, 2004, we filed with the
Securities and Exchange Commission a registration statement on
Form S-3 in connection with a proposed underwritten public
offering of up to 1,450,000 newly-issued shares of common stock
and up to 3,150,000 shares of our common stock held by
certain selling stockholders. The registration statement is not
yet effective. Although we currently intend to issue the shares
to the public, we cannot be certain that the offering will be
completed and that the shares will be issued.

We believe that the net proceeds from the above
offering, if completed, together with our current cash, cash
equivalents and available-for-sale securities will be sufficient
to meet our anticipated operating and capital requirements for
at least the next 12 months. We have no current plans, nor
are we currently negotiating, to obtain additional financing
following the closing of the above offering. Our long term plan
is to finance our core business operations with cash we generate
from operations. However, from time to time we may raise
additional capital through a variety of sources, including the
public equity market, private financings, collaborative
arrangements and debt. The additional capital we raise could be
used for working capital purposes, to fund our research and
development activities or our capital expenditures or to acquire
complementary businesses or technologies. If we raise additional
capital through the issuance of equity or securities convertible
into equity, our stockholders may experience dilution. Those
securities may have rights, preferences or privileges senior to
those of the holders of the common stock. Additional financing
may not be available to us on favorable terms, if at all. If we
are unable to obtain financing, or to obtain it on acceptable
terms, we may be unable to successfully support our business
requirements.

Effects of Transactions with Related
Parties



| |          
| | ---------
| | Elex N.V.

During the fourth quarter of fiscal 2000, we
began taking delivery of wafers fabricated by X-FAB, a wholly
owned subsidiary of Elex N.V., a Belgian holding company, that
owned 3,578,700 shares, or 21.8% of our outstanding shares,
as of April 30, 2004. Mr. Roland Duchâtelet, the
chairman and chief executive officer of Elex N.V., serves as a
member of our board of directors. The wafers provided by X-FAB
include wafers for our analog and mixed-signal products and
EEPROM products. We believe that the cost of the wafers we
purchase from X-FAB is no greater than comparable materials
available from alternative foundries. We periodically negotiate
the prices of wafers purchased from X-FAB with X-FAB management
and compare those prices to quotes we obtain from other
prospective foundries and pricing surveys published by various
industry trade organizations. We purchased $3.7 million of
wafers from X-FAB in fiscal 2004. As of April 30, 2004,
2003 and 2002, the total amount owed to X-FAB was $137,000,
$18,000 and $184,000, respectively. Other than purchase orders
currently open with X-FAB, there is no purchasing agreement in
place with X-FAB.

On April 22, 2004, we purchased
600,000 shares of our common stock from Elex N.V. for
$6.77 per share and an aggregate of $4.1 million.



| |                
| | ---------------
| | LXI Corporation

We had an informal arrangement from 1995 through
January 2003 to obtain engineering services from LXI
Corporation, a California corporation, or Lxi, a provider of
engineering services through Essex com SRL, or Essex, Lxis
wholly owned subsidiary in Romania. The number of full time
engineers we used was dependent upon the scope and number of
research and development projects in process at a given time.
These services related to our key development projects including
development, design, layout and test program development
services. We believe that we received these engineering services
from Lxi on terms and at rates that were at least as favorable,
if not more favorable, than we could obtain from unaffiliated
third parties. Two of our officers, Gelu Voicu and Thomas E.
Gay III, owned approximately 3% and 1%, respectively, of
Lxi until

22



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February 2003. Mr. Gay, who had served as a
director of Lxi, resigned from that position in January 2003.
Mr. Voicu and Mr. Gay received no payments from Lxi
during fiscal 2004, fiscal 2003 and fiscal 2002 other than
$40,000 and $12,000, respectively, from the repurchase of their
shares at net book value by Lxi in February 2003. Additionally,
we believe that our former chief executive officer, Radu Vanco,
continues to own a majority of the outstanding shares of Lxi. In
January 2003, we formed a wholly owned subsidiary in Romania to
perform these engineering design services on our behalf and
discontinued our use of the engineering services of Lxi.


Allan
Advisors, Inc.

One of our directors, Lionel Allan, has also
served as a consultant to us through his consulting company,
Allan Advisors, Inc. Under the terms of his consulting
agreement, we paid Mr. Allan consulting fees of
$8,333 per month throughout fiscal 2003. In April 2003, we
terminated the agreement and paid the $29,000 balance due as
required by the agreement. Mr. Allan no longer provides
consulting services to us and we have no continuing obligations
to Mr. Allan under the terminated agreement.

Recent Accounting Pronouncements

In May 2003, the FASB issued Statement of
Financial Accounting Standards No. 150, Accounting
for Certain Financial Instruments with Characteristics of both
Liabilities and Equity, or SFAS No. 150.
SFAS No. 150 establishes standards for how an issuer
classifies and measures certain financial instruments with
characteristics of both liabilities and equity and further
requires that an issuer classify as a liability, or an asset in
some circumstances, financial instruments that fall within its
scope because that financial instrument embodies an obligation
of the issuer. Many of such instruments were previously
classified as equity. The statement is effective for financial
instruments entered into or modified after May 31, 2003,
and otherwise was effective at the beginning of the first
interim period beginning after June 15, 2003. The adoption
of this standard did not have a material impact on our financial
position, results of operations or cash flows.

On December 17, 2003, the Securities and
Exchange Commission, or SEC, issued Staff Accounting Bulletin
No. 104, Revenue Recognition, or SAB
No. 104, which supersedes Staff Accounting Bulletin
No. 101, Revenue Recognition in Financial
Statements, or SAB No. 101. SAB No. 104s
primary purpose is to rescind accounting guidance contained in
SAB No. 101 related to multiple element revenue
managements, superseded as a result of the issuance of Emerging
Issues Task Force 00-21, Accounting for Revenue
Arrangements with Multiple Deliverables. SAB No. 104
also rescinds the SECs Revenue Recognition in
Financial Statements Frequently Asked Questions and
Answers, or the FAQ, issued with SAB No. 101 that had
been codified in SEC Topic 13, Revenue Recognition.
Selected portions of the FAQ have been incorporated into SAB
No. 104. While the wording of SAB No. 104 reflects the
issuance of EITF 00-21, the revenue recognition principles
of SAB No. 101 remain largely unchanged by the issuance of
SAB No. 104. EITF 00-21 was effective for revenue
arrangements entered into in fiscal periods beginning after
June 15, 2003. The adoption of SAB No. 104 did not
have a material impact upon our financial position, results of
operations or cash flows for the fiscal 2004.

In March 2004, the FASB approved EITF
Issue 03-6, Participating Securities and the
Two-Class Method under FAS 128. EITF
Issue 03-6 supersedes the guidance in Topic No. D-95,
Effect of Participating Convertible Securities on the
Computation of Basic Earnings per Share, and requires the
use of the two-class method of participating securities. The
two-class method is an earnings allocation formula that
determines earnings per share for each class of common stock and
participating security according to dividends declared (or
accumulated) and participation rights in undistributed earnings.
In addition, EITF Issue 03-6 addresses other forms of
participating securities, including options, warrants, forwards
and other contracts to issue an entitys common stock, with
the exception of stock-based compensation (unvested options and
restricted stock) subject to the provisions of Opinion 25 and
SFAS 123. EITF Issue 03-6 is effective for reporting
periods beginning after March 31, 2004 and should be
applied by restating previously reported earnings per share. We
are currently in the process of evaluating the impact that
adoption of EITF Issue 03-6 will have on our financial
position and results of operations.

23



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Certain Risks that May Affect Our Future
Results

The following lists some, but not all, of the
risks and uncertainties which may have a material and adverse
effect on our business, financial condition or results of
operations. The risks and uncertainties set out below are not
the only risks and uncertainties we face.



| |                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our quarterly operating results may
    fluctuate due to many factors and are difficult to forecast,
    which may cause the trading price of our common stock to decline
    substantially.

Our operating results have historically been and
in the future may be adversely affected or otherwise fluctuate
due to factors such as:



| |   |                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | fluctuations in customer demand for the
    electronic devices into which our products are incorporated;                                                                                                                                     
|
| |  | volatility in supply and demand affecting
    semiconductor prices generally, such as the increases in supply
    of competitive products and significant declines in average
    selling prices we experienced most recently in fiscal 2002;
|
| |  | establishment of additional inventory reserves if
    sales of our inventory fall below our expected sales, or the
    anticipated selling prices of our products fall below the
    amounts paid to produce and sell certain parts;         
|
| |  | changes in our product mix including product
    category, density, package type or voltage;                                                                                                                                                 
|
| |  | inadequate visibility of future demand for our
    products;                                                                                                                                                                                 
|
| |  | timing of new product introductions and orders of
    our products;                                                                                                                                                                          
|
| |  | increases in expenses associated with new product
    introductions and promotions, process changes and/or expansion
    of our sales channels;                                                                                              
|
| |  | increases in wafer prices due to increased market
    demand and other factors;                                                                                                                                                              
|
| |  | increases in prices charged by our suppliers due
    to increased costs, decreased competition and other factors;                                                                                                                            
|
| |  | gains or losses of significant OEM customers or
    indirect channel sellers, such as manufacturers
    representatives, distributors or resellers;                                                                                         
|
| |  | fluctuations in manufacturing yields;                                                                                                                                                                                                        
|
| |  | charges to bad debt expense caused by accounts
    receivable we deem unlikely to be collected in a reasonable
    amount of time, if ever; and                                                                                              
|
| |  | general economic conditions.                                                                                                                                                                                                                 

Our net revenues and operating results are
difficult to forecast. We base our expense levels, in
significant part, on our expectations of future net revenues and
our expenses are therefore relatively fixed in the short term.
If our net revenues fall below our forecasts, our operating
results are likely to be disproportionately adversely affected
because our costs are relatively fixed in the short term.



| |                                                                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may never realize a material portion of
    our net revenues from our analog and mixed-signal products,
    despite our expenditure of a disproportionate amount of our
    research and development resources on these
    products.

Analog and mixed-signal products accounted for
2.1% of net revenues for fiscal 2004, 1.5% of net revenues for
fiscal 2003 and 1.0% of net revenues for fiscal 2002. We believe
that the growth in our analog and mixed-signal product revenues
has been limited due to the small number of products we offer,
extended product design cycles and a sales force that has
limited experience selling these products. Despite limited
product acceptance to date, we continue to invest in and devote
research and development and marketing resources to analog and
mixed-signal products with the expectation that our standard
analog and mixed-signal

24



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##### Table of Contents



products will be accepted by many of our current
customers and that we will eventually qualify and sell custom
analog and mixed-signal products. Competition is intense as we
have initially offered a limited range of products while our
more established competitors are offering a much broader array
of analog and mixed-signal products. If we are unable to realize
more revenues from these products, our total revenues may not
grow. In addition, if we devote a disproportionate amount of our
research and development resources to analog and mixed-signal
products, our development of new non-volatile memory products
may suffer and operating results may be harmed.




| |                                                                                                                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may be unable to fulfill all our
    customers orders according to the schedule originally
    requested due to the constraints in our wafer supply and
    processing time from die bank to finished goods, which could
    result in reduced revenues or higher expenses.

Due to the lead time constraints in our wafer
supply, foundry activities and other manufacturing processes,
from time to time we have been unable to fulfill all our
customers orders on the schedule originally requested.
Although we attempt to anticipate pending orders and maintain an
adequate supply of wafers and communicate to our customers
delivery dates that we believe we can reasonably expect to meet,
our customers may not accept the alternative delivery date or
may cancel their outstanding orders. Reductions in orders
received or cancellation of outstanding orders would result in
lower net revenues and reduced operating results, excess
inventories and increased inventory reserves. We may also be
required to pay substantially higher per wafer prices to
replenish our die bank, which could harm our gross margins. If
we were requested to pay rush charges to our manufacturing or
foundry partners to meet a customers requested delivery
date, our expenses may increase and harm our operating results.

Due to the lack of adequate product sales history
and limited visibility in forecasting future demand, we do not
have the same inventory levels of wafers and die bank for our
newer products compared to our established products. As a
result, we may be unable to meet demand for those newer products
if demand exceeds our expectations and we do not have adequate
time or capacity to make the additional products.



| |                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may forecast incorrectly and produce
    excess or insufficient inventories of particular products, which
    may adversely affect our results of operations.

Since we must order products and build inventory
substantially in advance of product shipments, we may forecast
incorrectly and produce excess or insufficient inventories of
particular products. The ability of our customers to reschedule
or cancel orders without significant penalty could adversely
affect our liquidity, as we may be unable to adjust our
purchases from our wafer suppliers to match any customer changes
and cancellations. As part of our business strategy, we maintain
a substantial inventory of sorted wafers in a die bank but limit
our investment in finished goods. We may have adequate wafer
inventory to meet customer needs but may be unable to finish the
manufacturing process prior to the delivery date specified by
the customer. Demand for our products is volatile and customers
often place orders with short lead times. Our inventory may not
be reduced by the fulfillment of customer orders and in the
future we may produce excess quantities of our products.

It is our policy to fully write down all
inventories that we do not expect to be sold in a reasonable
period of time. During recent fiscal years, as a result of
reductions in estimated demand for our various products, we have
taken charges for write down of inventories for certain
products, primarily our flash and EEPROM products. For example,
we took inventory write down charges of $5.0 million in
fiscal 2001, which were partially offset by a benefit of
$2.3 million relating to products that were written off in
prior years and sold during fiscal 2001. We may suffer
reductions in values of our inventories in the future and we may
be unable to liquidate our inventory at acceptable prices. To
the extent we have excess inventories of particular products,
our operating results could be adversely affected by charges to
cost of revenues that we would be required to recognize due to
significant reductions in demand for our products or rapid
declines in the market value of inventory, resulting in
inventory write downs or other related factors.

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| |                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We depend on a small number of suppliers
    for the supply of wafers and we may be unable to meet customer
    demand due to our inability to obtain wafers.

We do not manufacture or process the
semiconductor wafers used for our products. In 1985, we began a
relationship with Oki Electric Industry Co., Ltd., or Oki, in
Japan. Since 1987, Oki has supplied wafers to us and has been
our principal foundry source. At the end of fiscal 2000, an
additional foundry, X-FAB Texas, Inc., or X-FAB, began to
provide products to us. We primarily use Oki for fabricating our
memory products and X-FAB for fabricating our analog and
mixed-signal products. We do not presently have a wafer supply
agreement with Oki or X-FAB and instead purchase wafers on a
purchase order and acceptance basis. Our reliance on these
independent foundries involves a number of risks, including:



| |   |                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------
| |  | inadequate wafer supplies to meet our production
    needs;                                                 
|
| |  | increased prices charged by these independent
    foundries;                                                
|
| |  | unavailability of or interruption in access to
    required or more cost-effective process technologies; and
|
| |  | reduced control over delivery schedules,
    manufacturing yields and costs.                                

We have been unable and in the future we may be
unable to obtain sufficient quantities of wafers from Oki and
X-FAB to fulfill customer demand.

To address our wafer supply concerns, we plan to
continue expanding our primary foundry capability at Oki by
qualifying our products in multiple fabrication plants owned by
Oki and to expand our foundry capability with X-FAB. However, we
cannot be certain that these efforts will provide us with access
to adequate capacity in the future at costs which enable us to
remain profitable. Even if such capacity is available from
another manufacturer, the qualification process and time
required to make the foundry fully operational for us could take
many months or longer and be subject to other factors described
below and the prices could be materially higher. Our business,
financial condition and results of operations could be
materially adversely affected by:



| |   |                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------
| |  | the loss of Oki or X-FAB as a supplier;                                                              
|
| |  | our inability to obtain additional capacity at
    Oki or X-FAB;                                     
|
| |  | our inability to qualify Oki or X-FAB for
    additional products;                                   
|
| |  | our inability to locate and qualify other wafer
    manufacturers for desired foundry capacity; or   
|
| |  | any other circumstances causing a significant
    interruption in our supply of semiconductor wafers.



| |                                                                                                                                                                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We rely on manufacturers
    representatives, distributors and resellers for a substantial
    portion of our net revenues and if our relationships with one or
    more of those manufacturers representatives, distributors
    or resellers were to terminate, our operating results may be
    harmed.

We market and distribute our products primarily
through manufacturers representatives, independent
distributors and resellers, which typically offer competing
products. These distribution channels have been characterized by
rapid change, including consolidations and financial
difficulties.

Manufacturers representatives, distributors
and resellers have accounted for a significant portion of our
net revenues in the past. For fiscal 2004, sales to ALR Company
Limited, a reseller in China, represented 11% of our net
revenues. For fiscal 2003, none of our direct or indirect
customers represented more than 10% of net revenues. In fiscal
2002, sales to Future Electronics, Inc., a distributor,
represented 11% of our net revenues.

In addition, we have experienced and may continue
to experience lower margins on sales to manufacturers
representatives, distributors and resellers as a result of
volume pricing arrangements. We also do not typically enter into
long-term arrangements with our manufacturers
representatives, distributors and resellers and we cannot be
certain as to future order levels from our distributors and
resellers. When we do enter into long-term arrangements, the
contracts are generally terminable at the convenience of the
manufacturers

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##### Table of Contents



representatives, distributors and resellers and
it may be difficult to replace that source of revenues in the
short-term upon cancellation.


Our business depends on these third parties to
sell our products. As a result, our operating results and
financial condition could be materially adversely affected by
the loss of one or more of our current manufacturers
representatives, distributors and resellers, additional volume
pricing arrangements, order cancellations, delay in shipment by
one of our major manufacturers representatives,
distributors or resellers or the failure of our
manufacturers representatives, distributors or sellers to
successfully sell our products.



| |                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we are required to expense share-based
    payments to our employees, our financial statements will have a
    significant material adverse charge.

If we are required to expense stock options and
other share-based payments to employees and directors, we will
record a significant charge to earnings. On March 31, 2004,
the Financial Accounting Standards Board, or FASB, issued an
exposure draft No. 1102-100, Proposed Statement of
Financial Accounting Standards  Share-Based
Payment,effective for fiscal periods beginning after
December 15, 2004. This exposure draft outlines a
methodology for the accounting treatment of stock options and
certain other share-based payments. It requires these payments
to be recorded as an operating expense. It will supersede
Statement of Financial Accounting Standards No. 123, or
SFAS 123, which allows for disclosure of this expense on a
pro forma basis in notes to consolidated financial statements.
Our pro forma stock compensation expense was $2.8 million
for fiscal 2004. Adoption of this accounting standard will have
a material adverse impact on our consolidated financial
statements. We are currently evaluating our stock-based
compensation programs to determine what our alternatives may be
to reduce this potential charge if this exposure draft is
enacted. If we choose not to issue stock options at the levels
we have in the past, we believe we will face a more difficult
time in attracting and retaining employees.



| |                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------
| | We face risks from failures in our
    manufacturing processes and the processes of our foundries and
    vendors.

The fabrication of semiconductors, particularly
EEPROM, is a highly complex and precise process. Our products
are currently manufactured by two outside foundries and a number
of other vendors participate in testing, packaging and other
processes. During manufacturing, each wafer is processed to
contain numerous EEPROM, flash, analog or mixed-signal products.
We may reject or be unable to sell a substantial percentage of
wafers or the components on a given wafer because of:



| |   |                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------
| |  | minute impurities;                                                                                                 
|
| |  | difficulties in the fabrication process, such as
    failure of special equipment, operator error or power outages;
|
| |  | defects in the masks used to print circuits on a
    wafer;                                                        
|
| |  | nonconforming electrical and/or optical
    performance;                                                           
|
| |  | breakage in wafers; or                                                                                             
|
| |  | other factors.                                                                                                     

We refer to the proportion of final components
that have been processed, assembled and tested relative to the
gross number of components that could be constructed from the
raw materials as our manufacturing yield. We have in the past
experienced lower than expected manufacturing yields, which have
delayed product shipments and negatively impacted our results of
operations. We may experience difficulty maintaining acceptable
manufacturing yields in the future.

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In addition, the maintenance of our outsourced
fabrication, manufacturing and assembly model is subject to
risks, including:



| |   |                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------
| |  | the demands of managing and coordinating workflow
    between geographically separate production facilities;
|
| |  | disruption of production in one facility as a
    result of a slowdown or shutdown in another facility; and 
|
| |  | higher operating costs from managing
    geographically separate manufacturing facilities.                  

We depend on certain vendors for foundry
services, materials, test and assembly. We maintain stringent
policies regarding qualification of these vendors. However, if
these vendors processes vary in reliability or quality,
they could negatively affect our products and our results of
operations.



| |                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We rely on third party subcontractors to
    sort, assemble, test and ship our products to customers, which
    reduces our control over quality, delivery schedules and
    capacity.

We outsource all or a portion of our production
planning, assembly, test and finish work for our products, as
well as our inventory management function to subcontractors who
are primarily located in Thailand and the Philippines. We do not
have long-term contractual arrangements with these
subcontractors. Our reliance on third parties subjects us to
risks such as reduced control over delivery schedules and
quality, a potential lack of adequate capacity during periods
when demand is high and potential increases in product costs due
to factors outside our control such as capacity shortages and
pricing changes. Our outsourcing model could lead to delays in
product deliveries, lost sales and increased costs which could
harm our relationships with OEM customers and indirect sales
channels and result in lower operating results. Because we
utilize the services of a group of assembly and test providers,
this makes our operation highly complex, requiring a high degree
of diligence in managing the costs of production and overall
logistics of our manufacturing operations.



| |                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------
| | International sales comprise a significant
    portion of our product sales, which exposes us to foreign
    political and economic risks.

For fiscal 2004, sales outside the United States
comprised 88% of our net revenues. Additionally, for fiscal 2003
and fiscal 2002, sales outside of the United States accounted
for approximately 80% and 71%, respectively, of our net
revenues. The increase in percentage of international revenues
in fiscal 2004 was primarily attributable to our increased sales
in all markets outside the United States while demand in the
United States continued to be weak due to the trend towards
outsourcing of electronic systems manufacturing, primarily to
Asia. We expect that sales outside of the United States will
continue to represent a significant portion of our net revenues
in the future. However, our international operations may be
adversely affected by the following factors:



| |   |                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------
| |  | greater fluctuations in demand for our products
    due to the increased sensitivity to pricing changes in certain
    markets, particularly Asia;
|
| |  | fluctuations in exchange rates;                                                                                                                   
|
| |  | longer payment cycles;                                                                                                                            
|
| |  | imposition of government controls;                                                                                                                
|
| |  | political, socioeconomic and financial
    instability, such as the military actions in Afghanistan and
    Iraq;                                 
|
| |  | trade restrictions;                                                                                                                               
|
| |  | the impact of communicable diseases, such as
    severe acute respiratory syndrome;                                                               
|
| |  | changes in regulatory requirements; and                                                                                                           
|
| |  | difficulties in staffing international operations.                                                                                                

Our business is also subject to other risks
because of our design center in Romania and our relationships
with foreign subcontractors including, but not limited to,
foreign government regulations and political and financial

28



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##### Table of Contents



unrest which may cause disruptions or delays in
shipments to our customers or access to our inventories. We do
not currently hedge against any foreign currency exchange rate
risks.




| |                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------
| | We may face increased management costs and
    other risks due to the establishment of our design group in
    Romania.

In January 2003, we formed a wholly owned
subsidiary in Romania to perform engineering design services. In
November 2003, we entered into a Sale-Purchase Promissory
Agreement to purchase a building in Bucharest for use by our
Romanian design group at an estimated cost of $2.2 million.
We have no prior experience in establishing or operating
engineering services outside of our headquarters in Sunnyvale,
California. Our expansion of engineering design operations to
remotely situated offices presents a number of substantial risks
that could increase our operating expenses and adversely affect
our operating results, financial condition and ability to
deliver our products and grow our business, including:



| |   |                                                                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | difficulties in staffing and managing foreign
    operations, in particular attracting and retaining personnel
    qualified to provide high quality engineering design services;                                                        
|
| |  | difficulties in coordinating our engineering
    operations in Romania with those in California;                                                                                                                                         
|
| |  | diversion of management attention;                                                                                                                                                                                                       
|
| |  | difficulties in maintaining uniform standards,
    controls, procedures and policies with our Romanian subsidiary
    relative to those of our other locations, including product
    development management and financial consolidation;
|
| |  | difficulties in owning and operating real
    property in Romania;                                                                                                                                                                       
|
| |  | political and economic instability, which may
    have an adverse impact on foreign exchange rates of the Romanian
    leu relative to the U.S. dollar and could impair our
    ability to conduct our business in Romania; and          
|
| |  | inadequacy of the local infrastructure to support
    our needs.                                                                                                                                                                         



| |                                                               
| | --------------------------------------------------------------
| | Our low density flash memory products may
    become obsolete.

A substantial portion of our net revenues have
been and continue to be derived from sales of low density flash
memory products. Flash memory products represented 9.4% of our
net revenues in fiscal 2004, 12.0% in fiscal 2003 and 16.1% in
fiscal 2002. In general, the market for flash memory products
has been characterized by intense price competition, long
production cycles, inconsistent yields, competing technologies,
migration of demand to larger memory sizes and intense overall
competition. Other flash memory vendors continue to design,
develop and sell flash memory devices with larger memory in
reaction to market demand. This transition to larger flash
memory sizes is resulting in a limited and shrinking market for
the low density flash memory products that we currently offer.
We have decided not to develop any of the higher density flash
memory devices due to the extreme competition in the medium and
high density flash memory market. Due to these and other
factors, we are likely to experience declining net revenues from
our low density flash memory products, which could harm our
operating results.



| |                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our ability to operate successfully depends
    upon the continued service of certain key employees and the
    continued ability to attract and retain additional highly
    qualified personnel.

Our 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 these
personnel, particularly for highly skilled design, process and
test engineers, is intense and we may not be able to retain
these personnel or attract other highly qualified personnel. Our
business, financial condition and results of operations could be
materially adversely affected by the loss of or failure to
attract and retain highly qualified personnel.

29



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##### Table of Contents





| |                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may need to raise additional capital in
    the future and if we are unable to secure adequate funds on
    terms acceptable to us, we may be unable to support our business
    requirements or build our business.

We currently anticipate that the net proceeds of
the offering described in Need for Additional
Resources above, if completed, together with our current
cash, cash equivalents and available-for-sale securities, will
be sufficient to meet our anticipated operating and capital
requirements for at least the next year. We have no current
plans, nor are we currently negotiating, to obtain additional
financing following the closing of this offering. Our long term
plan is to finance our core business operations with cash we
generate from operations. We may raise additional capital
through a variety of sources, including the public equity
market, private financings and debt. If we raise additional
capital through the issuance of equity or securities convertible
into equity, our stockholders may experience dilution. Those
securities may have rights, preferences or privileges senior to
those of the holders of the common stock. Additional financing
may not be available to us on favorable terms, if at all. If we
are unable to obtain financing, or to obtain it on acceptable
terms, we may be unable to successfully support our business
requirements or build our business.

Risks Related to Our Industry and
Competition



| |                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------
| | The semiconductor industry is highly
    cyclical in nature, which may cause our operating results to
    fluctuate.

We operate in a highly cyclical industry that has
been subject to significant economic downturns often in
connection with, or in anticipation of, maturing product cycles
and declines in general economic conditions. These types of
downturns occurred in calendar 1996, 1997, 1998 and 2001. In the
future, during such downturns, we may experience reduced product
demand, accelerated erosion of average selling prices and gross
margins and production overcapacity. These downturns may occur
for extended periods. Accordingly, we may experience substantial
period to period fluctuations in future operating results.

For example, we experienced accelerated erosion
of average selling prices caused by adverse industry wide
conditions during fiscal 1998, fiscal 1999 and the first half of
fiscal 2000 and incurred substantial losses in fiscal 1998. In
addition, during the second half of fiscal 2001 and the first
half of fiscal 2002, the market for our products became more
competitive as a result of increased availability of products
when demand was decreasing. During fiscal 2001, fiscal 2002 and
most of fiscal 2003, we experienced lower OEM customer and
distributor orders and we had to lower our selling prices to
remain competitive in the market.

Our continued success depends in large part on
the continued growth of various electronics industries that use
semiconductors. We attempt to identify changes in market
conditions as soon as possible; however, market dynamics make
our prediction of and timely reaction to such events difficult.
Our business could be harmed in the future by additional
cyclical downturns in the semiconductor industry or by slower
growth by any of the markets served by our OEM customers
products.



| |                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------
| | If our products fail to keep pace with the
    rapid changes in the semiconductor industry, we could lose OEM
    customers and revenues.

The markets for our products are characterized by
rapidly changing customer demand, over or under utilization of
manufacturing capacity and price fluctuations. To compete
successfully, we must introduce in a timely manner new products
at competitive prices, quality and performance levels. In
particular, our future success will depend on our ability to
develop and implement new design and process technologies which
enable us to reduce product costs. For example, most of our
products are currently designed and manufactured using 0.8
micron EEPROM processes or a 0.6 micron flash memory process. We
expect to transition a portion of our EEPROM products to the 0.5
micron and 0.35 micron process geometries and may not do so
successfully or cost effectively. Our business, financial
condition and results of operations could be materially
adversely affected by delays in developing new products,
achievement of volume production and market acceptance of new
products, successful completion of technology transitions of our
existing products to new process geometries or foundries with
acceptable yields and reliability.

30



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##### Table of Contents





| |                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------
| | Competition in our markets may lead to
    reduced average selling prices of our products, reduced sales of
    our products or gross margins.

The non-volatile memory market is competitive and
has been characterized by rapid price erosion, manufacturing
capacity constraints and limited product availability. Average
selling prices in the non-volatile memory market generally, and
for our products in particular, have fluctuated significantly
over the life of each product and, over the long term, the
average selling price of each product has tended to decline.
Declines in average selling prices for our 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 our overall gross margins, could cause a negative
adjustment to the value of our inventories and could materially
and adversely affect our operating results.

We compete with major domestic and international
semiconductor companies, many of which have substantially
greater financial, technical, marketing, distribution and other
resources. We may not be able to compete successfully in the
future. Our more mature products, such as serial and parallel
EEPROM devices, compete on the basis of product performance,
price, product availability and customer service. Principal
competitors for our EEPROM products currently include Atmel,
STMicroelectronics and Microchip Technology. Principal
competitors for our low density flash products include Silicon
Storage Technology and Integrated Silicon Solution. Principal
competitors for our analog and mixed-signal products include
Maxim Integrated Products, Linear Technology, Intersil,
Fairchild Semiconductor, National Semiconductor and Texas
Instruments.

Risks Related to Our Intellectual
Property



| |                                                                                 
| | --------------------------------------------------------------------------------
| | Our business may be harmed if we fail to
    protect our proprietary technology.

We rely on a combination of patents, trademarks,
copyrights, trade secret laws, confidentiality procedures and
licensing arrangements to protect our intellectual property
rights. We currently have patents granted and pending in the
United States and intend to seek further United States and
international patents on our technology. We cannot be certain
that patents will be issued from any of our pending
applications, that patents will be issued in all countries where
our products can be sold or that any issued patents will be of
sufficient scope or strength to provide meaningful protection or
any commercial advantage. Our competitors may also be able to
design around our patents. The laws of some countries in which
our products are or may be developed, manufactured or sold, may
not protect our products or intellectual property rights to the
same extent as do the laws of the United States, increasing the
possibility of piracy of our technology and products. Although
we intend to vigorously defend our intellectual property rights,
we may not be able to prevent misappropriation of our
technology. Our competitors may also independently develop
technologies that are substantially equivalent or superior to
our technology.



| |                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------
| | Our ability to produce our products may
    suffer if someone claims we infringe on their intellectual
    property.

The semiconductor industry is characterized by
vigorous protection and pursuit of intellectual property rights
or positions, which have resulted in significant and often
protracted and expensive litigation. In addition, it is typical
for companies in the industry to receive notices from time to
time that allege infringement of patents or other intellectual
property rights. For example, in April 2001, Xicor, Inc. filed a
complaint alleging that some of our DPPs infringed on one of its
patents, which complaint we settled in June 2002. We may receive
other notices or become a party to other proceedings alleging
our infringement of patents or intellectual property rights in
the future. If it is necessary or desirable, we may seek
licenses under such patents or other intellectual property
rights. However, we cannot be certain that licenses will be
offered or that we would find the terms of licenses that are
offered acceptable or commercially reasonable. Our failure to
obtain a license from a third party for technology used by us
could cause us to incur substantial liabilities and to suspend
the manufacture of products. Furthermore, we may initiate claims
or litigation against third parties for infringement of our
proprietary rights or to establish the validity of our
proprietary rights. Litigation by or against us could result in
significant expense and divert the efforts of our technical
personnel and management,

31



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whether or not the litigation results in a
favorable determination. In the event of an adverse result in
any litigation, we could be required to:




| |   |                                                                       
| | - | ----------------------------------------------------------------------
| |  | pay substantial damages;                                              
|
| |  | pay amounts to indemnify our customers;                               
|
| |  | stop the manufacture, use and sale of the
    infringing products;    
|
| |  | expend significant resources to develop
    non-infringing technology;
|
| |  | discontinue the use of certain processes; or                          
|
| |  | obtain licenses to the technology.                                    

We may be unsuccessful in developing
non-infringing products or negotiating licenses upon reasonable
terms, or at all. These problems might not be resolved in time
to avoid harming our results of operations. If any third party
makes a successful claim against our customers or us and a
license is not made available to us on commercially reasonable
terms, our business could be harmed.



| |                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------
| | We may be subject to damages resulting from
    claims that we have wrongfully used the alleged trade secrets of
    our employees former employers.

Many of our employees were previously employed at
other companies, including our competitors or potential
competitors. Although we have no current or pending claims
against us, we may be subject to claims that we have relied on
information that these employees have inadvertently or otherwise
disclosed that represent the trade secrets or other proprietary
information of their former employers. Litigation may be
necessary to defend against these claims. If we fail in
defending such claims, in addition to paying monetary damages,
we may lose valuable intellectual property rights or personnel.
A loss of key research personnel or their work product could
hamper or prevent our ability to develop new products, which
could severely harm our business. Even if we are successful,
litigation could result in substantial costs and be a
distraction to management.



| |                                                                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may not be able to expand our
    proprietary technology if we do not acquire rights to use key
    technologies, consummate potential acquisitions or investments
    or successfully integrate them with our business.

To expand our proprietary technologies, we may
acquire or make investments in complementary businesses,
technologies or products if appropriate opportunities arise. We
may be unable to identify suitable acquisition or investment
candidates at reasonable prices or on reasonable terms or
consummate transactions with such candidates, the failure of
which could slow our growth. We may also have difficulty in
acquiring licenses to use proprietary technologies of third
parties to expand our product lines. We may have difficulty
integrating the acquired products, personnel or technologies of
any acquisition we might make. These difficulties could disrupt
our ongoing business, limit our future growth, distract our
management and employees and increase our expenses.

Risks Related to Our Stock



| |                                                                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our stock is subject to substantial price
    and volume fluctuations due to a number of factors, many of
    which are beyond our control, and those fluctuations may prevent
    our stockholders from reselling our common stock at a
    profit.

The trading price of our common stock has in the
past been and could in the future be subject to significant
fluctuations in response to:



| |   |                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | quarterly variations in our results of operations;                                                                                                                         
|
| |  | international political, socioeconomic and
    financial instability, including instability associated with
    military action in Afghanistan and Iraq or other conflicts;

32



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| |   |                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | announcements of technological innovations or new
    products by us, our customers or competitors;                                                                             
|
| |  | our failure to achieve the operating results
    anticipated by analysts or investors;                                                                                          
|
| |  | sales or the perception in the market of possible
    sales of a large number of shares of our common stock by our
    directors, officers, employees or principal stockholders;
|
| |  | releases or reports by or changes in security
    analysts recommendations; and                                                                                                
|
| |  | developments or disputes concerning patents or
    proprietary rights or other events.                                                                                          

For example, during fiscal 2004 and to date in
fiscal 2005, the trading price of our common stock on the Nasdaq
National Market and the Nasdaq SmallCap Market has ranged from a
high of $9.75 to a low of $2.51. If our net revenues and results
of operations are below the expectations of investors,
significant fluctuations in the market price of our common stock
could occur. In addition, the securities markets have, from time
to time, experienced significant price and volume fluctuations,
which have particularly affected the market prices for high
technology companies and often are unrelated and
disproportionate to the operating performance of particular
companies. These broad market fluctuations, as well as general
economic, political and market conditions, may negatively affect
the market price of our common stock.



| |                                                                                                                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our charter documents, Delaware law and our
    stockholder rights plan contain provisions that may inhibit
    potential acquisition bids, which may adversely affect the
    market price of our common stock, discourage merger offers or
    prevent changes in our management.

Our board of directors has the authority to issue
up to 2,000,000 shares of preferred stock and to determine
the rights, preferences, privileges and restrictions, including
voting rights, of the shares without any further vote or action
by our stockholders. If we issue any of these shares of
preferred stock in the future, the rights of holders of our
common stock may be negatively affected. If we issue preferred
stock, a change of control of our company could be delayed,
deferred or prevented. We have no current plans to issue shares
of preferred stock.

Section 203 of the Delaware General
Corporation Law restricts certain business combinations with any
interested stockholder as defined by that statute.
In addition, our certificate of incorporation and bylaws contain
certain other provisions that may have the effect of delaying,
deferring or preventing a change of control. These provisions
include:



| |   |                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the classification of our board so that only a
    portion of our directors are elected each year and each director
    serves a three year term;                   
|
| |  | the elimination of actions by written consent of
    stockholders; and                                                                                              
|
| |  | the establishment of an advance notice procedure
    for stockholder proposals and director nominations to be acted
    upon at annual meetings of the stockholders.

In 1996, our board of directors adopted a
stockholder rights plan. Under this plan, we issued a dividend
of one right for each share of our common stock. Each right
initially entitles stockholders to purchase one one-thousandth
of a share of our preferred stock for $18.00. However, the
rights are not immediately exercisable. If a person or group
acquires, or announces a tender or exchange offer that would
result in the acquisition of 15% of our common stock, unless the
rights are redeemed by us for $0.01 per right, the rights
will become exercisable by all rights holders, except the
acquiring person or group, for shares of our common stock or the
stock of the third party acquirer having a value of twice the
rights then-current exercise price. However, with respect
to the shares of our common stock held or acquired by Elex N.V.,
the rights will not become exercisable until such time as Elex
N.V. acquires more than 3,687,007 shares of our common
stock less the number of shares sold by Elex N.V. Upon the
closing of the proposed offering of our common stock described
in Need for Additional Resources above, we intend to
amend the stockholder rights plan to remove this exception
applicable to Elex N.V.

These provisions are designed to encourage
potential acquirers to negotiate with our board of directors and
give our board of directors an opportunity to consider various
alternatives to increase stockholder value.

33



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These provisions are also intended to discourage
certain tactics that may be used in proxy contests. However, the
potential issuance of preferred stock, our charter and bylaw
provisions, the restrictions in Section 203 of the Delaware
General Corporation Law and our stockholder rights plan could
discourage potential acquisition proposals and could delay or
prevent a change in control, which may adversely affect the
market price of our stock. These provisions and plans may also
have the effect of preventing changes in our management.




| |                                                                                                          
| | ---------------------------------------------------------------------------------------------------------
| | We may be the subject of securities class
    action litigation due to future stock price
    volatility.

In the past, when the market price of a stock has
been volatile, holders of that stock have often initiated
securities class action litigation against the company that
issued the stock. If any of our stockholders brought a lawsuit
against us, we could incur substantial costs defending the
lawsuit. The lawsuit could also divert the time and attention of
our management.






|         |                                                                
|-------- | ---------------------------------------------------------------
|Item 7A. | Quantitative and Quantitative Disclosures
    About Market Risk

Interest Rate Risk.We do not use derivative financial instruments in our investment
portfolio. Our investment portfolio is generally comprised of
U.S. government debt securities and cash deposits. Our
policy is to place these investments in instruments that meet
high credit quality standards and have maturities of less than
two years with an overall average maturity of less than one
year. These securities are subject to interest rate risk and
could decline in value if interest rates fluctuate. Due to the
short duration of the securities in which we invest and the
conservative nature of our investment portfolio, a 10% move in
interest rates would have an immaterial effect on our financial
position, results of operations and cash flows.

Foreign Currency Exchange Rate
Risk.The majority of our sales,
manufacturing costs, and research and development and marketing
expenses are transacted in U.S. dollars. Accordingly, our
net profitability is not currently subject to material foreign
exchange rate fluctuations. Gains and losses from such
fluctuations have not been material to us to date.






|        |                                                
|------- | -----------------------------------------------
|Item 8. | Financial Statements and Supplementary
    Data

The Consolidated Financial Statements required by
this Item are set forth at the pages indicated in
Item 15(a).

The following table presents selected unaudited
consolidated statement of operations data for our eight most
recently completed fiscal quarters. The information for each of
these quarters is unaudited and has been prepared on the same
basis as the audited consolidated financial statements appearing
elsewhere in this report. In our opinion, all necessary
adjustments, consisting only of normal recurring adjustments,
have been included to present fairly the unaudited quarterly
results when read together with our consolidated financial
statements and related notes included elsewhere in the report.
We believe that results of operations for interim periods should
not be relied upon as any indication of the results to be
expected or achieved in any future period or any fiscal year as
a whole.

|                       |         |                                       |        |          |  |          |        |          |  |          |        |          |  |          |        |          |  |   |        |      |  |   |        |      |  |   |        |      |  |   |        |      | 
|---------------------- | ------- | ------------------------------------- | ------ | -------- |  | -------- | ------ | -------- |  | -------- | ------ | -------- |  | -------- | ------ | -------- |  | - | ------ | ---- |  | - | ------ | ---- |  | - | ------ | ---- |  | - | ------ | ---- | 
|                       |         |                                      
|                       |         | Three Months Ended                   
|                       |         |                                      
|                       |         | Apr. 30,                              |        | Jan. 31, |  | Oct. 31, |        | July 31, |  | Apr. 30, |        | Jan. 31, |  | Oct. 31, |        | July 31,
|                       |         | 2004                                  |        | 2004     |  | 2003     |        | 2003     |  | 2003     |        | 2003     |  | 2002     |        | 2002    
|                       |         |                                       |        |          |  |          |        |          |  |          |        |          |  |          |        |         
|                       |         |                                      
|                       |         | (In thousands, except per share data)
|Net revenues           |         | $                                     | 16,838 |          |  | $        | 16,875 |          |  | $        | 15,978 |          |  | $        | 13,847 |          |  | $ | 12,510 |      |  | $ | 11,207 |      |  | $ | 12,047 |      |  | $ | 12,457 |     
|Gross profit           |         |                                       | 8,258  |          |  |          | 7,767  |          |  |          | 4,991  |          |  |          | 5,147  |          |  |   | 5,296  |      |  |   | 4,118  |      |  |   | 4,973  |      |  |   | 5,438  |     
|Income from operations |         |                                       | 3,324  |          |  |          | 2,847  |          |  |          | 417    |          |  |          | 992    |          |  |   | 1,139  |      |  |   | 398    |      |  |   | 1,256  |      |  |   | 1,789  |     
|Net income(1)          |         | $                                     | 5,600  |          |  | $        | 2,421  |          |  | $        | 426    |          |  | $        | 920    |          |  | $ | 4,001  |      |  | $ | 314    |      |  | $ | 843    |      |  | $ | 1,160  |     
|Net income per share:  |         |                                       |        |          |  |          |        |          |  |          |        |          |  |          |        |          |  |   |        |      |  |   |        |      |  |   |        |      |  |   |        |     
|                       | Basic   |                                       | $      | 0.33     |  |          | $      | 0.15     |  |          | $      | 0.03     |  |          | $      | 0.06     |  |   | $      | 0.24 |  |   | $      | 0.02 |  |   | $      | 0.05 |  |   | $      | 0.07 | 
|                       | Diluted |                                       | $      | 0.29     |  |          | $      | 0.12     |  |          | $      | 0.02     |  |          | $      | 0.05     |  |   | $      | 0.22 |  |   | $      | 0.02 |  |   | $      | 0.05 |  |   | $      | 0.06 | 



---



|    |                                                                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In the quarters ended April 30, 2004 and
    2003, our net income was favorably impacted by $4.7 million
    and $1.9 million, respectively, due to the reversal of our
    tax valuation allowance.

34



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|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure

None.






|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

(a) Evaluation of disclosure controls and
procedures. Our management, with the participation of our
chief executive officer and our chief financial officer,
evaluated the effectiveness of our disclosure controls and
procedures (as defined in the Securities Exchange Act of
1934 Rules 13a-15(e) and 15d-15(e)) as of the end of the
period covered by this Form 10-K. They have concluded that
as of such date, our disclosure controls and procedures were
adequate and designed to ensure that material information
relating to us and our consolidated subsidiaries would be made
known to them by others within those entities so that we are
able to record, process, summarize and disclose such information
in the reports we file with the SEC within the time periods
specified in the SECs rules and forms. It should be noted,
however, that the design of any system of controls is based in
part upon certain assumptions about the likelihood of certain
future events, and there can be no assurance that any design
will succeed in achieving its stated goals under all potential
future conditions, regardless of how remote.

(b) Changes in internal controls.
During the fourth quarter of fiscal 2004, there was no change in
our internal controls that has materially affected, or is
reasonably likely to materially effect, our internal controls
over financial reporting.




PART III






|         |                                                       
|-------- | ------------------------------------------------------
|Item 10. | Directors and Executive Officers of the
    Registrant

Certain Information Regarding
Directors

Set forth below is certain information as of
April 30, 2004, regarding each director of the company:

|                      |  |     |    |                      |  |                                                                                                                                 
|--------------------- |  | --- | -- | -------------------- |  | --------------------------------------------------------------------------------------------------------------------------------
|Name                  |  | Age |    | Principal Occupation
|                      |  |     |    |                     
|Lionel M. Allan       |  |     | 60 |                      |  | President, Allan Advisors, Inc.                                                                                                 
|Roland M. Duchâtelet  |  |     | 57 |                      |  | Chairman of the Board, Elex NV; Chairman of the
    Board Melexis NV                                                            
|Garrett A. Garrettson |  |     | 60 |                      |  | President and Chief Executive Officer,
    Clairvoyante, Inc.                                                                   
|Henry C. Montgomery   |  |     | 68 |                      |  | Chairman of the Board, Catalyst Semiconductor,
    Inc.; Chairman of the Board, Montgomery Professional Services
    Corporation
|Glen G. Possley       |  |     | 63 |                      |  | Managing General Partner, Glen-Ore Associates                                                                                   
|Gelu Voicu            |  |     | 54 |                      |  | President and Chief Executive Officer, Catalyst
    Semiconductor, Inc.                                                         

Mr. Allanhas
served as our director since August 1995. Mr. Allan
previously served as a member of our board of directors from
March 1992 to March 1993. Mr. Allan is president of Allan
Advisors, Inc., a board governance and legal consulting firm
that he founded in 1992. Mr. Allan is also a director of
Accom, Inc., a digital video systems company and NetLogic
Microsystems, Inc., a semiconductor company. Mr. Allan
received an A.B. in Political Science and French from the
University of Michigan and a J.D. from Stanford University.

Dr. Duchâtelethas served as our director since
September 1999. From September 1989 to the present,
Dr. Duchâtelet has served as chairman of Elex N.V., a
holding company. Additionally, Dr. Duchâtelet serves
as chairman of the board of directors of Melexis N.V., a
semiconductor company, a position he has held since May 1994,
and is also a director of EPIQ N.V., a semiconductor company.
Dr. Duchâtelet holds a B.S. in Applied Economic
Sciences, an M.B.A. and a Ph.D. in Electronic Engineering from
the University of Leuven, Belgium.

35



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##### Table of Contents



Dr. Garrettsonhas served as our director since
February 2003. From November 2001 to the present,
Dr. Garrettson has served as the president, chief executive
officer and a director of Clairvoyante, Inc., an intellectual
property licensing company of flat panel display technology.
From April 2000 to December 2002, Dr. Garrettson served as
the chairman of the board of directors of Spectrian. From April
1996 to March 2000, Dr. Garrettson served as president,
chief executive officer and a director of Spectrian.
Dr. Garrettson holds a B.S. and an M.S. in Engineering
Physics and a Ph.D. in Mechanical Engineering from Stanford
University.

Mr. Montgomeryhas served as our director since July
2000 and has served as the chairman of our board of directors
since August 2002. Mr. Montgomery previously served as a
member of our board of directors from 1990 to 1996. Since 1980,
Mr. Montgomery has served as the chairman of the board of
Montgomery Professional Services Corporation, a management
consulting and financial services firm. From January 2000 to
March 2001, Mr. Montgomery served as executive vice
president, finance and administration and chief financial
officer of Indus International, Inc., a public company engaged
in enterprise asset management systems. From May 1999 to
September 1999, Mr. Montgomery served as interim executive
vice president of finance and administration and from November
2000 to December 2002 as a director of Spectrian Corporation, a
company which made mobile phone base station power amplifiers
and power transistors, that was acquired by REMEC, Inc. in
December 2002. Mr. Montgomery also serves as a director of
Swift Energy Company, an independent oil and gas company,
QuickLogic Corporation, a semiconductor device company, and ASAT
Holdings Ltd., a provider of semiconductor assembly, test and
package design services. He holds a B.A. in Economics from Miami
University in Oxford, Ohio.

Dr. Possleyhas
served as our director since July 2000 and served as our lead
director from May 2001 to August 2002. From January 1998 to the
present, Dr. Possley served as a managing general partner
at Glen-Ore Associates, a consulting company focused on the
semiconductor business. From January 1998 to January 2000,
Dr. Possley was a partner at International Technology
Ventures and N-Able Group. Dr. Possley is a director of
Novellus Systems, Inc., a semiconductor equipment company. He
received a B.S. in Mathematics from Western Illinois University
and a Ph.D. in Physical Chemistry from the University of
Kentucky.

Mr. Voicuhas
served as our president and chief executive officer and as a
director since October 2002. From August 2002 to October 2002,
he served as our executive vice president and chief operating
officer. From April 1998 to August 2002, he served as our vice
president of engineering and manufacturing. From July 1995 to
April 1998, Mr. Voicu was our director of flash product
lines. Mr. Voicu holds an M.S. in Electrical Engineering
from the Polytechnical Institute, Bucharest, Romania.

Certain Information Regarding Executive
Officers

Reference is made to certain information about
our executive officers which appears in the section entitled
Executive Officers in Item 1 of this report,
which information is incorporated by reference into this
Item 10.

Relationships Among Directors and Executive
Officers

There are no family relationships among our
directors and executive officers.

Audit Committee

The Audit Committee currently consists of
Messrs. Garrettson, Montgomery and Possley, each of whom is
independent within the meaning of the rules of the Securities
and Exchange Commission and the listing standards of the Nasdaq
National Market. The Board of Directors has determined that
Mr. Montgomery is an audit committee financial
expert as defined in the rules of the SEC. Our Board of
Directors amended charter of the Audit Committee charter in
February 2004 to comply with requirements of the Nasdaq National
Market and the rules of the SEC. A copy of the charter is
available on the Companys web site at
www.catalyst-semiconductor.com. The Audit Committee is
responsible for, among other things:



| |   |                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Providing oversight and monitoring of Company
    management and the independent auditors and their activities
    with respect to the Companys financial reporting process;

36



---



##### Table of Contents





| |   |                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Direct responsibility for appointing,
    compensating and overseeing the work of the independent auditors
    (including resolving disagreements between management and the
    independent auditors regarding financial reporting);                                                                                                                                                              
|
| |  | Pre-approving all audit and non-audit services
    provided to the Company by the independent auditors (or
    subsequently approving non-audit services in those circumstances
    where a subsequent approval is necessary and permissible) and
    the fees related to these services;                                                                                                          
|
| |  | Reviewing with management and the auditors,
    before release, the audited financial statements and
    Managements Discussion and Analysis in the Companys
    Annual Report on Form 10-K and the unaudited interim
    financial statements in the Companys Quarterly Report on
    Form 10-Q (management may facilitate the communication
    between the Audit Committee and the auditors);
|
| |  | Reviewing and approving in advance any related
    party transactions; and                                                                                                                                                                                                                                                                                                                         
|
| |  | Establishing procedures for receiving, retaining
    and treating complaints received by the Company regarding
    accounting, internal accounting controls or auditing matters and
    procedures for the confidential, anonymous submission by
    employees of concerns regarding questionable accounting or
    auditing matters.                                                              

Code of Ethics for Principal Executive and
Senior Financial Officers and Code of Business Conduct and
Ethics

We have adopted the Catalyst Semiconductor, Inc.
Code of Ethics for Principal Executive and Senior Financial
Officers which applies to our principal executive officer, our
principal financial officer and our principal accounting
officer. We have also adopted the Catalyst Semiconductor, Inc.
Code of Business Conduct and Ethics applicable to all our
employees. Our Code of Ethics for Principal Executive and Senior
Financial Officers and Code of Business Conduct and Ethics are
publicly available on our website at
www.catalyst-semiconductor.com. The information contained
on or connected to our website is not incorporated by reference
into this Form 10-K and should not be considered part of
this or any other report that we file with or furnish to the
SEC. We intend to post amendments to or waivers from these codes
on our website or as otherwise required by the rules of the
Nasdaq National Market.

Compliance with Section 16(a) of the
Exchange Act

Section 16(a) of the Exchange Act requires
our executive officers, directors and persons who own more than
10% of a registered class of the our equity securities to file
reports of ownership and changes in ownership with the
Securities and Exchange Commission (the SEC). Such
executive officers, directors and 10% stockholders are also
required by SEC rules to furnish us with copies of all forms
that they file pursuant to Section 16(a).

Based solely on our review of copies of Forms 3
and 4 and amendments thereto furnished to us pursuant to
Rule 16a-3 and Forms 5 and amendments thereto
furnished to the Company with respect to the last fiscal year,
and any written representations referred to in
Item 405(b)(2)(i) of Regulation S-K stating that no
Forms 5 were required, we believe that all
Section 16(a) filing requirements applicable to our
officers and directors were complied with during the fiscal year
ended April 30, 2004, except for the following:
Messrs. Georgescu, Gay, Kovalik, Wiley and Smarandoiu each
filed a Form 4 on November 26, 2003 that related to a
stock option grant on November 19, 2003 and that was due on
November 21, 2003.

We revised our Insider Trading Policy to allow
directors, officers and other employees covered under such
policy to establish, under the limited circumstances
contemplated by Rule 10b5-1 promulgated under the
Securities and Exchange Act of 1934, as amended, written
programs that permit automatic trading of our stock or trading
of our stock by an independent person (such as an investment
bank) who is not aware of material inside information at the
time of the trade. To our knowledge, no directors, officers or
employees have adopted Rule 10b5-1 trading plans.

37



---



##### Table of Contents








|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

Summary Compensation
Table.The following table shows the
compensation paid by us in fiscal 2004, 2003 and 2002 to
(i) our chief executive officer and (ii) our four most
highly compensated executive officers other than the chief
executive officer who served as executive officers at
April 30, 2004.

|                            |                             |        |      |                     |  |                      |         |            |  |              |         |         |  |   |        |        |  |  |         |         |  |   |       |       | 
|--------------------------- | --------------------------- | ------ | ---- | ------------------- |  | -------------------- | ------- | ---------- |  | ------------ | ------- | ------- |  | - | ------ | ------ |  |  | ------- | ------- |  | - | ----- | ----- | 
|                            |                             |        |      |                     |  |                      |         |            |  |             
|                            |                             |        |      |                     |  | Long Term           
|                            |                             |        |      | Annual Compensation |  | Compensation Payouts
|                            |                             |        |      |                     |  |                     
|                            |                             |        |      |                     |  | Other                |         | Number of  |  |             
|                            |                             |        |      |                     |  | Annual               |         | Securities |  | All Other   
|                            |                             | Fiscal |      |                     |  | Compensation         |         | Underlying |  | Compensation
|Name and Principal Position |                             | Year   |      | Salary              |  | Bonus                |         | (1)        |  | Options      |         | (2)    
|                            |                             |        |      |                     |  |                      |         |            |  |              |         |        
|Gelu Voicu(3)               |                             |        | 2004 |                     |  | $                    | 313,000 |            |  | $            | 219,410 |         |  | $ | 12,000 |        |  |  | 200,000 |         |  | $ | 4,956 |      
|                            | President and Chief         |        |      | 2003                |  |                      |         | 259,000    |  |              |         | 188,250 |  |   |        | 12,000 |  |  |         | 500,000 |  |   |       | 455   | 
|                            | Executive Officer           |        |      | 2002                |  |                      |         | 200,000    |  |              |         |        |  |   |        | 11,500 |  |  |         | 120,000 |  |   |       | 196   | 
|Thomas E. Gay               |                             |        | 2004 |                     |  |                      | 197,019 |            |  |              | 101,300 |         |  |   | 12,000 |        |  |  | 60,000  |         |  |   | 2,952 |      
|                            | Vice President, Finance and |        |      | 2003                |  |                      |         | 178,307    |  |              |         | 91,708  |  |   |        | 12,000 |  |  |         | 60,000  |  |   |       | 331   | 
|                            | Administration and Chief    |        |      | 2002                |  |                      |         | 165,000    |  |              |         |        |  |   |        | 11,500 |  |  |         | 80,000  |  |   |       | 175   | 
|                            | Financial Officer           |        |      |                     |  |                      |         |            |  |              |         |         |  |   |        |        |  |  |         |         |  |   |       |       | 
|Irvin W. Kovalik            |                             |        | 2004 |                     |  |                      | 185,615 |            |  |              | 96,754  |         |  |   | 12,000 |        |  |  | 50,000  |         |  |   | 5,203 |      
|                            | Vice President, Sales       |        |      | 2003                |  |                      |         | 171,642    |  |              |         | 87,250  |  |   |        | 12,000 |  |  |         | 60,000  |  |   |       | 1,734 | 
|                            |                             |        |      | 2002                |  |                      |         | 157,165    |  |              |         |        |  |   |        | 11,500 |  |  |         | 80,000  |  |   |       | 493   | 
|Sorin Georgescu             |                             |        | 2004 |                     |  |                      | 177,492 |            |  |              | 92,542  |         |  |   |       |        |  |  | 50,000  |         |  |   | 1,586 |      
|                            | Vice President, Technology  |        |      | 2003                |  |                      |         | 166,654    |  |              |         | 80,750  |  |   |        |       |  |  |         | 50,000  |  |   |       | 311   | 
|                            | Development                 |        |      | 2002                |  |                      |         | 81,846     |  |              |         |        |  |   |        |       |  |  |         | 200,000 |  |   |       | 69    | 
|George Smarandoiu(4)        |                             |        | 2004 |                     |  |                      | 179,194 |            |  |              | 92,542  |         |  |   |       |        |  |  | 80,000  |         |  |   | 2,584 |      
|                            | Vice President,             |        |      | 2003                |  |                      |         | 83,038     |  |              |         | 131,500 |  |   |        |       |  |  |         | 200,000 |  |   |       | 103   | 
|                            | Product Design              |        |      | 2002                |  |                      |         |           |  |              |         |        |  |   |        |       |  |  |         |        |  |   |       |      | 



---



|    |                                                                                                                                                                                                                                                                                          
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Amounts included under Other Annual
    Compensation represent the dollar value of car allowances
    paid by us for the benefit of such executive officer.                                                                                                                            
|   
|(2) | Amounts included under All Other
    Compensation represent the dollar value of 401(k)
    matching, group and term life insurance premiums paid by us for
    the benefit of such executive officer. In fiscal 2004, we began
    matching 25% of all employees 401(k) contributions.
|   
|(3) | Mr. Voicu was appointed executive vice
    president and chief operating officer as of August 21,
    2002, and was promoted to president and chief executive officer
    effective as of October 29, 2002.                                                                              
|   
|(4) | Mr. Smarandoiu became our Vice President,
    Product Design in October 2002.                                                                                                                                                                                                            

38



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##### Table of Contents



Option Grants in Fiscal
2004.The following table contains
information concerning the grant of stock options during fiscal
2004 to the officers listed in the summary compensation table
above. The options granted in fiscal 2004 vest at a rate of 25%
of the shares subject to the option after 12 months, and
then 1/48th of the shares subject to the option vest each month
thereafter. The options have a 10-year term, but are subject to
earlier termination in connection with a termination of
employment. The percentage of total options granted is based on
the aggregate grants of stock options to all of our employees in
fiscal 2004.

|                  |  |                      |         |            |  |              |      |            |  |                             |      |     |  |  |            |  |  |   |         |  |  |   |           | 
|----------------- |  | -------------------- | ------- | ---------- |  | ------------ | ---- | ---------- |  | --------------------------- | ---- | --- |  |  | ---------- |  |  | - | ------- |  |  | - | --------- | 
|                  |  |                      |         |            |  |              |      |           
|                  |  | Individual Grants(1) |         |            |  |              |      |           
|                  |  |                      |         |            |  |              |      |           
|                  |  |                      |         | Percent of |  |              |      |            |  |                            
|                  |  |                      |         | Total      |  |              |      |            |  | Potential Realizable Value 
|                  |  | Number of            |         | Options    |  |              |      |            |  | at Assumed Annual Rates    
|                  |  | Securities           |         | Granted to |  |              |      |            |  | of Stock Price Appreciation
|                  |  | Underlying           |         | Employees  |  | Exercise or  |      |            |  | for Option Term(4)         
|                  |  | Options              |         | in Fiscal  |  | Base Price   |      | Expiration |  |                            
|Name              |  | Granted              |         | Year(2)    |  | per Share(3) |      | Date       |  | 5%                          |      | 10%
|                  |  |                      |         |            |  |              |      |            |  |                             |      |    
|Gelu Voicu        |  |                      | 200,000 |            |  |              | 13.2 | %          |  | $                           | 7.15 |     |  |  | 11/19/2013 |  |  | $ | 899,319 |  |  | $ | 2,279,052 | 
|Thomas E. Gay III |  |                      | 60,000  |            |  |              | 4.0  |            |  |                             | 7.15 |     |  |  | 11/19/2013 |  |  |   | 269,796 |  |  |   | 683,716   | 
|Irvin W. Kovalik  |  |                      | 50,000  |            |  |              | 3.3  |            |  |                             | 7.15 |     |  |  | 11/19/2013 |  |  |   | 224,830 |  |  |   | 569,763   | 
|Sorin Georgescu   |  |                      | 50,000  |            |  |              | 3.3  |            |  |                             | 7.15 |     |  |  | 11/19/2013 |  |  |   | 224,830 |  |  |   | 569,763   | 
|George Smarandoiu |  |                      | 80,000  |            |  |              | 5.3  | %          |  | $                           | 7.15 |     |  |  | 11/19/2013 |  |  | $ | 359,728 |  |  | $ | 911,621   | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Options are incentive stock options to the extent
    qualified and nonstatutory options otherwise. See also
    Employment Contracts and Change-in-Control
    Arrangements for a description of certain acceleration
    provisions which may be applicable to these options under
    certain circumstances.                                                                                                                                                                                                                                                                                                                                                                    
|   
|(2) | We granted stock options representing a total of
    1,513,800 shares to employees in fiscal 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|(3) | Options were granted at an exercise price equal
    to the fair market value of our common stock, as determined by
    reference to the closing price reported on the Nasdaq National
    Market on the date of grant.                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|(4) | In accordance with SEC rules, the table sets
    forth the hypothetical gains or options spread that would exist
    for the options at the end of their respective 10 year
    terms based on assumed annualized rates of compound stock price
    appreciation of 5% and 10% from the dates the options were
    granted until the expiration of the option term. The disclosure
    of 5% and 10% assumed rates is required by the rules of the SEC
    and does not represent our estimate or projection of future
    stock price or stock price growth. If the stock price does not
    increase over the exercise price, the value to the executive
    officer would be zero.

Aggregated Option Exercises in Fiscal 2004 and
Year-End Option Value.The following
table sets forth information regarding options exercised by each
of the executive officers listed in the summary compensation
table above during fiscal 2004. The table also shows information
regarding the number and value of unexercised in-the-money
options held by such executive officers at the end of fiscal
2004.

|                  |  |             |        |          |  |                           |         |                         |  |             |         |               |  |  |         |  |  |   |           |  |  |   |           | 
|----------------- |  | ----------- | ------ | -------- |  | ------------------------- | ------- | ----------------------- |  | ----------- | ------- | ------------- |  |  | ------- |  |  | - | --------- |  |  | - | --------- | 
|                  |  |             |        |          |  |                           |         |                        
|                  |  |             |        |          |  | Number of Securities      |         | Value of Unexercised   
|                  |  | Number of   |        |          |  | Underlying Unexercised    |         | In-the-Money Options at
|                  |  | Shares      |        |          |  | Options at April 30, 2004 |         | April 30, 2004(1)      
|                  |  | Acquired on |        | Value    |  |                           |         |                        
|Name              |  | Exercise    |        | Realized |  | Exercisable               |         | Unexercisable           |  | Exercisable |         | Unexercisable
|                  |  |             |        |          |  |                           |         |                         |  |             |         |              
|Gelu Voicu        |  |             |       |          |  |                           |        |                         |  |             | 507,355 |               |  |  | 540,644 |  |  | $ | 2,219,756 |  |  | $ | 1,681,418 | 
|Thomas E. Gay III |  |             | 30,000 |          |  | $                         | 221,250 |                         |  |             | 380,404 |               |  |  | 119,596 |  |  |   | 1,992,615 |  |  |   | 260,569   | 
|Irvin W. Kovalik  |  |             |       |          |  |                           |        |                         |  |             | 240,404 |               |  |  | 109,596 |  |  |   | 1,000,284 |  |  |   | 259,416   | 
|Sorin Georgescu   |  |             |       |          |  |                           |        |                         |  |             | 159,375 |               |  |  | 140,625 |  |  |   | 872,875   |  |  |   | 479,625   | 
|George Smarandoiu |  |             |       |          |  |                           |        |                         |  |             | 106,250 |               |  |  | 173,750 |  |  | $ | 532,313   |  |  | $ | 481,688   | 



---



|    |                                                                                                                                                                                                                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents the per share market price at fiscal
    year end of $7.30 less the exercise price per share. For
    purposes of this calculation, the fiscal year end market price
    of the shares is deemed to be the closing sale price of our
    common stock as reported on the Nasdaq National Market on
    April 30, 2004.

39



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##### Table of Contents



Compensation of Directors

Messrs. Allan, Duchâtelet, Garrettson
and Possley received cash remuneration for serving on the board
of directors, which consisted of fees of $7,500, $7,500, $10,000
and $10,000 for the first, second, third and fourth quarters of
fiscal 2004, respectively. Mr. Montgomery received cash
remuneration for serving on the Board of Directors, which
consisted of fees of $13,750 per quarter in fiscal 2004.
Directors are also reimbursed for reasonable expenses incurred
in attending board of directors and committee meetings.
Directors do not receive additional compensation for serving on
a committee.

Employment Contracts, Change-of-Control
Agreements

In May 2003, we entered into an employment
agreement with Gelu Voicu, our president and chief executive
officer. The agreement provided for a base salary of $300,000
with an annual bonus equal to up to 65% of Mr. Voicus
base salary upon achievement of specified performance
milestones. In November 2003, the Board of Directors adjusted
Mr. Voicus base salary to $350,000. In the event that
Mr. Voicu is involuntary terminated by us without cause, he
is entitled to 12 months of severance pay and continued
benefits and that number of his unvested stock options equal to
the greater of (i) 50% of his then unvested stock options
or (ii) the number of his unvested stock options that would
have vested in the 12 months following such termination
will become immediately vested and remain exercisable for a
period of one year following such termination. In the event that
following a merger, sale or change in ownership of our company
following which Mr. Voicu is not made the chief executive
officer of the successor corporation, then all of
Mr. Voicus then unvested stock options will become
immediately vested and remain exercisable for a period of three
years following such change of control. Also, in the event that
Mr. Voicu is involuntarily terminated following a change of
control, he is entitled to 12 months of severance pay and
continued benefits. In November 2003, Mr. Voicu was granted
options to purchase 200,000 shares of our common stock at an
exercise price per share of $7.15. Each of these options vests
as to 25% of the shares subject to each option on the first
anniversary of the grant date and the remaining 75% of the
shares subject to each option vests ratably over the following
36 month period.

We entered into a severance agreement with George
Smarandoiu in October 2002. Under the severance agreement, in
the event of Dr. Smarandoius involuntary termination
following a change of control, he is entitled to receive a
severance payment equal to 50% of his annual salary and all then
unvested stock options will become immediately vested and remain
exercisable for a period of three years following such
termination. In the event of Dr. Smarandoius
involuntary termination apart from a change of control, he is
entitled to a severance payment equal to 25% of his annual
salary and all then vested stock options will remain exercisable
for a period of one year following such involuntary termination.

Compensation Committee Interlocks and Insider
Participation in Compensation Decisions

The compensation committee of the board of
directors currently consists of Messrs. Allan, Garrettson
and Possley. No interlocking relationship exists between any
member of our board of directors or compensation committee and
any member of the board of directors or compensation committee
of any other company, nor has any such interlocking relationship
existed in the past. No member of the compensation committee is
or was formerly an officer or an employee of us or our
subsidiaries.






|         |                                                                   
|-------- | ------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
    Owners and Management

Beneficial Share Ownership by Principal
Shareholders and Management

The following table sets forth the beneficial
ownership of our common stock for the following: (i) each
person known by us to beneficially own more than 5% of our
outstanding common stock; (ii) each of our

40



---



##### Table of Contents



executive officers listed in the summary
compensation table in Item 10 above; (iii) each of our
directors; and (iv) all of our executive officers and
directors as a group.


Except as otherwise noted below, the address of
each person listed on the table is 1250 Borregas Avenue,
Sunnyvale, California 94089

We have determined beneficial ownership in
accordance with the rules of the Securities and Exchange
Commission. In computing the number of shares beneficially owned
by a person and the percentage ownership of that person, we
include shares of common stock subject to options held by that
person that are currently exercisable or will become exercisable
within 60 days after April 30, 2004, while those
shares are not included for purposes of computing percentage
ownership of any other person. Unless otherwise indicated, the
persons and entities named in the table have sole voting and
investment power with respect to all shares beneficially owned,
subject to community property laws where applicable.

|                                                                 |                                                       |                           |           |                  |  |             |           |         |  |  |           |  |  |  |      |   | 
|---------------------------------------------------------------- | ----------------------------------------------------- | ------------------------- | --------- | ---------------- |  | ----------- | --------- | ------- |  |  | --------- |  |  |  | ---- | - | 
|                                                                 |                                                       |                          
|                                                                 |                                                       | Shares Beneficially Owned
|                                                                 |                                                       |                          
|                                                                 |                                                       |                           |           | Number of Shares |  | Total       |           |        
|                                                                 |                                                       |                           |           | Underlying       |  | Shares and  |           |        
|                                                                 |                                                       |                           |           | Options          |  | Shares      |           |        
|                                                                 |                                                       | Number of                 |           | Exercisable      |  | Underlying  |           | Percent
|                                                                 |                                                       | Outstanding               |           | on or Before     |  | Exercisable |           | of     
|Name and Address of Beneficial Owner                             |                                                       | Shares                    |           | April 30, 2004   |  | Options     |           | Total  
|                                                                 |                                                       |                           |           |                  |  |             |           |        
|5% Stockholders:                                                 |                                                       |                           |           |                  |  |             |           |         |  |  |           |  |  |  |      |  
|Elex NV(1)                                                       |                                                       |                           | 3,578,700 |                  |  |             | 114,722   |         |  |  | 3,693,422 |  |  |  | 22.3 | %
|                                                                 | Transportstraat 1
    B 3980
    Tessenderlo, Belgium |                           |           |                  |  |             |           |         |  |  |           |  |  |  |      |   | 
|Executive Officers and Directors:                                |                                                       |                           |           |                  |  |             |           |         |  |  |           |  |  |  |      |  
|Gelu Voicu                                                       |                                                       |                           | 214,046   |                  |  |             | 537,166   |         |  |  | 751,212   |  |  |  | 4.3  |  
|Thomas E. Gay III                                                |                                                       |                           | 50,000    |                  |  |             | 388,471   |         |  |  | 438,471   |  |  |  | 2.6  |  
|Sorin Georgescu                                                  |                                                       |                           |          |                  |  |             | 167,708   |         |  |  | 167,708   |  |  |  | 1.0  |  
|Irvin W. Kovalik                                                 |                                                       |                           |          |                  |  |             | 248,471   |         |  |  | 248,471   |  |  |  | 1.5  |  
|George Smarandoiu                                                |                                                       |                           | 1,000     |                  |  |             | 112,500   |         |  |  | 113,500   |  |  |  | *    |  
|Henry C. Montgomery                                              |                                                       |                           | 21,000    |                  |  |             | 117,222   |         |  |  | 138,222   |  |  |  | *    |  
|Lionel M. Allan                                                  |                                                       |                           |          |                  |  |             | 82,222    |         |  |  | 82,222    |  |  |  | *    |  
|Roland Duchâtelet                                                |                                                       |                           | 3,578,700 |                  |  |             | 114,722   |         |  |  | 3,693,422 |  |  |  | 22.3 |  
|Garrett A. Garrettson                                            |                                                       |                           |          |                  |  |             | 20,000    |         |  |  | 20,000    |  |  |  | *    |  
|Glen G. Possley                                                  |                                                       |                           | 32,407    |                  |  |             | 84,815    |         |  |  | 117,222   |  |  |  | *    |  
|All directors and executive officers as a group
    (11 persons) |                                                       |                           | 3,897,153 |                  |  |             | 2,131,337 |         |  |  | 6,028,490 |  |  |  | 36.3 | %



---



|    |                                                                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*   | Less than 1% of shares beneficially owned.                                                                                                                                                         
|   
|(1) | Mr. Duchâtelet is the chairman of Elex
    N.V. Mr. Duchâtelet disclaims beneficial ownership of
    the shares held by Elex N.V. except to the extent of his
    pecuniary interest in the shares.

41



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##### Table of Contents



Equity Compensation Plan Information

The following table provides information as of
April 30, 2004 about our common stock that may be issued
upon the exercise of options, warrants and rights under all of
our existing equity compensation plans, including the 2003 Stock
Incentive Plan, the 2003 Director Stock Option Plan and the
1998 Special Equity Incentive Plan, each of which has been
approved by our stockholders.

|                                   |       |                      |           |                   |  |                       |       |       |  |  |         |         | 
|---------------------------------- | ----- | -------------------- | --------- | ----------------- |  | --------------------- | ----- | ----- |  |  | ------- | ------- | 
|                                   |       |                      |           |                   |  | Number of            
|                                   |       |                      |           |                   |  | Securities Remaining 
|                                   |       |                      |           |                   |  | Available for        
|                                   |       |                      |           |                   |  | Future Issuance      
|                                   |       | Number of Securities |           | Weighted-Average  |  | Under Equity         
|                                   |       | to be Issued upon    |           | Exercise Price of |  | Compensation Plans   
|                                   |       | Exercise of          |           | Outstanding       |  | (Excluding Securities
|                                   |       | Outstanding Options, |           | Options, Warrants |  | Reflected in         
|Equity compensation plan           |       | Warrants and Rights  |           | and Rights        |  | Column (a))          
|                                   |       |                      |           |                   |  |                      
|2003 Stock Incentive Plan          |       |                      | 4,500,803 |                   |  | $                     | 3.915 |       |  |  | 442,804 |        
|2003 Director Stock Option Plan    |       |                      | 235,000   |                   |  |                       | 4.692 |       |  |  | 332,505 |        
|1998 Special Equity Incentive Plan |       |                      | 981,759   |                   |  |                       | 1.785 |       |  |  | 95,210  |        
|                                   |       |                      |           |                   |  |                       |       |       |  |  |         |        
|                                   | Total |                      |           | 5,717,562         |  |                       | $     | 3.581 |  |  |         | 870,519 | 
|                                   |       |                      |           |                   |  |                       |       |       |  |  |         |        

We do not have any compensation plans under which
equity securities are authorized for issuance which have not
been approved by our shareholders.






|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions

Elex N.V.

During the fourth quarter of fiscal 2000, we
began taking delivery of wafers fabricated by X-FAB, a wholly
owned subsidiary of Elex N.V., a Belgian holding company, that
owned 3,578,700 shares, or 21.8% of our outstanding shares,
as of April 30, 2004. Roland Duchâtelet, the chairman
and chief executive officer of Elex N.V., serves as a member of
our board of directors. The wafers provided by X-FAB include
wafers for our analog and mixed-signal products and EEPROM
products. We believe that the cost of the wafers we purchase
from X-FAB is no greater than comparable materials available
from alternative foundries. We periodically negotiate the prices
of wafers purchased from X-FAB with X-FAB management and compare
those prices to quotes we obtain from other prospective
foundries and pricing surveys published by various industry
trade organizations. We purchased $3.7 million of wafers
from X-FAB in fiscal 2004. As of April 30, 2004, 2003 and
2002, the total amount owed to X-FAB was $137,000, $18,000 and
$184,000, respectively. Other than purchase orders currently
open with X-FAB, there is no purchasing agreement in place with
X-FAB.

On April 22, 2004, we purchased
600,000 shares of our common stock from Elex N.V. for
$6.77 per share and an aggregate of $4.1 million.

LXI Corporation

We had an informal arrangement from 1995 through
January 2003 to obtain engineering services from LXI
Corporation, a California corporation, or Lxi, a provider of
engineering services through Essex com SRL, or Essex, Lxis
wholly owned subsidiary in Romania. The number of full time
engineers we used was dependent upon the scope and number of
research and development projects in process at a given time.
These services related to our key development projects including
development, design, layout and test program development
services. We believe that we received these engineering services
from Lxi on terms and at rates that were at least as favorable,
if not more favorable, than we could obtain from unaffiliated
third parties. Two of our officers, Gelu Voicu and Thomas E.
Gay III, owned approximately 3% and 1%, respectively, of
Lxi until February 2003. Mr. Gay, who had served as a
director of Lxi, resigned from that position in January 2003.

42



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##### Table of Contents



Mr. Voicu and Mr. Gay received no
payments from Lxi during fiscal 2004, fiscal 2003 and fiscal
2002 other than $40,000 and $12,000, respectively, from the
repurchase of their shares at net book value by Lxi in February
2003. Additionally, we believe that our former chief executive
officer, Radu Vanco, continues to own a majority of the
outstanding shares of Lxi. In January 2003, we formed a wholly
owned subsidiary in Romania to perform these engineering design
services on our behalf and discontinued our use of the
engineering services of Lxi.


Allan Advisors, Inc.

One of our directors, Lionel Allan, has also
served as a consultant to us through his consulting company,
Allan Advisors, Inc. Under the terms of his consulting
agreement, we paid Mr. Allan consulting fees of
$8,333 per month throughout fiscal 2003. In April 2003, we
terminated the agreement and paid the $29,000 balance due as
required by the agreement. Mr. Allan no longer provides
consulting services to us and we have no continuing obligations
to Mr. Allan under the terminated agreement.






|         |                                         
|-------- | ----------------------------------------
|Item 14. | Principal Auditors Fees and
    Services

Relationship with Independent Registered
Public Accounting Firm

PricewaterhouseCoopers LLP, or PwC, has served as
our independent registered public accounting firm for our
financial statements prepared under U.S. generally accepted
accounting principles since 1987.

Fees Paid to Accountants for Services
Rendered

PwC billed us for the following professional
services:

|                        |  |                       |         |      |  |   |         | 
|----------------------- |  | --------------------- | ------- | ---- |  | - | ------- | 
|                        |  |                      
|                        |  | Years Ended April 30,
|                        |  |                      
|                        |  | 2004                  |         | 2003
|                        |  |                       |         |     
|Audit fees              |  | $                     | 298,000 |      |  | $ | 208,000 | 
|Tax fees                |  |                       |        |      |  |   | 7,000   | 
|All other fees          |  |                       |        |      |  |   | 98,000  | 
|                        |  |                       |         |      |  |   |         | 
|Total professional fees |  | $                     | 298,000 |      |  | $ | 313,000 | 
|                        |  |                       |         |      |  |   |         | 



| |           
| | ----------
| | Audit Fees

Audit fees consist of the aggregate fees for
professional services rendered by PwC for the audit of our
consolidated financial statements, the review of our unaudited
condensed consolidated interim financial statements and
assistance with SEC matters.



| |                   
| | ------------------
| | Audit-Related Fees

We did not pay any audit-related fees in fiscal
2004 and fiscal 2003.



| |         
| | --------
| | Tax Fees

Tax fees consist of the aggregate fees for
professional services rendered by PwC for tax compliance, tax
advice and tax planning.



| |               
| | --------------
| | All Other Fees

All other fees consist of the aggregate fees for
professional services rendered by PwC for a research and
development tax credit study and incorporation of foreign
subsidiaries.

43



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##### Table of Contents



Pre-Approval Policies and Procedures

In accordance with the charter of the audit
committee, the audit committee is required to review and approve
in advance the annual budget for independent audit services and
review and pre-approve all non-audit services rendered by the
Companys independent registered public accounting firm.
All services described above were pre-approved by the audit
committee prior to their commencement.




PART IV






|         |                                                                    
|-------- | -------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules and
    Reports on Form 8-K

(a)(1) Financial
Statements

See Index to Consolidated Financial Statements on
page F-1 hereof.

(a)(2) Financial Statement
Schedules

Schedule II  Valuation and
Qualifying Accounts.

All other schedules are omitted because they are
not required or the required information is shown in the
financial statements or notes thereto.

(b) Reports on
Form 8-K

On May 27, 2004, we filed a Current Report
on Form 8-K announcing our fiscal fourth quarter and
year-end financial results.

(c) Exhibits

|            |    |             |  |                                                                                                                                                                 
|----------- | -- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |    | Description
|            |    |            
|            | 3  | .2(8)       |  | Restated Certificate of Incorporation of
    Registrant                                                                                                         
|            | 3  | .4(7)       |  | Bylaws of Registrant                                                                                                                                            
|            | 4  | .1(17)      |  | Specimen Stock Certificate                                                                                                                                      
|            | 4  | .2(3)       |  | Preferred Shares Rights Agreement, dated as of
    December 3, 1996, between Catalyst Semiconductor, Inc. and
    First National Bank of Boston                 
|            | 4  | .2.1(15)    |  | Amendment No. 1 to Preferred Shares Rights
    Agreement dated as of May 22, 1998 between Registrant and
    BankBoston, N. A., as rights agent                 
|            | 4  | .2.2(15)    |  | Amendment No. 2 to Preferred Shares Rights
    Agreement dated as of September 14, 1998 between Registrant
    and BankBoston, N. A., as rights agent           
|            | 4  | .2.3(14)    |  | Amendment No. 3 to Preferred Shares Rights
    Agreement dated as of September 27, 2001 between Registrant
    and EquiServe Trust Company N.A., as rights agent
|            | 4  | .2.4(15)    |  | Amendment No. 4 to Preferred Shares Rights
    Agreement dated as of July 17, 2002 between Registrant and
    EquiServe Trust Company N.A., as rights agent     
|            | 4  | .2.5(18)    |  | Amendment No. 5 to Preferred Shares Rights
    Agreement dated as of April 22, 2004 between the Registrant
    and Equiserve Trust Company, as rights agent     
|            | 4  | .2.6(19)    |  | Amendment No. 6 to Preferred Shares Rights
    Agreement dated as of June 18, 2004 between the Registrant
    and Equiserve Trust Company, as rights agent      
|            | 4  | .6(16)      |  | 2003 Stock Incentive Plan                                                                                                                                       
|            | 4  | .7(16)      |  | 2003 Director Stock Option Plan                                                                                                                                 
|            | 4  | .8(12)      |  | 1998 Special Equity Incentive Plan                                                                                                                              
|            | 10 | .27(1)*     |  | Form of Indemnification Agreement entered into by
    Registrant with each of its directors and executive officers.                                             
|            | 10 | .38(2)      |  | Standard Industrial Lease dated March 22,
    1996 between Marin County Employees Retirement Association and
    Registrant                                     
|            | 10 | .39(2)     |  | Master Agreement dated February 7, 1996
    between United Microelectronics Corporation and the Registrant                                                      
|            | 10 | .61(4)      |  | Standstill Agreement dated as of May 26,
    1998 between the Registrant and Elex N.V.                                                                          
|            | 10 | .61.1(6)    |  | Amended and Restated Standstill Agreement dated
    as of September 14, 1998 between the Registrant and Elex
    N.V.                                           

44



---



##### Table of Contents



|            |    |             |  |                                                                                                                                                                                       
|----------- | -- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |    | Description
|            |    |            
|            | 10 | .61.2(18)   |  | Amendment No. 1 to Amended and Restated
    Standstill Agreement dated as of April 22, 2004                                                                                           
|            | 10 | .61.3(18)   |  | Second Amended and Restated Standstill Agreement
    dated as of June 10, 2004                                                                                                        
|            | 10 | .83(14)     |  | Stock Purchase Agreement dated April 19,
    2002 between Elex NV and Registrant                                                                                                      
|            | 10 | .84(15)*    |  | Form of Change of Control Agreement between
    Registrant and its non-employee directors                                                                                             
|            | 10 | .85(20)*    |  | Employment Agreement dated May 23, 2003
    between Gelu Voicu and Registrant                                                                                                         
|            | 10 | .86(18)     |  | Stock Transfer Agreement dated as of
    April 22, 2004 between the Registrant and Elex N.V.                                                                                          
|            | 10 | .87*        |  | Severance Agreement dated October 14, 2002
    between George Smarandoiu and Registrant                                                                                               
|            | 10 | .88(21)     |  | Sale-Purchase Promissory Agreement, dated
    November 6, 2003, between Registrant and S.C. Hathor Impex
    SRL                                                                      
|            | 10 | .89(4)      |  | Common Stock Purchase Agreement dated as of
    May 26, 1998 between Registrant and Elex N.V.                                                                                         
|            | 10 | .90(6)      |  | Common Stock Purchase Agreement dated as of
    September 14, 1998 between Registrant and Elex N.V.                                                                                   
|            | 21 | .1(20)      |  | List of Subsidiaries of Registrant.                                                                                                                                                   
|            | 23 | .1          |  | Consent of Independent Registered Public
    Accounting Firm                                                                                                                          
|            | 31 | .1          |  | Certification of Chief Executive Officer pursuant
    to U.S.C. Section 302 of the Sarbanes-Oxley Act of 2002                                                                         
|            | 31 | .2          |  | Certification of Chief Financial Officer pursuant
    to U.S.C. Section 302 of the Sarbanes-Oxley Act of 2002                                                                         
|            | 32 |             |  | Certification of Chief Executive Officer and
    Chief Financial Officer pursuant to U.S.C. Section 1350, as
    adopted pursuant to Section 902 of the Sarbanes-Oxley Act
    of 2002



---



| |     |                                                                                                                                                                                            
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Incorporated by reference to Registrants
    Registration Statement on Form S-1 filed with the
    Securities and Exchange Commission on May 11, 1993 (File
    No. 33-60132), as amended.
|
| | (2) | Incorporated by reference to Registrants
    Form 10-K filed with the Securities and Exchange Commission
    for the year ended April 30, 1996.                                           
|
| | (3) | Incorporated by reference to Registrants
    Form 8-A filed with the Securities and Exchange Commission
    on January 22, 1997.                                                          
|
| | (4) | Incorporated by reference to Registrants
    Form 10-K filed with the Securities and Exchange Commission
    for the year ended May 3, 1998.                                              
|
| | (5) | Incorporated by reference to Registrants
    Form 10-K/ A filed with the Securities and Exchange
    Commission for the year ended May 3, 1998.                                           
|
| | (6) | Incorporated by reference to Registrants
    Form 10-Q filed with the Securities and Exchange Commission
    for the quarter ended August 2, 1998.                                        
|
| | (7) | Incorporated by reference to Registrants
    Form 10-Q/ A filed with the Securities and Exchange
    Commission for the quarter ended November 1, 1998.                                   
|
| | (8) | Incorporated by reference to an Appendix to
    Registrants Definitive Proxy Statement filed with the
    Securities and Exchange Commission on December 18, 1998.                        
|
| | (9) | Incorporated by reference to Registrants
    Form 10-Q filed with the Securities and Exchange Commission
    for the quarter ended January 21, 1999.                                      



|     |                                                                                                                                                                               
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Incorporated by reference to Registrants
    Form 10-K filed with the Securities and Exchange Commission
    for the year ended May 2, 1999.                                 
|    
|(11) | Incorporated by reference to Registrants
    Form 10-K filed with the Securities and Exchange Commission
    for the year ended April 30, 2000.                              
|    
|(12) | Incorporated by reference to an Appendix to
    Registrants Definitive Proxy Statement previously filed
    with the Securities and Exchange Commission on July 27,
    2000.
|    
|(13) | Incorporated by reference to Registrants
    Form 10-K filed with the Securities and Exchange Commission
    for the year ended April 30, 2001.                              

45



---



##### Table of Contents





|     |                                                                                                                                                                                       
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(14) | Incorporated by reference to Registrants
    Form 10-Q filed with the Securities and Exchange Commission
    for the quarter ended October 28, 2001.                                 
|    
|(15) | Incorporated by reference to Registrants
    Form 10-K filed with the Securities and Exchange Commission
    for the year ended April 30, 2002.                                      
|    
|(16) | Incorporated by reference to Registrants
    Registration Statement on Form S-8 filed with the
    Securities and Exchange Commission on December 24, 2002
    (File No. 333-102201).
|    
|(17) | Incorporated by reference to Registrants
    Registration Statement on Form 8-A/ A filed with the
    Securities and Exchange Commission on April 29, 1993.                          
|    
|(18) | Incorporated by reference to Registrants
    Registration Statement on Form S-3 filed with the
    Securities and Exchange Commission on June 14, 2004 (File
    No. 333-116425).    
|    
|(19) | Incorporated by reference to Registrants
    Registration Statement on Form S-3/ A filed with the
    Securities and Exchange Commission on June 22, 2004 (File
    No. 333-116425). 
|    
|(20) | Incorporated by referenced to Registrants
    Form 10-K filed with the Securities and Exchange Commission
    for the year ended April 27, 2003.                                     
|    
|(21) | Incorporated by reference to Registrants
    Form 10-Q filed with the Securities and Exchange Commission
    for the quarter ended February 1, 2004.                                 



| |   |                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.

46



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##### Table of Contents






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 June 29, 2004.



| |                             
| | ----------------------------
| | CATALYST SEMICONDUCTOR, INC.



| |     |               
| | --- | --------------
| | By: | /s/ GELU VOICU

| |                                                    
| | ---------------------------------------------------
| |                                                    
| | Gelu Voicu                                         
| | 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
Gelu Voicu and Thomas E. Gay III, and each of them, as his
attorneys-in-fact, with the full 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 attorneys-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 June 29, 2004.

|    |  |                                              |  |                                                                                                                                       |  |              
|--- |  | -------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------- |  | -------------
|By: |  | /s/ GELU VOICUGelu Voicu                     |  | President, Chief Executive Officer
    and Director
    (Principal Executive Officer)                                                 |  | June 29, 2004
|   
|By: |  | /s/ THOMAS E. GAY IIIThomas E. Gay III       |  | Vice President of Finance and Administration
    and
    Chief Financial Officer
    (Principal Financial and
    Accounting Officer) |  | June 29, 2004
|   
|By: |  | /s/ LIONEL M. ALLANLionel M. Allan           |  | Director                                                                                                                              |  | June 29, 2004
|   
|By: |  | /s/ ROLAND M. DUCHÂTELETRoland M. Duchâtelet |  | Director                                                                                                                              |  | June 29, 2004
|   
|By: |  | /s/ GARRETT GARRETTSONGarrett Garrettson     |  | Director                                                                                                                              |  | June 29, 2004
|   
|By: |  | /s/ HENRY C. MONTGOMERYHenry C. Montgomery   |  | Chairman of the Board                                                                                                                 |  | June 29, 2004
|   
|By: |  | /s/ GLEN G. POSSLEYGlen G. Possley           |  | Director                                                                                                                              |  | June 29, 2004

47



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##### Table of Contents



CATALYST SEMICONDUCTOR, INC.

INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS

|                                                                                                      |  |       |     | 
|----------------------------------------------------------------------------------------------------- |  | ----- | --- | 
|                                                                                                      |  | Pages
|                                                                                                      |  |      
|Report of Independent Registered Public
    Accounting Firm                                           |  |       | F-2 | 
|Consolidated Balance Sheets as of April 30,
    2004 and 2003                                         |  |       | F-3 | 
|Consolidated Statements of Operations for the
    years ended April 30, 2004, 2003 and 2002           |  |       | F-4 | 
|Consolidated Statements of Stockholders
    Equity for the years ended April 30, 2004, 2003 and 2002 |  |       | F-5 | 
|Consolidated Statements of Cash Flows for the
    years ended April 30, 2004, 2003 and 2002           |  |       | F-6 | 
|Notes to Consolidated Financial Statements                                                            |  |       | F-7 | 

F-1



---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Catalyst Semiconductor, Inc.


In our opinion, the consolidated financial
statements listed in the index appearing under
Item 15(a)(1) present fairly, in all material respects, the
financial position of Catalyst Semiconductor, Inc. and its
subsidiaries at April 30, 2004 and 2003, and the results of
their operations and their cash flows for each of the three
years in the period ended April 30, 2004 in conformity with
accounting principles generally accepted in the United States of
America. In addition, in our opinion, the financial statement
schedule listed in the index appearing under Item 15(a)(2)
present fairly, in all material respects, the information set
forth therein when read in conjunction with the related
consolidated financial statements. These financial statements
and financial statement schedule are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements and financial statement
schedule based on our audits. We conducted our audits of these
statements in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those
standards 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 our
opinion.



| |                               
| | ------------------------------
| | /s/ PRICEWATERHOUSECOOPERS LLP

San Jose, California

June 29, 2004


F-2



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##### Table of Contents



CATALYST SEMICONDUCTOR, INC.

CONSOLIDATED BALANCE SHEETS

|                                                                                                                                                                                                                       |                                                                                                 |                                            |         |        |        |  |        |        |        | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | ------ | ------ |  | ------ | ------ | ------ | 
|                                                                                                                                                                                                                       |                                                                                                 |                                           
|                                                                                                                                                                                                                       |                                                                                                 | April 30,                                 
|                                                                                                                                                                                                                       |                                                                                                 |                                           
|                                                                                                                                                                                                                       |                                                                                                 | 2004                                       |         | 2003  
|                                                                                                                                                                                                                       |                                                                                                 |                                            |         |       
|                                                                                                                                                                                                                       |                                                                                                 |                                           
|                                                                                                                                                                                                                       |                                                                                                 | (In thousands)                            
|ASSETS                                                                                                                                                                                                                
|Current assets:                                                                                                                                                                                                        |                                                                                                 |                                            |         |        |        |  |        |       
|                                                                                                                                                                                                                       | Cash and cash equivalents                                                                       |                                            | $       | 17,245 |        |  | $      | 7,828  |       
|                                                                                                                                                                                                                       | Short term investments                                                                          |                                            |         | 16,564 |        |  |        | 20,078 |       
|                                                                                                                                                                                                                       | Accounts receivable, net                                                                        |                                            |         | 12,547 |        |  |        | 7,863  |       
|                                                                                                                                                                                                                       | Inventories                                                                                     |                                            |         | 6,960  |        |  |        | 8,423  |       
|                                                                                                                                                                                                                       | Deferred tax assets                                                                             |                                            |         | 5,024  |        |  |        | 1,914  |       
|                                                                                                                                                                                                                       | Other current assets                                                                            |                                            |         | 875    |        |  |        | 1,146  |       
|                                                                                                                                                                                                                       |                                                                                                 |                                            |         |        |        |  |        |       
|                                                                                                                                                                                                                       |                                                                                                 | Total current assets                       |         |        | 59,215 |  |        |        | 47,252 | 
|Property and equipment, net                                                                                                                                                                                            |                                                                                                 |                                            | 3,334   |        |        |  | 3,091  |       
|Deferred tax assets                                                                                                                                                                                                    |                                                                                                 |                                            | 4,098   |        |        |  |       |       
|Other assets                                                                                                                                                                                                           |                                                                                                 |                                            | 218     |        |        |  | 245    |       
|                                                                                                                                                                                                                       |                                                                                                 |                                            |         |        |        |  |        |       
|                                                                                                                                                                                                                       |                                                                                                 | Total assets                               |         | $      | 66,865 |  |        | $      | 50,588 | 
|                                                                                                                                                                                                                       |                                                                                                 |                                            |         |        |        |  |        |       
|                                                                                                                                                                                                                      
|LIABILITIES AND STOCKHOLDERS
    EQUITY                                                                                                                                                                              
|Current liabilities:                                                                                                                                                                                                   |                                                                                                 |                                            |         |        |        |  |        |       
|                                                                                                                                                                                                                       | Accounts payable                                                                                |                                            | $       | 4,879  |        |  | $      | 3,674  |       
|                                                                                                                                                                                                                       | Accounts payable  related parties                                                              |                                            |         | 137    |        |  |        | 18     |       
|                                                                                                                                                                                                                       | Accrued expenses                                                                                |                                            |         | 3,782  |        |  |        | 3,126  |       
|                                                                                                                                                                                                                       | Deferred gross profit on shipments to distributors                                              |                                            |         | 4,079  |        |  |        | 1,417  |       
|                                                                                                                                                                                                                       |                                                                                                 |                                            |         |        |        |  |        |       
|                                                                                                                                                                                                                       |                                                                                                 | Total current liabilities                  |         |        | 12,877 |  |        |        | 8,235  | 
|                                                                                                                                                                                                                       |                                                                                                 |                                            |         |        |        |  |        |       
|Commitments and contingencies (Notes 6 and 9)                                                                                                                                                                          |                                                                                                 |                                            |         |        |        |  |        |       
|Stockholders equity:                                                                                                                                                                                                  |                                                                                                 |                                            |         |        |        |  |        |       
|                                                                                                                                                                                                                       | Preferred stock, $.001 par value,
    2,000 shares authorized; no shares issued and outstanding |                                            |         |       |        |  |        |       |       
|Common stock, $.001 par value,
    45,000 shares authorized; 20,057 shares issued and
    16,413 shares outstanding at April 30, 2004 and
    19,246 shares issued and 16,276 shares outstanding at
    April 30, 2003 |                                                                                                 |                                            | 20      |        |        |  | 19     |       
|Additional paid-in-capital                                                                                                                                                                                             |                                                                                                 |                                            | 59,228  |        |        |  | 52,632 |       
|Treasury stock, 3,644 shares at
    April 30, 2004 and 2,970 shares at April 30, 2003                                                                                                                                  |                                                                                                 |                                            | (12,616 | )      |        |  | (8,340 | )     
|Retained earnings (Accumulated deficit)                                                                                                                                                                                |                                                                                                 |                                            | 7,382   |        |        |  | (1,985 | )     
|Accumulated other comprehensive income (loss)                                                                                                                                                                          |                                                                                                 |                                            | (26     | )      |        |  | 27     |       
|                                                                                                                                                                                                                       |                                                                                                 |                                            |         |        |        |  |        |       
|                                                                                                                                                                                                                       |                                                                                                 | Total stockholders equity                 |         |        | 53,988 |  |        |        | 42,353 | 
|                                                                                                                                                                                                                       |                                                                                                 |                                            |         |        |        |  |        |       
|                                                                                                                                                                                                                       |                                                                                                 | Total liabilities and stockholders equity |         | $      | 66,865 |  |        | $      | 50,588 | 
|                                                                                                                                                                                                                       |                                                                                                 |                                            |         |        |        |  |        |       

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

F-3



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##### Table of Contents



CATALYST SEMICONDUCTOR, INC.

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                            |                                     |                                       |        |        |  |      |        |        |  |   |        |        | 
|------------------------------------------- | ----------------------------------- | ------------------------------------- | ------ | ------ |  | ---- | ------ | ------ |  | - | ------ | ------ | 
|                                            |                                     |                                      
|                                            |                                     | Years Ended April 30,                
|                                            |                                     |                                      
|                                            |                                     | 2004                                  |        | 2003   |  | 2002
|                                            |                                     |                                       |        |        |  |     
|                                            |                                     |                                      
|                                            |                                     | (In thousands, except per share data)
|Net revenues                                |                                     | $                                     | 63,538 |        |  | $    | 48,221 |        |  | $ | 42,791 |       
|Cost of revenues                            |                                     |                                       | 37,375 |        |  |      | 28,396 |        |  |   | 27,158 |       
|                                            |                                     |                                       |        |        |  |      |        |        |  |   |        |       
|Gross profit                                |                                     |                                       | 26,163 |        |  |      | 19,825 |        |  |   | 15,633 |       
|Operating expenses:                         |                                     |                                       |        |        |  |      |        |        |  |   |        |       
|                                            | Research and development            |                                       |        | 7,130  |  |      |        | 5,223  |  |   |        | 4,380  | 
|                                            | Selling, general and administrative |                                       |        | 11,453 |  |      |        | 10,020 |  |   |        | 10,652 | 
|                                            |                                     |                                       |        |        |  |      |        |        |  |   |        |       
|Income from operations                      |                                     |                                       | 7,580  |        |  |      | 4,582  |        |  |   | 601    |       
|Interest income, net                        |                                     |                                       | 379    |        |  |      | 382    |        |  |   | 663    |       
|                                            |                                     |                                       |        |        |  |      |        |        |  |   |        |       
|Income before income taxes                  |                                     |                                       | 7,959  |        |  |      | 4,964  |        |  |   | 1,264  |       
|Income tax provision (benefit)              |                                     |                                       | (1,408 | )      |  |      | (1,354 | )      |  |   | 494    |       
|                                            |                                     |                                       |        |        |  |      |        |        |  |   |        |       
|Net income                                  |                                     | $                                     | 9,367  |        |  | $    | 6,318  |        |  | $ | 770    |       
|                                            |                                     |                                       |        |        |  |      |        |        |  |   |        |       
|Net income per share:                       |                                     |                                       |        |        |  |      |        |        |  |   |        |       
|                                            | Basic                               |                                       | $      | 0.57   |  |      | $      | 0.38   |  |   | $      | 0.04   | 
|                                            |                                     |                                       |        |        |  |      |        |        |  |   |        |       
|                                            | Diluted                             |                                       | $      | 0.48   |  |      | $      | 0.34   |  |   | $      | 0.04   | 
|                                            |                                     |                                       |        |        |  |      |        |        |  |   |        |       
|Weighted average common shares outstanding: |                                     |                                       |        |        |  |      |        |        |  |   |        |       
|                                            | Basic                               |                                       |        | 16,567 |  |      |        | 16,721 |  |   |        | 17,829 | 
|                                            | Diluted                             |                                       |        | 19,411 |  |      |        | 18,339 |  |   |        | 20,439 | 

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

F-4



---



##### Table of Contents



CATALYST SEMICONDUCTOR, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY

|                                 |                           |                |        |            |  |         |    |          |  |              |        |               |  |               |        |         |   |   |        |       |  |   |     |     |   |   |        |        | 
|-------------------------------- | ------------------------- | -------------- | ------ | ---------- |  | ------- | -- | -------- |  | ------------ | ------ | ------------- |  | ------------- | ------ | ------- | - | - | ------ | ----- |  | - | --- | --- | - | - | ------ | ------ | 
|                                 |                           |                |        |            |  |         |    |          |  |              |        |              
|                                 |                           | Common Stock   |        |            |  |         |    | Retained |  | Accumulated  |        |              
|                                 |                           |                |        | Additional |  |         |    | Earnings |  | Other        |        | Total        
|                                 |                           | Shares         |        | Par        |  | Paid-In |    | Treasury |  | (Accumulated |        | Comprehensive |  | Stockholders
|                                 |                           | Outstanding    |        | Value      |  | Capital |    | Stock    |  | Deficit)     |        | Income (Loss) |  | Equity       
|                                 |                           |                |        |            |  |         |    |          |  |              |        |               |  |              
|                                 |                           |               
|                                 |                           | (In thousands)
|Balance at April 30, 2001        |                           |                | 17,527 |            |  | $       | 18 |          |  | $            | 48,168 |               |  | $             |       |         |   | $ | (9,073 | )     |  | $ |    |     |   | $ | 39,113 |       
|Exercise of stock options        |                           |                | 1,168  |            |  |         | 1  |          |  |              | 587    |               |  |               |       |         |   |   |       |       |  |   |    |     |   |   | 588    |       
|Purchase of stock for treasury   |                           |                | (1,694 | )          |  |         |   |          |  |              |       |               |  |               | (5,105 | )       |   |   |       |       |  |   |    |     |   |   | (5,105 | )     
|Net income                       |                           |                |       |            |  |         |   |          |  |              |       |               |  |               |       |         |   |   | 770    |       |  |   |    |     |   |   |       |       
|Comprehensive income             |                           |                |       |            |  |         |   |          |  |              |       |               |  |               |       |         |   |   |       |       |  |   |    |     |   |   | 770    |       
|                                 |                           |                |        |            |  |         |    |          |  |              |        |               |  |               |        |         |   |   |        |       |  |   |     |     |   |   |        |       
|Balance at April 30, 2002        |                           |                | 17,001 |            |  |         | 19 |          |  |              | 48,755 |               |  |               | (5,105 | )       |   |   | (8,303 | )     |  |   |    |     |   |   | 35,366 |       
|Exercise of stock options        |                           |                | 551    |            |  |         |   |          |  |              | 296    |               |  |               |       |         |   |   |       |       |  |   |    |     |   |   | 296    |       
|Tax benefits of options          |                           |                |       |            |  |         |   |          |  |              | 3,581  |               |  |               |       |         |   |   |       |       |  |   |    |     |   |   | 3,581  |       
|Purchase of stock for treasury   |                           |                | (1,276 | )          |  |         |   |          |  |              |       |               |  |               | (3,235 | )       |   |   |       |       |  |   |    |     |   |   | (3,235 | )     
|Unrealized gains on investments  |                           |                |       |            |  |         |   |          |  |              |       |               |  |               |       |         |   |   |       |       |  |   | 27  |     |   |   |       |       
|Net income                       |                           |                |       |            |  |         |   |          |  |              |       |               |  |               |       |         |   |   | 6,318  |       |  |   |    |     |   |   |       |       
|Comprehensive income             |                           |                |       |            |  |         |   |          |  |              |       |               |  |               |       |         |   |   |       |       |  |   |    |     |   |   | 6,345  |       
|                                 |                           |                |        |            |  |         |    |          |  |              |        |               |  |               |        |         |   |   |        |       |  |   |     |     |   |   |        |       
|Balance at April 30, 2003        |                           |                | 16,276 |            |  |         | 19 |          |  |              | 52,632 |               |  |               | (8,340 | )       |   |   | (1,985 | )     |  |   | 27  |     |   |   | 42,353 |       
|Exercise of stock options        |                           |                | 811    |            |  |         | 1  |          |  |              | 1,536  |               |  |               |       |         |   |   |       |       |  |   |    |     |   |   | 1,537  |       
|Purchase of stock for treasury   |                           |                | (674   | )          |  |         |   |          |  |              |       |               |  |               | (4,276 | )       |   |   |       |       |  |   |    |     |   |   | (4,276 | )     
|Tax benefits of options          |                           |                |       |            |  |         |   |          |  |              | 5,060  |               |  |               |       |         |   |   |       |       |  |   |    |     |   |   | 5,060  |       
|Unrealized losses on investments |                           |                |       |            |  |         |   |          |  |              |       |               |  |               |       |         |   |   |       |       |  |   | (53 | )   |   |   |       |       
|Net income                       |                           |                |       |            |  |         |   |          |  |              |       |               |  |               |       |         |   |   | 9,367  |       |  |   |    |     |   |   |       |       
|Comprehensive income             |                           |                |       |            |  |         |   |          |  |              |       |               |  |               |       |         |   |   |       |       |  |   |    |     |   |   | 9,314  |       
|                                 |                           |                |        |            |  |         |    |          |  |              |        |               |  |               |        |         |   |   |        |       |  |   |     |     |   |   |        |       
|                                 | Balance at April 30, 2004 |                |        | 16,413     |  |         | $  | 20       |  |              | $      | 59,228        |  |               | $      | (12,616 | ) |   | $      | 7,382 |  |   | $   | (26 | ) |   | $      | 53,988 | 
|                                 |                           |                |        |            |  |         |    |          |  |              |        |               |  |               |        |         |   |   |        |       |  |   |     |     |   |   |        |       

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

F-5



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##### Table of Contents



CATALYST SEMICONDUCTOR, INC.

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                          |                                                                                       |                                                            |                                                    |                                                         |        |        |         |         |        |        |         |        |        |        |        |  
|----------------------------------------- | ------------------------------------------------------------------------------------- | ---------------------------------------------------------- | -------------------------------------------------- | ------------------------------------------------------- | ------ | ------ | ------- | ------- | ------ | ------ | ------- | ------ | ------ | ------ | ------ | -
|                                          |                                                                                       |                                                           
|                                          |                                                                                       | Years Ended April 30,                                     
|                                          |                                                                                       |                                                           
|                                          |                                                                                       | 2004                                                       |                                                    | 2003                                                    |        | 2002  
|                                          |                                                                                       |                                                            |                                                    |                                                         |        |       
|                                          |                                                                                       |                                                           
|                                          |                                                                                       | (In thousands)                                            
|Cash flows from operating
    activities: |                                                                                       |                                                            |                                                    |                                                         |        |        |         |         |        |        |         |       
|                                          | Net income                                                                            |                                                            | $                                                  | 9,367                                                   |        |        | $       | 6,318   |        |        | $       | 770    |       
|                                          | Adjustments to reconcile net income to net cash
    provided by operating activities: |                                                            |                                                    |                                                         |        |        |         |         |        |        |         |        |       
|                                          |                                                                                       | Depreciation of property and equipment                     |                                                    |                                                         | 1,442  |        |         |         | 1,078  |        |         |        | 1,008  |       
|                                          |                                                                                       | Provision for doubtful accounts receivable                 |                                                    |                                                         |       |        |         |         |       |        |         |        | 200    |       
|                                          |                                                                                       | Benefit from sale of inventory previously written
    down |                                                    |                                                         | (1,976 | )      |         |         | (3,148 | )      |         |        | (2,045 | )     
|                                          |                                                                                       | Provision for excess and obsolete inventory                |                                                    |                                                         | 853    |        |         |         | 2,653  |        |         |        | 2,117  |       
|                                          |                                                                                       | Loss on disposal of fixed assets                           |                                                    |                                                         | 39     |        |         |         | 11     |        |         |        |       |       
|                                          |                                                                                       | Tax benefits of options                                    |                                                    |                                                         | 5,060  |        |         |         |       |        |         |        |       |       
|                                          |                                                                                       | Changes in deferred tax assets                             |                                                    |                                                         | (7,208 | )      |         |         | (1,914 | )      |         |        |       |       
|                                          |                                                                                       | Changes in assets and liabilities:                         |                                                    |                                                         |        |        |         |         |        |        |         |        |        |       
|                                          |                                                                                       |                                                            | Accounts receivable                                |                                                         |        | (4,684 | )       |         |        | 1,066  |         |        |        | 1,682  |       
|                                          |                                                                                       |                                                            | Inventories                                        |                                                         |        | 2,586  |         |         |        | 821    |         |        |        | (472   | )     
|                                          |                                                                                       |                                                            | Other assets                                       |                                                         |        | 298    |         |         |        | 146    |         |        |        | (642   | )     
|                                          |                                                                                       |                                                            | Accounts payable (including related parties)       |                                                         |        | 1,324  |         |         |        | (1,421 | )       |        |        | 852    |       
|                                          |                                                                                       |                                                            | Accrued expenses                                   |                                                         |        | 891    |         |         |        | 1,078  |         |        |        | (1,139 | )     
|                                          |                                                                                       |                                                            | Deferred gross profit on shipments to distributors |                                                         |        | 2,662  |         |         |        | (399   | )       |        |        | (270   | )     
|                                          |                                                                                       |                                                            | Other credits                                      |                                                         |        |       |         |         |        |       |         |        |        | 1,270  |       
|                                          |                                                                                       |                                                            |                                                    |                                                         |        |        |         |         |        |        |         |       
|                                          |                                                                                       |                                                            |                                                    | Net cash provided by operating activities               |        |        | 10,654  |         |        |        | 6,289   |        |        |        | 3,331  |  
|                                          |                                                                                       |                                                            |                                                    |                                                         |        |        |         |         |        |        |         |       
|Cash flows from investing
    activities: |                                                                                       |                                                            |                                                    |                                                         |        |        |         |         |        |        |         |       
|                                          | Purchases of short-term investments                                                   |                                                            |                                                    | (43,191                                                 | )      |        |         | (23,278 | )      |        |         |       |       
|                                          | Proceeds from sales and maturities of short-term
    investments                      |                                                            |                                                    | 46,652                                                  |        |        |         | 3,227   |        |        |         |       |       
|                                          | Acquisition of property and equipment                                                 |                                                            |                                                    | (1,724                                                  | )      |        |         | (1,766  | )      |        |         | (833   | )     
|                                          |                                                                                       |                                                            |                                                    |                                                         |        |        |         |         |        |        |         |       
|                                          |                                                                                       |                                                            |                                                    | Net cash provided by (used in) investing
    activities |        |        | 1,737   |         |        |        | (21,817 | )      |        |        | (833   | )
|                                          |                                                                                       |                                                            |                                                    |                                                         |        |        |         |         |        |        |         |       
|Cash flows from financing
    activities: |                                                                                       |                                                            |                                                    |                                                         |        |        |         |         |        |        |         |       
|                                          | Common stock issuances                                                                |                                                            |                                                    | 1,302                                                   |        |        |         | 296     |        |        |         | 451    |       
|                                          | Treasury stock purchases                                                              |                                                            |                                                    | (4,276                                                  | )      |        |         | (3,235  | )      |        |         | (5,105 | )     
|                                          | Payment of line of credit                                                             |                                                            |                                                    |                                                        |        |        |         |        |        |        |         | (2,025 | )     
|                                          | Payment of long-term debt and capital lease
    obligations                           |                                                            |                                                    |                                                        |        |        |         |        |        |        |         | (58    | )     
|                                          |                                                                                       |                                                            |                                                    |                                                         |        |        |         |         |        |        |         |       
|                                          |                                                                                       |                                                            |                                                    | Net cash used in financing activities                   |        |        | (2,974  | )       |        |        | (2,939  | )      |        |        | (6,737 | )
|                                          |                                                                                       |                                                            |                                                    |                                                         |        |        |         |         |        |        |         |       
|Net increase (decrease) in cash           |                                                                                       |                                                            | 9,417                                              |                                                         |        |        | (18,467 | )       |        |        | (4,239  | )     
|Cash at beginning of the period           |                                                                                       |                                                            | 7,828                                              |                                                         |        |        | 26,295  |         |        |        | 30,534  |       
|                                          |                                                                                       |                                                            |                                                    |                                                         |        |        |         |         |        |        |         |       
|Cash at end of the period                 |                                                                                       | $                                                          | 17,245                                             |                                                         |        | $      | 7,828   |         |        | $      | 26,295  |       
|                                          |                                                                                       |                                                            |                                                    |                                                         |        |        |         |         |        |        |         |       
|Non-cash financing activity:              |                                                                                       |                                                            |                                                    |                                                         |        |        |         |         |        |        |         |       
|                                          | Deferred compensation on exercised stock options                                      |                                                            | $                                                  | 235                                                     |        |        | $       | 164     |        |        | $       | 137    |       
|                                          |                                                                                       |                                                            |                                                    |                                                         |        |        |         |         |        |        |         |       
|Supplemental cash flow disclosures:       |                                                                                       |                                                            |                                                    |                                                         |        |        |         |         |        |        |         |       
|                                          | Cash paid during the year for:                                                        |                                                            |                                                    |                                                         |        |        |         |         |        |        |         |        |       
|                                          |                                                                                       | Interest                                                   |                                                    | $                                                       |       |        |         | $       |       |        |         | $      | 45     |       
|                                          |                                                                                       |                                                            |                                                    |                                                         |        |        |         |         |        |        |         |       
|                                          |                                                                                       | Income taxes                                               |                                                    | $                                                       | 6      |        |         | $       | 33     |        |         | $      | 91     |       
|                                          |                                                                                       |                                                            |                                                    |                                                         |        |        |         |         |        |        |         |       

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

F-6



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##### Table of Contents



CATALYST SEMICONDUCTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

Note 1  The Company and Basis
of Presentation:

Catalyst Semiconductor, Inc. (the Company),
founded in October 1985, designs, develops and markets a broad
line of reprogrammable non-volatile memory products, analog and
mixed-signal products.

The Companys fiscal year ends on the Sunday
closest to April 30. The fiscal years 2004, 2003 and 2002
ended on May 2, 2004, April 27, 2003 and
April 28, 2002, respectively. The fiscal year 2004 was
comprised of 53 weeks with the extra week added to the
third quarter. The fiscal years 2003 and 2002 were comprised of
52 weeks each. For presentation purposes only, the
financial information has been presented as ending on the last
day of the nearest calendar month.



| |                            
| | ---------------------------
| | Principles of Consolidation

The consolidated financial statements include the
accounts of Catalyst Semiconductor, Inc. and its wholly owned
subsidiaries, Nippon Catalyst KK, or NCKK, a sales
organization in Japan, and Catalyst Semiconductor
Romania SRL, or CSR, a design center in Bucharest, Romania.
All significant intercompany accounts and transactions are
eliminated in consolidation.



| |                  
| | -----------------
| | Uses of Estimates

The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and
accompanying notes. Estimates in these financial statements
include inventory valuation, reserves for price adjustment and
stock rotation on sales to distributors, the original equipment
manufacturers (OEMs) sales return reserve,
allowances for doubtful accounts receivable and income taxes.
Actual results could differ from those estimates.



| |                         
| | ------------------------
| | Stock-Based Compensation

The Company has elected to measure employee
stock-based compensation costs using the intrinsic value method
prescribed by the Accounting Principles Board Opinion
(ABP) No. 25, Accounting for Stock Issued
to Employees and to comply with the pro forma disclosure
requirements of Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for
Stock-Based Compensation.

Stock-based compensation to employees under SFAS
No. 123 is based on the fair value of the option, estimated
using the Black-Scholes Option Pricing-Model on the date of
grant. The related stock-based compensation expense is
recognized over the vesting period. The following
weighted-average assumptions were used for options granted in
fiscal years 2004, 2003 and 2002, respectively: expected annual
volatility of 69%, 68% and 85% and risk free interest rates of
2.69%, 2.59% and 3.74%. The expected lives of the options for
non-officers/ director employees, officers and directors were
assumed to be four years for all three fiscal years. The
assumption for dividend yield was 0% for all three fiscal years.

F-7



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##### Table of Contents



CATALYST SEMICONDUCTOR, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The following table illustrates the effect on net
income and net income per share if the Company had applied the
fair value recognition provisions of SFAS No. 123 to
stock-based employee compensation:

|                                                                                                                              |  |                       |        |      |  |      |        |   |  |   |        |  
|----------------------------------------------------------------------------------------------------------------------------- |  | --------------------- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                                                                                                              |  |                      
|                                                                                                                              |  | Years Ended April 30,
|                                                                                                                              |  |                      
|                                                                                                                              |  | 2004                  |        | 2003 |  | 2002
|                                                                                                                              |  |                       |        |      |  |     
|                                                                                                                              |  |                      
|                                                                                                                              |  | (In thousands, except
|                                                                                                                              |  | per share amounts)   
|Reported net income                                                                                                           |  | $                     | 9,367  |      |  | $    | 6,318  |   |  | $ | 770    |  
|Add: Stock-based employee compensation expense
    included in reported net income, net of tax                                |  |                       |       |      |  |      | 54     |   |  |   | 67     |  
|Deduct: Stock-based employee compensation expense
    determined under fair value based method for all awards, net of
    tax |  |                       | (2,835 | )    |  |      | (2,678 | ) |  |   | (3,285 | )
|                                                                                                                              |  |                       |        |      |  |      |        |   |  |   |        |  
|Pro forma net income (loss)                                                                                                   |  | $                     | 6,532  |      |  | $    | 3,694  |   |  | $ | (2,448 | )
|                                                                                                                              |  |                       |        |      |  |      |        |   |  |   |        |  
|Pro forma net income (loss) per share:                                                                                        |  |                       |        |      |  |      |        |   |  |   |        |  
|Basic                                                                                                                         |  | $                     | 0.39   |      |  | $    | 0.22   |   |  | $ | (0.14  | )
|                                                                                                                              |  |                       |        |      |  |      |        |   |  |   |        |  
|Diluted                                                                                                                       |  | $                     | 0.35   |      |  | $    | 0.20   |   |  | $ | (0.14  | )
|                                                                                                                              |  |                       |        |      |  |      |        |   |  |   |        |  
|Reported net income per share:                                                                                                |  |                       |        |      |  |      |        |   |  |   |        |  
|Basic                                                                                                                         |  | $                     | 0.57   |      |  | $    | 0.38   |   |  | $ | 0.04   |  
|                                                                                                                              |  |                       |        |      |  |      |        |   |  |   |        |  
|Diluted                                                                                                                       |  | $                     | 0.48   |      |  | $    | 0.34   |   |  | $ | 0.04   |  
|                                                                                                                              |  |                       |        |      |  |      |        |   |  |   |        |  



|       |                                       
|------ | --------------------------------------
|Note 2 |  Significant Accounting
    Policies:



| |                          
| | -------------------------
| | Cash and Cash Equivalents

All highly liquid investments purchased with a
remaining maturity of three months or less are considered cash
equivalents.



| |                       
| | ----------------------
| | Short-term Investments

All of the Companys short-term investments
are classified as available-for-sale. Investments in
available-for-sale securities are reported at fair value with
unrealized gains and losses, net of related tax, as a component
of accumulated other comprehensive income (loss). Refer to
Note 4 for details related to available-for-sale securities.



| |                                        
| | ---------------------------------------
| | Fair Value of Financial
    Instruments

The Company measures its financial assets and
liabilities in accordance with generally accepted accounting
principles. For financial instruments, including cash and cash
equivalents, short-term investments, accounts receivable,
accounts payable and accrued expenses, the carrying amounts
approximate fair value due to their short maturities.



| |                             
| | ----------------------------
| | Foreign Currency Translation

The Company uses the U.S. dollar as its
functional currency. All of the Companys sales and a
substantial majority of its costs are transacted in
U.S. dollars. The Company purchases wafers from Japan, has
test and assembly activities in Thailand and supports sales and
marketing activities in various countries outside of the United
States. Most of these costs are paid for with U.S. dollars.
The research and development personnel costs in Romania are
tracked against the Euro while all other activities are paid in
Romania leu. Foreign

F-8



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##### Table of Contents



CATALYST SEMICONDUCTOR, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

currency transaction gains and losses, resulting
from remeasuring local currency to the U.S. dollar, are
included in determining net income for the period. They were not
material for the periods presented.



| |                    
| | -------------------
| | Revenue Recognition

The Company generally recognizes revenue as
products are shipped if evidence of an arrangement exists,
delivery has occurred, services, if any, have been rendered, the
sales price is fixed or determinable, collection of the
resulting receivable is reasonably assured and product returns
are reasonably estimable.

The Company sells product directly to OEMs,
resellers, manufacturers representatives and distributors.
Revenues are recognized upon delivery to OEMs and resellers who
have no, or limited, product return rights and no price
protection rights. Reserves for estimated returns and allowances
are provided against net revenue at the time of recognition of
revenues. The Company sells product to certain distributors
under agreements which allow certain rights to return the
product and price protection rights. These agreements generally
permit the distributor to return up to 10% of the product, by
value, of the total products they purchased from the Company
every six months. The Company defers recognition of revenues
until the time the distributor sells the product to the
end-customer. Upon shipment to a distributor, the Company
records an accounts receivable from the distributor, relieves
inventory by the cost of the product shipped, and records the
gross profit, revenues less the cost of revenues, on the
consolidated balance sheet as deferred gross profit on
shipments to distributors until the inventory is resold by
the distributor.



| |            
| | -----------
| | Inventories

Inventory is stated at the lower of standard cost
or net realizable value. Standard cost approximates actual cost
on a first-in, first-out basis. The Company periodically reviews
its inventory for slow moving or obsolete items and writes down
balances to estimated net realizable value as appropriate.



| |                            
| | ---------------------------
| | Shipping and Handling Costs

The Company charges internal freight shipments
within the supply chain and associated handling costs to the
cost of revenues on its consolidated statement of
operations. The Company charges outbound freight shipments and
associated handling costs to selling, general and
administrative on its consolidated statement of
operations. Such outbound freight costs aggregated to $624,000,
$389,000 and $520,000 in fiscal 2004, fiscal 2003 and fiscal
2002, respectively.



| |                       
| | ----------------------
| | Property and Equipment

Property and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation is
calculated on a straight-line basis over the estimated useful
lives of the assets, generally two to five years. Amortization
of leasehold improvements is computed on a straight-line basis
and amortized over the shorter of the lease term or the
estimated useful lives of the assets.



| |                             
| | ----------------------------
| | Concentration of Credit Risk

Financial instruments, which potentially subject
the Company to concentrations of credit risk, consist
principally of cash and cash equivalents, short-term investments
and accounts receivable. Cash and cash equivalents and
short-term investments are maintained with high quality
financial institutions. The Companys accounts receivable
are denominated in U.S. dollars and are derived from sales
to customers located principally in North America, Europe and
Asia. The Company performs ongoing credit evaluations of its
customers and generally does not require collateral.

F-9



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##### Table of Contents



CATALYST SEMICONDUCTOR, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

As of April 30, 2004, one customer accounted
for 15% of gross accounts receivable. As of April 30, 2003,
no one customer accounted for more than 10% of gross accounts
receivable. As of April 30, 2002, one customer accounted
for 14% of the accounts receivable.



| |                             
| | ----------------------------
| | Concentration of Other Risks

The semiconductor industry is characterized by
rapid technological change, competitive pricing pressures and
cyclical market patterns. Our financial results are affected by
a wide variety of factors, including general economic conditions
worldwide, economic conditions specific to the semiconductor
industry, the timely implementation of new manufacturing process
technologies and the ability to safeguard patents and
intellectual property in a rapidly evolving market. In addition,
the semiconductor market has historically been cyclical and
subject to significant economic downturns at various times. As a
result, the Company may experience significant period-to-period
fluctuations in future operating results due to the factors
mentioned above or other factors.



| |                  
| | -----------------
| | Advertising Costs

Costs related to advertising and promotional
expenditures are charged to selling, general and
administrative on its consolidated statement of
operations. To date, costs related to advertising promotional
expenditures were less than $100,000 for fiscal 2004, fiscal
2003 and fiscal 2002.



| |                                                  
| | -------------------------------------------------
| | Accumulated Other Comprehensive Income
    (Loss)

Accumulated other comprehensive income (loss)
includes all changes in equity (net assets) during a period from
non-owner sources. Accumulated other comprehensive income (loss)
for the Company is comprised of unrealized gains (losses) on
securities available for sale.



| |                  
| | -----------------
| | Segment Reporting

The Company uses SFAS No. 131,
Disclosures about Segments of an Enterprise and Related
Information (SFAS 131). SFAS 131 uses the
management approach in identifying reportable segments. 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 131 also requires disclosures about products
and services, geographic areas and major customers. Based on its
operating structure and management reporting, the Company has
concluded it has one reporting segment; the semiconductor
manufacturing segment.



| |                                         
| | ----------------------------------------
| | Recently Issued Accounting
    Standards

In May 2003, the FASB issued Statement of
Financial Accounting Standards No. 150, Accounting
for Certain Financial Instruments with Characteristics of both
Liabilities and Equity, or SFAS No. 150.
SFAS No. 150 establishes standards for how an issuer
classifies and measures certain financial instruments with
characteristics of both liabilities and equity and further
requires that an issuer classify as a liability, or an asset in
some circumstances, financial instruments that fall within its
scope because that financial instrument embodies an obligation
of the issuer. Many of such instruments were previously
classified as equity. The statement is effective for financial
instruments entered into or modified after May 31, 2003,
and otherwise was effective at the beginning of the first
interim period beginning after June 15, 2003. The adoption
of this standard did not have a material impact on the
Companys financial position, results of operations or cash
flows.

F-10



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##### Table of Contents



CATALYST SEMICONDUCTOR, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

On December 17, 2003, the Securities and
Exchange Commission, or SEC, issued Staff Accounting Bulletin
No. 104, Revenue Recognition, or SAB
No. 104, which supercedes Staff Accounting Bulletin
No. 101, Revenue Recognition in Financial
Statements, or SAB No. 101. SAB No. 104s
primary purpose is to rescind accounting guidance contained in
SAB No. 101 related to multiple element revenue
managements, superceded as a result of the issuance of Emerging
Issues Task Force 00-21, Accounting for Revenue
Arrangements with Multiple Deliverables. SAB No. 104
also rescinds the SECs Revenue Recognition in
Financial Statements Frequently Asked Questions and
Answers, or the FAQ, issued with SAB No. 101 that had
been codified in SEC Topic 13, Revenue
Recognition. Selected portions of the FAQ have been
incorporated into SAB No. 104. While the wording of SAB
No. 104 has changed to reflect the issuance of
EITF 00-21, the revenue recognition principles of SAB
No. 101 remain largely unchanged by the issuance of SAB
No. 104. EITF 00-21 was effective for revenue
arrangements entered into in fiscal periods beginning after
June 15, 2003.

In March 2004, the FASB approved EITF
Issue 03-6, Participating Securities and the
Two-Class Method under FAS 128. EITF
Issue 03-6 supersedes the guidance in Topic No. D-95,
Effect of Participating Convertible Securities on the
Computation of Basic Earnings per Share, and requires the
use of the two-class method of participating securities. The
two-class method is an earnings allocation formula that
determines earnings per share for each class of common stock and
participating security according to dividends declared (or
accumulated) and participation rights in undistributed earnings.
In addition, EITF Issue 03-6 addresses other forms of
participating securities, including options, warrants, forwards
and other contracts to issue an entitys common stock, with
the exception of stock-based compensation (unvested options and
restricted stock) subject to the provisions of Opinion 25
and SFAS 123. EITF Issue 03-6 is effective for
reporting periods beginning after March 31, 2004 and should
be applied by restating previously reported earnings per share.
The Companys currently in the process of evaluating the
impact that adoption of EITF Issue 03-6 will have on its
financial position and results of operations.

Note 3  Net Income Per
Share:

Basic net income per share 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 net income per share is
computed using the weighted number of common and potentially
dilutive common shares outstanding during the period under the
treasury stock option method. In computing diluted net income
per share, the average stock price for the period is used in
determining the number of shares assumed to be purchased from
the exercise of stock options. A reconciliation of the basic and
diluted per share computations is as follows (in thousands,
except per share data):

|                        |  |                       |       |        |  |        |        |        |  |        |       |        |  |        |       |        |  |        |        |  |  |   |       |   |  |   |     |  |  |  |        |  |  |   |      | 
|----------------------- |  | --------------------- | ----- | ------ |  | ------ | ------ | ------ |  | ------ | ----- | ------ |  | ------ | ----- | ------ |  | ------ | ------ |  |  | - | ----- | - |  | - | --- |  |  |  | ------ |  |  | - | ---- | 
|                        |  |                      
|                        |  | Years Ended April 30,
|                        |  |                      
|                        |  |                       |       |        |  |       
|                        |  | 2004                  |       | 2003   |  | 2002  
|                        |  |                       |       |        |  |       
|                        |  |                       |       | Per    |  |        |        | Per    |  |        |       | Per   
|                        |  | Net                   |       |        |  | Share  |        | Net    |  |        |       | Share  |  | Net    |       |        |  | Share 
|                        |  | Income                |       | Shares |  | Amount |        | Income |  | Shares |       | Amount |  | Income |       | Shares |  | Amount
|                        |  |                       |       |        |  |        |        |        |  |        |       |        |  |        |       |        |  |       
|Basic                   |  | $                     | 9,367 |        |  |        | 16,567 |        |  | $      | 0.57  |        |  | $      | 6,318 |        |  |        | 16,721 |  |  | $ | 0.38  |   |  | $ | 770 |  |  |  | 17,829 |  |  | $ | 0.04 | 
|Effect of stock options |  |                       |      |        |  |        | 2,844  |        |  |        | (0.09 | )      |  |        |      |        |  |        | 1,618  |  |  |   | (0.04 | ) |  |   |    |  |  |  | 2,610  |  |  |   | 0.00 | 
|                        |  |                       |       |        |  |        |        |        |  |        |       |        |  |        |       |        |  |        |        |  |  |   |       |   |  |   |     |  |  |  |        |  |  |   |      | 
|Diluted                 |  | $                     | 9,367 |        |  |        | 19,411 |        |  | $      | 0.48  |        |  | $      | 6,318 |        |  |        | 18,339 |  |  | $ | 0.34  |   |  | $ | 770 |  |  |  | 20,439 |  |  | $ | 0.04 | 
|                        |  |                       |       |        |  |        |        |        |  |        |       |        |  |        |       |        |  |        |        |  |  |   |       |   |  |   |     |  |  |  |        |  |  |   |      | 

Options to purchase 508,000 shares of
common price at a weighted average exercise price of
$6.60 per share outstanding during fiscal 2004 were not
included in the computation of diluted earnings per share
because the inclusion of such options and shares would have been
antidilutive.

Options to purchase 1,325,000 shares of
common price at a weighted average exercise price of
$6.15 per share outstanding during fiscal 2003 were not
included in the computation of diluted earnings per share
because the inclusion of such options and shares would have been
antidilutive.

F-11



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##### Table of Contents



CATALYST SEMICONDUCTOR, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Options to purchase 1,691,000 shares of
common price at a weighted average exercise price of
$6.24 per share outstanding during fiscal 2002 were not
included in the computation of diluted earnings per share
because the inclusion of such options and shares would have been
antidilutive.

Note 4  Balance Sheet
Components (in thousands):

|                                |                                                                        |                                      |   |            |        |            |   |           |   |  |   |     |     |   |   |       |        | 
|------------------------------- | ---------------------------------------------------------------------- | ------------------------------------ | - | ---------- | ------ | ---------- | - | --------- | - |  | - | --- | --- | - | - | ----- | ------ | 
|                                |                                                                        |                                     
|                                |                                                                        | April 30, 2004                      
|                                |                                                                        |                                     
|                                |                                                                        |                                      |   | Gross      |        | Gross      |   |          
|                                |                                                                        |                                      |   | Unrealized |        | Unrealized |   | Estimated
|                                |                                                                        | Cost                                 |   | Gains      |        | (Losses)   |   | FMV      
|                                |                                                                        |                                      |   |            |        |            |   |          
|Investments available-for-sale: |                                                                        |                                      |   |            |        |            |   |           |   |  |   |     |     |   |   |      
|                                | U.S. government debt securities with
    maturities less than one year |                                      | $ | 9,682      |        |            | $ | 3         |   |  | $ | (6  | )   |   | $ | 9,679 |       
|                                | U.S. government debt securities with
    maturities over one year      |                                      |   | 6,908      |        |            |   |          |   |  |   | (23 | )   |   |   | 6,885 |       
|                                |                                                                        |                                      |   |            |        |            |   |           |   |  |   |     |     |   |   |      
|                                |                                                                        | Total investments available-for-sale |   | $          | 16,590 |            |   | $         | 3 |  |   | $   | (29 | ) |   | $     | 16,564 | 
|                                |                                                                        |                                      |   |            |        |            |   |           |   |  |   |     |     |   |   |      

|                                |                                                                        |                                      |   |            |        |            |   |           |    |  |   |   |   |  |   |        |        | 
|------------------------------- | ---------------------------------------------------------------------- | ------------------------------------ | - | ---------- | ------ | ---------- | - | --------- | -- |  | - | - | - |  | - | ------ | ------ | 
|                                |                                                                        |                                     
|                                |                                                                        | April 30, 2003                      
|                                |                                                                        |                                     
|                                |                                                                        |                                      |   | Gross      |        | Gross      |   |          
|                                |                                                                        |                                      |   | Unrealized |        | Unrealized |   | Estimated
|                                |                                                                        | Cost                                 |   | Gains      |        | (Losses)   |   | FMV      
|                                |                                                                        |                                      |   |            |        |            |   |          
|Investments available-for-sale: |                                                                        |                                      |   |            |        |            |   |           |    |  |   |   |   |  |   |       
|                                | U.S. government debt securities with
    maturities less than one year |                                      | $ | 17,442     |        |            | $ | 23        |    |  | $ |  |   |  | $ | 17,465 |       
|                                | U.S. government debt securities with
    maturities over one year      |                                      |   | 2,609      |        |            |   | 4         |    |  |   |  |   |  |   | 2,613  |       
|                                |                                                                        |                                      |   |            |        |            |   |           |    |  |   |   |   |  |   |       
|                                |                                                                        | Total investments available-for-sale |   | $          | 20,051 |            |   | $         | 27 |  |   | $ |  |  |   | $      | 20,078 | 
|                                |                                                                        |                                      |   |            |        |            |   |           |    |  |   |   |   |  |   |       

|                     |                                       |           |        |           |   |   |       |       |  
|-------------------- | ------------------------------------- | --------- | ------ | --------- | - | - | ----- | ----- | -
|                     |                                       | April 30, |        | April 30,
|                     |                                       | 2004      |        | 2003     
|                     |                                       |           |        |          
|Accounts receivable: |                                       |           |        |           |   |   |       |      
|                     | Accounts receivable                   |           | $      | 12,685    |   |   | $     | 8,088 |  
|                     | Less: Allowance for doubtful accounts |           |        | (138      | ) |   |       | (225  | )
|                     |                                       |           |        |           |   |   |       |      
|                     |                                       | $         | 12,547 |           |   | $ | 7,863 |      
|                     |                                       |           |        |           |   |   |       |      

F-12



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##### Table of Contents



CATALYST SEMICONDUCTOR, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Bad debts in aggregate of $87,000, $725,000 and
$0 were written off to the allowance for doubtful accounts in
fiscal 2004, fiscal 2003 and fiscal 2002, respectively.

|                        |                                                 |           |        |           |   |   |       |        |  
|----------------------- | ----------------------------------------------- | --------- | ------ | --------- | - | - | ----- | ------ | -
|                        |                                                 | April 30, |        | April 30,
|                        |                                                 | 2004      |        | 2003     
|                        |                                                 |           |        |          
|Inventories:            |                                                 |           |        |           |   |   |       |       
|                        | Work-in-process                                 |           | $      | 4,939     |   |   | $     | 6,487  |  
|                        | Finished goods                                  |           |        | 2,021     |   |   |       | 1,936  |  
|                        |                                                 |           |        |           |   |   |       |       
|                        |                                                 | $         | 6,960  |           |   | $ | 8,423 |       
|                        |                                                 |           |        |           |   |   |       |       
|Property and equipment: |                                                 |           |        |           |   |   |       |       
|                        | Engineering and test equipment                  |           | $      | 7,776     |   |   | $     | 6,552  |  
|                        | Computer hardware and software                  |           |        | 1,849     |   |   |       | 1,715  |  
|                        | Furniture and office equipment                  |           |        | 1,478     |   |   |       | 1,348  |  
|                        |                                                 |           |        |           |   |   |       |       
|                        |                                                 |           | 11,103 |           |   |   | 9,615 |       
|                        | Less: accumulated depreciation and amortization |           |        | (7,769    | ) |   |       | (6,524 | )
|                        |                                                 |           |        |           |   |   |       |       
|                        |                                                 | $         | 3,334  |           |   | $ | 3,091 |       
|                        |                                                 |           |        |           |   |   |       |       
|Accrued expenses:       |                                                 |           |        |           |   |   |       |       
|                        | Accrued employee compensation                   |           | $      | 1,704     |   |   | $     | 1,424  |  
|                        | Accrued income taxes                            |           |        | 1,059     |   |   |       | 326    |  
|                        | Other                                           |           |        | 1,019     |   |   |       | 1,376  |  
|                        |                                                 |           |        |           |   |   |       |       
|                        |                                                 | $         | 3,782  |           |   | $ | 3,126 |       
|                        |                                                 |           |        |           |   |   |       |       

Note 5  Leases:

The Company leases its office facilities under
operating leases which expire in fiscal 2007. Total rent expense
under these leases was $739,000, $506,000 and $541,000 for
fiscal 2004, fiscal 2003 and fiscal 2002, respectively. The
aggregate future minimum lease payments, by fiscal year, under
non-cancelable operating leases with initial terms of one year
or more as of April 30, 2004 are as follows (in thousands):

|                 |  |                       |       |      |  |      |     |      |  |      |     |  |  |   |     |  |  |   |   | 
|---------------- |  | --------------------- | ----- | ---- |  | ---- | --- | ---- |  | ---- | --- |  |  | - | --- |  |  | - | - | 
|                 |  |                      
|                 |  | Years Ended April 30,
|                 |  |                      
|                 |  | Total                 |       | 2005 |  | 2006 |     | 2007 |  | 2008
|                 |  |                       |       |      |  |      |     |      |  |     
|Operating leases |  | $                     | 1,277 |      |  | $    | 621 |      |  | $    | 543 |  |  | $ | 113 |  |  | $ | 0 | 

F-13



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##### Table of Contents



CATALYST SEMICONDUCTOR, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Note 6  Income
Taxes:

The Companys provision for income taxes was
comprised as follows (in thousands):

|                                     |                                 |                             |        |        |        |      |        |        |        |   |     |     |     | 
|------------------------------------ | ------------------------------- | --------------------------- | ------ | ------ | ------ | ---- | ------ | ------ | ------ | - | --- | --- | --- | 
|                                     |                                 |                            
|                                     |                                 | Years Ended April 30,      
|                                     |                                 |                            
|                                     |                                 | 2004                        |        | 2003   |        | 2002
|                                     |                                 |                             |        |        |        |     
|Current:                             |                                 |                             |        |        |        |      |        |        |        |   |     |    
|                                     | Federal                         |                             | $      | 1,743  |        |      | $      | 474    |        |   | $   | 421 |    
|                                     | State                           |                             |        | 11     |        |      |        | 12     |        |   |     |    |    
|                                     | Foreign                         |                             |        | 81     |        |      |        | 74     |        |   |     | 73  |    
|                                     |                                 |                             |        |        |        |      |        |        |        |   |     |    
|                                     |                                 | Total current income taxes  |        |        | 1,835  |      |        |        | 560    |   |     |     | 494 | 
|                                     |                                 |                             |        |        |        |      |        |        |        |   |     |    
|Deferred:                            |                                 |                             |        |        |        |      |        |        |        |   |     |    
|                                     | Federal                         |                             | $      | 1,004  |        |      | $      |       |        |   | $   |    |    
|                                     | State                           |                             |        | 434    |        |      |        |       |        |   |     |    |    
|                                     | Reversal of valuation allowance |                             |        | (4,681 | )      |      |        | (1,914 | )      |   |     |    |    
|                                     |                                 |                             |        |        |        |      |        |        |        |   |     |    
|                                     |                                 | Total deferred income taxes |        |        | (3,243 | )    |        |        | (1,914 | ) |     |     |    | 
|                                     |                                 |                             |        |        |        |      |        |        |        |   |     |    
|Provision (benefit) for income taxes |                                 | $                           | (1,408 | )      |        | $    | (1,354 | )      |        | $ | 494 |    
|                                     |                                 |                             |        |        |        |      |        |        |        |   |     |    

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 (in thousands):

|                                |       |                       |        |        |   |      |       |       |    |   |        |        |   |  |       |       |    |   |      |     |  |  |       |      |  
|------------------------------- | ----- | --------------------- | ------ | ------ | - | ---- | ----- | ----- | -- | - | ------ | ------ | - |  | ----- | ----- | -- | - | ---- | --- |  |  | ----- | ---- | -
|                                |       |                      
|                                |       | Years Ended April 30,
|                                |       |                      
|                                |       |                       |        |        |   |     
|                                |       | 2004                  |        | 2003   |   | 2002
|                                |       |                       |        |        |   |     
|                                |       |                       |        |        |   |      |       |       |    |   |        |       
|Statutory federal tax rate      |       | $                     | 2,786  |        |   |      | 35.0  | %     |    | $ | 1,737  |        |   |  | 35.0  | %     |    | $ | 442  |     |  |  | 35.0  | %   
|State taxes                     |       |                       | 289    |        |   |      | 3.6   |       |    |   |       |        |   |  |      |       |    |   | 38   |     |  |  | 3.0   |     
|Research credits                |       |                       | (96    | )      |   |      | (1.2  | )     |    |   | (1,155 | )      |   |  | (23.3 | )     |    |   | (164 | )   |  |  | (13.0 | )   
|Foreign                         |       |                       | 81     |        |   |      | 1.0   |       |    |   |       |        |   |  |      |       |    |   | 76   |     |  |  | 6.0   |     
|Reversal of valuation allowance |       |                       | (4,681 | )      |   |      | (58.8 | )     |    |   | (1,936 | )      |   |  | (39.0 | )     |    |   |      |     |  |  |      |     
|Other                           |       |                       | 213    |        |   |      | 2.7   |       |    |   |       |        |   |  |      |       |    |   | 102  |     |  |  | 8.1   |     
|                                |       |                       |        |        |   |      |       |       |    |   |        |        |   |  |       |       |    |   |      |     |  |  |       |     
|                                | Total |                       | $      | (1,408 | ) |      |       | (17.7 | )% |   | $      | (1,354 | ) |  |       | (27.3 | )% |   | $    | 494 |  |  |       | 39.1 | %
|                                |       |                       |        |        |   |      |       |       |    |   |        |        |   |  |       |       |    |   |      |     |  |  |       |     

Deferred income taxes reflect the net tax effects
of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amount
used for income tax purposes.

Income (losses) before income taxes includes
income (losses) relating to non U.S. operations of $13,000,
($36,000) and $26,000 in fiscal 2004, fiscal 2003 and fiscal
2002, respectively.

F-14



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##### Table of Contents



CATALYST SEMICONDUCTOR, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

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

|                                           |  |             |       |      |  |   |        |  
|------------------------------------------ |  | ----------- | ----- | ---- |  | - | ------ | -
|                                           |  |            
|                                           |  | Years Ended
|                                           |  | April 30,  
|                                           |  |            
|                                           |  | 2004        |       | 2003
|                                           |  |             |       |     
|Credit carryforwards                       |  | $           | 2,801 |      |  | $ | 1,918  |  
|Loss carryforwards                         |  |             | 2,623 |      |  |   | 3,965  |  
|Deferred income and sales returns reserves |  |             | 1,546 |      |  |   | 578    |  
|Capitalized research                       |  |             | 1,298 |      |  |   | 2,083  |  
|Non deductible reserves and accruals       |  |             | 856   |      |  |   | 1,596  |  
|Other                                      |  |             | (2    | )    |  |   | 420    |  
|                                           |  |             |       |      |  |   |        |  
|Gross deferred tax assets                  |  |             | 9,122 |      |  |   | 10,560 |  
|Valuation allowance                        |  |             |      |      |  |   | (8,646 | )
|                                           |  |             |       |      |  |   |        |  
|Net deferred tax assets                    |  | $           | 9,122 |      |  | $ | 1,914  |  
|                                           |  |             |       |      |  |   |        |  

Based on the available objective evidence and the
recent history of profits and forecasted taxable income in
fiscal 2004, management concluded that all of the Companys
net deferred tax assets would be realizable. Accordingly, the
Company had no valuation allowance as of April 30, 2004.
Approximately $3.9 million of the valuation allowance that
reversed in fiscal 2004 was attributable to certain
carryforwards, resulting from the exercise of employee stock
options, and was accounted for as a credit to additional
paid-in-capital rather than a reduction of the income tax
provision. In addition, approximately $1.2 million of the
benefit attributable to the fiscal 2004 employee stock option
activity was also credited to addition paid-in-capital.

At April 30, 2004, the Company had a federal
net operating loss carryforward of approximately
$7.4 million available to offset future taxable income that
expire between 2012 and 2022 if not utilized.

At April 30, 2004, the Company had
approximately $2.0 million and $1.3 million of federal
and state credit carryovers, respectively, available to offset
future taxable income. The federal credits begin to expire in
fiscal 2005. The state credits carryovers are indefinite.

Under the Internal Revenue Code, the amounts of
and benefits from net operating loss and tax credit
carryforwards may be impaired or limited in certain
circumstances. Events which cause limitations in the amount of
net operating losses and tax credit carryforwards that the
Company may utilize in any one year include, but are not limited
to, a cumulative ownership change of more than 50%, as defined,
over a three year period.

Note 7  Stockholders
Equity:



| |                           
| | --------------------------
| | Common and Preferred Stock

The Company was originally incorporated in
California in October 1985 and reincorporated in Delaware in May
1993. The Board of Directors approved a recapitalization that
authorized 45 million shares of common stock and
2 million shares of undesignated preferred stock. In
December 1996, the Board of Directors designated
60,000 shares of preferred stock as Series A
Participating Preferred Stock. The Board of Directors has the
authority to determine the powers, preferences, rights and the
qualifications, limitations or restrictions granted to or
imposed upon any wholly unissued shares of undesignated
preferred stock, without any further vote or action by the
Companys shareholders.

F-15



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##### Table of Contents



CATALYST SEMICONDUCTOR, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



| |                          
| | -------------------------
| | 2003 Stock Incentive Plan

In October 1989, the Company adopted a founder
stock plan for incentive stock options and non-statutory stock
options. The founder stock plan was amended and restated in
March 1993 as the Stock Option Plan which had the effect of
extending its expiration date to March 2003. In January 1999 and
September 2000, the stockholders authorized an additional
1.8 million shares and 2.5 million shares,
respectively, to be reserved under the Stock Option Plan. In
December 2002, the stockholders approved an amendment and
restatement of the Stock Option Plan, renaming it the 2003 Stock
Incentive Plan, or SIP, extending its expiration date to
November 2012, authorized an additional 1.0 million shares
and a provision to automatically authorize annual additions to
the plan on the first day of each fiscal year of
1.0 million shares or 5% of the then outstanding shares,
whichever is less. A total of 8.6 million shares of Common
Stock have been reserved for issuance under the SIP. Options
granted under the SIP are for periods not to exceed
10 years. Incentive stock option and non-statutory stock
option grants under the SIP generally must 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.



| |                                    
| | -----------------------------------
| | 2003 Director Stock Option
    Plan

During 1993, the Company adopted the 1993
Director Stock Option Plan, which provides for the grant of
nonstatutory stock options to non-employee directors. In
November 1999 and September 2000, the stockholders authorized
additional 100,000 and 450,000 shares, respectively, to be
reserved under the 1993 Director Stock Option Plan. In December
2002, the stockholders approved an amendment and restatement of
the 1993 Director Stock Option Plan, renaming it the 2003
Director Stock Option Plan, or Director SOP, and extending its
expiration to November 2012. A total of 770,000 shares of
Common Stock have been reserved for issuance under the Director
SOP. Options granted under the Director SOP prior to May 1,
2000 are for periods not to exceed five years and not to exceed
a period of 10 years for grants made thereafter. Option
grants under the Director SOP must be at prices equal to 100% of
the fair market value of the stock at the date of grant. Options
granted prior to December 2002 vested over a period of three
years. Options granted beginning December 2002 vest immediately
as of the date of the grant. As of April 30, 2004, a total
of 333,000 options at exercise prices ranging from $2.00 to
$8.38 per share, had been granted under the Director SOP,
235,000 of which were exercisable.



| |                                       
| | --------------------------------------
| | 1998 Special Equity Incentive
    Plan

In December 1998, the Company adopted an
additional stock option plan entitled the 1998 Special Equity
Incentive Plan, or the SEIP, 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 SEIP.
Options granted under the SEIP are for periods not to exceed ten
years. Options generally vest over four year periods. During
fiscal 1999, options totaling 3.0 million shares were
granted under the plan when the market price was $0.125 per
share and subsequently approved by the Companys
shareholders when the market price was at $0.33 per share.
As a result, an aggregate of $483,000 of compensation expense
was recognized over the four year vesting period of the options.
All compensation expense was fully recognized by
January 31, 2003.

F-16



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##### Table of Contents



CATALYST SEMICONDUCTOR, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

A summary of activity under the 2003 Stock
Incentive Plan, the 2003 Director Stock Option Plan and the
1998 Special Equity Incentive Plan is as follows (in thousands):

|                            |  |               |        |             |  |               |        |   |  |   |      | 
|--------------------------- |  | ------------- | ------ | ----------- |  | ------------- | ------ | - |  | - | ---- | 
|                            |  | Options       |        |             |  | Weighted     
|                            |  | Available for |        | Options     |  | Average Price
|                            |  | Grant         |        | Outstanding |  | Per Share    
|                            |  |               |        |             |  |              
|Balance at April 30, 2001   |  |               | 2,929  |             |  |               | 4,376  |   |  | $ | 2.66 | 
|Granted                     |  |               | (2,088 | )           |  |               | 2,088  |   |  | $ | 1.87 | 
|Canceled                    |  |               | 111    |             |  |               | (111   | ) |  | $ | 6.34 | 
|Expired                     |  |               | 8      |             |  |               | (8     | ) |  | $ | 2.41 | 
|Exercised                   |  |               |       |             |  |               | (1,168 | ) |  | $ | 0.39 | 
|                            |  |               |        |             |  |               |        |   |  |   |      | 
|Balance at April 30, 2002   |  |               | 960    |             |  |               | 5,177  |   |  | $ | 2.78 | 
|Additional shares allocated |  |               | 1,000  |             |  |               |       |   |  |   |     | 
|Granted                     |  |               | (1,485 | )           |  |               | 1,485  |   |  | $ | 2.26 | 
|Canceled                    |  |               | 699    |             |  |               | (699   | ) |  | $ | 3.19 | 
|Expired                     |  |               | 262    |             |  |               | (262   | ) |  | $ | 6.45 | 
|Exercised                   |  |               |       |             |  |               | (551   | ) |  | $ | 0.54 | 
|                            |  |               |        |             |  |               |        |   |  |   |      | 
|Balance at April 30, 2003   |  |               | 1,436  |             |  |               | 5,150  |   |  | $ | 2.62 | 
|Additional shares allocated |  |               | 814    |             |  |               |       |   |  |   |     | 
|Granted                     |  |               | (1,514 | )           |  |               | 1,514  |   |  | $ | 5.85 | 
|Canceled                    |  |               | 90     |             |  |               | (90    | ) |  | $ | 2.17 | 
|Expired                     |  |               | 45     |             |  |               | (45    | ) |  | $ | 8.34 | 
|Exercised                   |  |               |       |             |  |               | (811   | ) |  | $ | 1.61 | 
|                            |  |               |        |             |  |               |        |   |  |   |      | 
|Balance at April 30, 2004   |  |               | 871    |             |  |               | 5,718  |   |  | $ | 3.58 | 
|                            |  |               |        |             |  |               |        |   |  |   |      | 

The table below summarizes information regarding
stock options outstanding at April 30, 2004. The options
exercisable as of April 30, 2003 and April 30, 2002
were 2,775,000 and 2,206,000, respectively.

|         |           |                     |  |                     |           |           |  |                |     |           |  |   |      |  |  |  |           |  |  |   |      | 
|-------- | --------- | ------------------- |  | ------------------- | --------- | --------- |  | -------------- | --- | --------- |  | - | ---- |  |  |  | --------- |  |  | - | ---- | 
|         |           |                     |  |                    
|         |           | Options Outstanding |  | Options Exercisable
|         |           |                     |  |                    
|Actual   |           |                     |  | Weighted-           |           | Weighted- |  |                |     | Weighted-
|Range of |           | Number              |  | Average             |           | Average   |  | Number         |     | Average  
|Exercise |           | Outstanding at      |  | Remaining           |           | Exercise  |  | Exercisable At |     | Exercise 
|Prices   |           | April 30, 2004      |  | Contractual Life    |           | Price     |  | April 30, 2004 |     | Price    
|         |           |                     |  |                     |           |           |  |                |     |          
|         |           |                     |  | (Years)             |           |           |  |                |     |          
|$        | 0.11-0.13 |                     |  |                     | 347,876   |           |  |                | 4.6 |           |  | $ | 0.12 |  |  |  | 347,876   |  |  | $ | 0.12 | 
|         | 0.25-0.33 |                     |  |                     | 203,542   |           |  |                | 4.9 |           |  |   | 0.30 |  |  |  | 203,542   |  |  |   | 0.30 | 
|         | 0.40-0.50 |                     |  |                     | 150,184   |           |  |                | 5.5 |           |  |   | 1.00 |  |  |  | 150,184   |  |  |   | 1.00 | 
|         | 1.00-1.04 |                     |  |                     | 2,458,597 |           |  |                | 7.9 |           |  |   | 2.02 |  |  |  | 1,404,385 |  |  |   | 1.92 | 
|         | 1.73-2.49 |                     |  |                     | 381,500   |           |  |                | 8.2 |           |  |   | 2.79 |  |  |  | 138,749   |  |  |   | 2.70 | 
|         | 4.07-6.06 |                     |  |                     | 703,050   |           |  |                | 6.7 |           |  |   | 5.41 |  |  |  | 587,833   |  |  |   | 5.41 | 
|         | 6.38-8.38 |                     |  |                     | 1,472,813 |           |  |                | 8.4 |           |  |   | 7.05 |  |  |  | 375,559   |  |  |   | 7.35 | 
|         |           |                     |  |                     |           |           |  |                |     |           |  |   |      |  |  |  |           |  |  |   |      | 
|$        | 0.11-8.38 |                     |  |                     | 5,717,562 |           |  |                | 7.6 |           |  | $ | 3.58 |  |  |  | 3,208,128 |  |  | $ | 2.89 | 
|         |           |                     |  |                     |           |           |  |                |     |           |  |   |      |  |  |  |           |  |  |   |      | 

The weighted-average grant-date fair value of
options granted during fiscal 2004, fiscal 2003 and fiscal 2002
was $3.11, $1.21 and $1.20, respectively.

F-17



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##### Table of Contents



CATALYST SEMICONDUCTOR, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

1996 Shareholders
Rights Plan

In December 1996, the Company implemented the
Preferred Shares Rights Agreement. Under the Preferred Shares
Rights Agreement, each share of the Companys outstanding
common stock carries one preferred share purchase right, or
Right. The Right entitles the holder, subject to certain
conditions, to purchase one one-thousandth of a share of
Series A Participating Preferred Stock and, under certain
circumstances, to instead purchase shares of common stock of the
Company or its acquirer at a discounted price. The rights are
redeemable by the Company and will expire in December 2006.

2001 Common
Stock Repurchase Program

In September 2001, the Board of Directors
authorized the Common Stock Repurchase Program, or the
Repurchase Program, for the open market repurchase of up to
1.5 million shares of our common stock. In March 2003, the
Board of Directors increased the authorized limit to
2 million shares, in aggregate. During fiscal 2004, fiscal
2003 and fiscal 2002, respectively, total shares repurchased
under the Repurchase Program were 74,000, 1,276,400 and 193,700,
for a cost of $216,000, $3,235,000 and $417,000.

In separately authorized transactions, the Board
made two arrangements to repurchase common stock from its
largest shareholder. In fiscal 2002, the Company purchased
1.5 million shares from Elex N.V. for $3.13 per share
and an aggregate of $4.7 million, which represented a 5%
discount from the closing market price on the Nasdaq National
Market on the date of the purchase. In fiscal 2004, the Company
purchased 600,000 shares from Elex N.V. for $6.77 per
share and an aggregate of $4.1 million, which represented a
13% discount from the closing market price on the Nasdaq
National Market on the last trading date prior to the approval
of the transaction by the Companys Board of Directors. The
Company accounts for treasury stock using the cost method.

Employee
Stock Purchase Plan

The Board of Directors and Stockholders approved
the Companys Employee Stock Purchase Plan, or the ESPP, in
March 1993. A total of 750,000 shares of Common Stock had
been reserved for issuance under the ESPP. Sales made under this
plan were 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 ESPP was suspended effective June 1998 due to the
Companys delisting from the Nasdaq National stock market
in August 1998 and expired in March 2003.

Other
Employee Benefit Plans

In January 2004, the Company implemented a
Section 401(k) Plan. The 401(k) Plan provides participating
employees with an opportunity to accumulate funds for retirement
and hardship. The 401(k) Plan provides a 25% matching
contribution which vests immediately. In fiscal 2004, the
Company made matching contributions of $63,000.

Options
Granted to Consultants and Vendors

In March 1999, the Company entered into an
arrangement with a sales representative providing for options
for the purchase of up to 200,000 shares of the
Companys common stock. The options under this agreement
vested 16,667 shares for each $1.0 million in
shipments of the Companys products by the representative
through April 30, 2002 when the arrangement expired. The
options were valued using the Black-Scholes option pricing model
and in accordance with the guidance in EITF 96-18. Total expense
of $156,000 and $260,000 was recorded in fiscal 2002 and 2001,
respectively, based upon shipments of $3.0 million and
$2.7 million in the respective periods. Cumulatively,
during the term of the agreement, the Company recorded $670,000
of compensation expense and the sales representative earned a
total of 116,667 options. The Company used the following
weighted-average assumptions to estimate the fair values of
options

F-18



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##### Table of Contents



CATALYST SEMICONDUCTOR, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

in the Black-Scholes option-valuation model
during fiscal 2002 and 2001, respectively: expected dividends of
0% for all years covered, expected volatility of 85% and 100%,
risk free interest rates of 3.74% and 5.39% as well as expected
lives of one and two years.

Note 8  Segment
Reporting:

The company operates in one business segment, the
semiconductor manufacturing segment. Sales transactions are
denominated in U.S. dollars.

Revenues by product group were as follows (in
thousands):

|                        |                    |                       |        |        |  |      |        |        |  |   |        |        | 
|----------------------- | ------------------ | --------------------- | ------ | ------ |  | ---- | ------ | ------ |  | - | ------ | ------ | 
|                        |                    |                      
|                        |                    | Years Ended April 30,
|                        |                    |                      
|                        |                    | 2004                  |        | 2003   |  | 2002
|                        |                    |                       |        |        |  |     
|EEPROM                  |                    | $                     | 56,239 |        |  | $    | 41,690 |        |  | $ | 35,456 |       
|Flash                   |                    |                       | 5,988  |        |  |      | 5,786  |        |  |   | 6,907  |       
|Analog and mixed-signal |                    |                       | 1,311  |        |  |      | 745    |        |  |   | 428    |       
|                        |                    |                       |        |        |  |      |        |        |  |   |        |       
|                        | Total net revenues |                       | $      | 63,538 |  |      | $      | 48,221 |  |   | $      | 42,791 | 
|                        |                    |                       |        |        |  |      |        |        |  |   |        |       

Revenues by destination were as follows (in
thousands):

|                 |                   |                       |        |        |  |      |       |        |  |   |        |        | 
|---------------- | ----------------- | --------------------- | ------ | ------ |  | ---- | ----- | ------ |  | - | ------ | ------ | 
|                 |                   |                      
|                 |                   | Years Ended April 30,
|                 |                   |                      
|                 |                   | 2004                  |        | 2003   |  | 2002
|                 |                   |                       |        |        |  |     
|United States    |                   | $                     | 7,320  |        |  | $    | 9,571 |        |  | $ | 12,549 |       
|Hong Kong/ China |                   |                       | 12,876 |        |  |      | 6,609 |        |  |   | 6,154  |       
|Japan            |                   |                       | 11,288 |        |  |      | 8,934 |        |  |   | 4,923  |       
|Europe           |                   |                       | 7,432  |        |  |      | 6,899 |        |  |   | 4,560  |       
|Korea            |                   |                       | 6,316  |        |  |      | 4,600 |        |  |   | 4,560  |       
|Taiwan           |                   |                       | 8,704  |        |  |      | 4,552 |        |  |   | 3,936  |       
|Other Far East   |                   |                       | 6,068  |        |  |      | 5,040 |        |  |   | 5,188  |       
|Other Americas   |                   |                       | 3,534  |        |  |      | 2,016 |        |  |   | 921    |       
|                 |                   |                       |        |        |  |      |       |        |  |   |        |       
|                 | Total net revenue |                       | $      | 63,538 |  |      | $     | 48,221 |  |   | $      | 42,791 | 
|                 |                   |                       |        |        |  |      |       |        |  |   |        |       

Property and equipment geographical breakdown was
as follows (in thousands):

|                                                |                                  |                       |        |       |  |   |        |       | 
|----------------------------------------------- | -------------------------------- | --------------------- | ------ | ----- |  | - | ------ | ----- | 
|                                                |                                  |                      
|                                                |                                  | Years Ended April 30,
|                                                |                                  |                      
|                                                |                                  | 2004                  |        | 2003 
|                                                |                                  |                       |        |      
|United States                                   |                                  | $                     | 6,733  |       |  | $ | 5,985  |      
|Thailand                                        |                                  |                       | 3,921  |       |  |   | 3,346  |      
|Other                                           |                                  |                       | 449    |       |  |   | 284    |      
|                                                |                                  |                       |        |       |  |   |        |      
|                                                |                                  |                       | 11,103 |       |  |   | 9,615  |      
|Less: accumulated depreciation and amortization |                                  |                       | (7,769 | )     |  |   | (6,524 | )    
|                                                |                                  |                       |        |       |  |   |        |      
|                                                | Total net property and equipment |                       | $      | 3,334 |  |   | $      | 3,091 | 
|                                                |                                  |                       |        |       |  |   |        |      

For fiscal 2004, ALR Company Limited, a reseller
in China, represented 11% of the Companys net revenue. For
fiscal 2003, none of our direct or indirect customers
represented more than 10% of net revenues. In fiscal 2002,
Future Electronics, Inc., a distributor, represented 11% of net
revenues.

F-19



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##### Table of Contents



CATALYST SEMICONDUCTOR, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Note 9  Commitments and
Contingencies:

Purchase
Commitments

Purchase commitments for open purchase orders at
April 30, 2004 for which goods and services had not been
received were approximately $5.9 million. In addition, the
Company has committed $2.2 million for the purchase of a
building in Romania.

Contingencies

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

In November 2002, the FASB issued FASB
Interpretation No. 45, Guarantors Accounting
and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others (FIN 45). The
Company applies the disclosure provisions of FIN 45 to its
agreements that contain guarantee or indemnification clauses.
FIN 45 requires that a liability be recorded in the
guarantors balance sheet upon issuance of a guarantee. In
addition, FIN 45 requires disclosures about the guarantees
that an entity has issued, including a reconciliation of changes
in the entitys product warranty liabilities. These
disclosure provisions expand those required by
SFAS No. 5 Accounting for Contingencies by
requiring that guarantors disclose certain types of guarantees,
even if the likelihood of requiring the guarantors
performance is remote. The following is a description of
significant arrangements upon which the Company is a guarantor:

Indemnification
Obligations

The Company is a party to a variety of agreements
pursuant to which it may be obligated to indemnify the other
party with respect to certain matters. Typically, these
obligations arise in the context of contracts entered into by
the Company, under which the Company customarily agrees to hold
the other party harmless against losses arising from a breach of
representations and covenants related to such matters as title
to assets sold, certain intellectual property rights and certain
income taxes. Generally, payment by the Company is conditioned
on the other party making a claim pursuant to the procedures
specified in the particular contract, which procedures typically
allow the Company to challenge the other partys claims.
Further, the Companys obligations under these agreements
may be limited in terms of time and/or amount, and in some
instances, the Company may have recourse against third parties
for certain payments made by it under these agreements.

It is not possible to predict the maximum
potential amount of future payments under these or similar
agreements due to the conditional nature of the Companys
obligations and the unique facts and circumstances involved in
each particular agreement. Historically, payments made by the
Company under these agreements have not had a material effect on
its business, financial condition, cash flows or results of
operations. The Company believes that if it were to incur a loss
in any of these matters, such loss should not have a material
effect on its business, financial condition, cash flows or
results of operations.

Product
Warranties

The Company estimates its product warranty costs
based on historical warranty claim experience and applies this
estimate to the revenue stream for products under warranty.
Included in the Companys sales returns reserves are
estimated return exposures associated with product warranties.
Estimated future costs for warranties applicable to revenues
recognized in the current period are charged to the
Companys cost of revenues. The warranty reserve is
reviewed quarterly to verify that it properly reflects the
remaining obligations based on the anticipated expenditures over
the balance of the obligation period. Adjustments are made when

F-20



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##### Table of Contents



CATALYST SEMICONDUCTOR, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

actual claim experience differs from estimates.
Warranty costs were less than $100,000 for fiscal 2004, fiscal
2003 and fiscal 2002.

Note 10  Related Party
Transactions:

Elex
N.V.

During the fourth quarter of fiscal 2000, the
Company began taking delivery of wafers fabricated at X-FAB
Texas, Inc. (X-FAB) a wholly owned subsidiary of
Elex N.V., a Belgian holding company (Elex), that
owned 3,578,700 shares, or 21.8% of the outstanding shares
of the Company as of April 30, 2004. Elex initially became
a related party in 1998. Roland Duchâtelet, the Chairman
and Chief Executive Officer of Elex, serves as a member of the
Companys Board of Directors. The wafers provided by X-FAB
include most of the Companys analog and mixed-signal
products and supplements some of the same EEPROM designs
fabricated at Oki Electronic Industry Co., Ltd., in Japan, the
Companys principal wafer fab. Other than purchase orders
currently open with X-FAB, there is no purchasing agreement in
place with X-FAB. During fiscal 2004, fiscal 2003 and fiscal
2002, the Company purchased $3.7 million, $1.4 million
and $1.2 million of wafers, respectively, from X-FAB. As of
April 30, 2004, 2003 and 2002, the total amount owed X-FAB
was $137,000, $18,000 and $184, 000, respectively.

On April 22, 2004, the Company purchased
600,000 shares of its common stock from Elex N.V. for
$6.77 per share and an aggregate of $4.1 million.

LXI
Corporation

The Company had an informal arrangement from 1995
through January 2003 to obtain engineering services from Lxi
Corporation, a California corporation (Lxi), a
provider of engineering services through Essex com SRL (Essex),
its wholly owned subsidiary in Romania. The number of full-time
engineers from Lxi the Company used was dependant upon the scope
and number of R&D projects in process at a given time. For
example, during the month of January 2003, Essex employed the
equivalent of approximately 12 full-time engineers to
perform services on the Companys behalf. These services
related to key development projects of Catalyst including
development, design, layout and test program development
services. In January 2003, the Company established a wholly
owned subsidiary in Romania which replaced the services of Lxi
as of February 1, 2003. Radu Vanco, the Companys
former CEO, owned 91% of Lxi at the time of his departure from
the Company in 2002; Gelu Voicu, the Companys Chief
Executive Officer, and Thomas E. Gay, the Companys Chief
Financial Officer, owned approximately 3% and 1%, respectively,
of Lxi until their shares were sold to Lxi in February 2003 at
net book value. Mr. Gay had previously served as the
Treasurer and as a director of Lxi prior to his joining the
Company. Mr. Gay resigned as Treasurer of Lxi immediately
prior to joining the Company and resigned as a director of Lxi
in January 2003.

Allan
Advisors, Inc.

One director of Catalyst Semiconductor, Inc.,
Lionel Allan, also served as a consultant to the Company through
his consulting company, Allan Advisors, Inc. Under the terms of
the consulting agreement, the Company paid Mr. Allan
consulting fees of $8,333 per month throughout fiscal 2003
and fiscal 2002. In fiscal 2004, fiscal 2003 and fiscal 2002,
the Company paid $0, $129,000 and $100,000, respectively. The
Company paid the $29,000 balance due under the agreement in
April 2003 and cancelled the agreement.

F-21



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##### Table of Contents



Schedule II  Valuation and
Qualifying Accounts

|                                            |  |                |        |            |  |            |        |            |  |   |      |   |  |   |        | 
|------------------------------------------- |  | -------------- | ------ | ---------- |  | ---------- | ------ | ---------- |  | - | ---- | - |  | - | ------ | 
|                                            |  |                |        | Additions  |  |            |        |           
|                                            |  | Balance at     |        | Charged to |  |            |        | Balance at
|                                            |  | Beginning      |        | Costs and  |  |            |        | End of    
|Year Ended April 30,                        |  | of Year        |        | Expenses   |  | Deductions |        | Year      
|                                            |  |                |        |            |  |            |        |           
|                                            |  |               
|                                            |  | (In thousands)
|2004                                        |  |                |        |            |  |            |        |            |  |   |      |   |  |   |        | 
|                                            |  |                |        |            |  |            |        |            |  |   |      |   |  |   |        | 
|Allowance for doubtful accounts receivable  |  | $              | 225    |            |  | $          |       |            |  | $ | (87  | ) |  | $ | 138    | 
|Valuation allowance for deferred tax assets |  |                | 8,646  |            |  |            | (8,646 | )          |  |   |     |   |  |   |       | 
|2003                                        |  |                |        |            |  |            |        |            |  |   |      |   |  |   |        | 
|                                            |  |                |        |            |  |            |        |            |  |   |      |   |  |   |        | 
|Allowance for doubtful accounts receivable  |  |                | 950    |            |  |            |       |            |  |   | (725 | ) |  |   | 225    | 
|Valuation allowance for deferred tax assets |  |                | 10,624 |            |  |            | (1,914 | )          |  |   | (64  | ) |  |   | 8,646  | 
|2002                                        |  |                |        |            |  |            |        |            |  |   |      |   |  |   |        | 
|                                            |  |                |        |            |  |            |        |            |  |   |      |   |  |   |        | 
|Allowance for doubtful accounts receivable  |  |                | 750    |            |  |            | 200    |            |  |   |     |   |  |   | 950    | 
|Valuation allowance for deferred tax assets |  |                | 5,878  |            |  |            | 4,746  |            |  |   |     |   |  |   | 10,624 | 

F-22



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##### Table of Contents



EXHIBIT INDEX

|            |             |             |  |                                                                                                                                                                                       
|----------- | ----------- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |             | Description
|            |             |            
|            | 3.2(8)      |             |  | Restated Certificate of Incorporation of
    Registrant                                                                                                                               
|            | 3.4(7)      |             |  | Bylaws of Registrant                                                                                                                                                                  
|            | 4.1(17)     |             |  | Specimen Stock Certificate                                                                                                                                                            
|            | 4.2(3)      |             |  | Preferred Shares Rights Agreement, dated as of
    December 3, 1996, between Catalyst Semiconductor, Inc. and
    First National Bank of Boston                                       
|            | 4.2.1(15)   |             |  | Amendment No. 1 to Preferred Shares Rights
    Agreement dated as of May 22, 1998 between Registrant and
    BankBoston, N. A., as rights agent                                       
|            | 4.2.2(15)   |             |  | Amendment No. 2 to Preferred Shares Rights
    Agreement dated as of September 14, 1998 between Registrant
    and BankBoston, N. A., as rights agent                                 
|            | 4.2.3(14)   |             |  | Amendment No. 3 to Preferred Shares Rights
    Agreement dated as of September 27, 2001 between Registrant
    and EquiServe Trust Company N.A., as rights agent                      
|            | 4.2.4(15)   |             |  | Amendment No. 4 to Preferred Shares Rights
    Agreement dated as of July 17, 2002 between Registrant and
    EquiServe Trust Company N.A., as rights agent                           
|            | 4.2.5(18)   |             |  | Amendment No. 5 to Preferred Shares Rights
    Agreement dated as of April 22, 2004 between the Registrant
    and Equiserve Trust Company, as rights agent                           
|            | 4.2.6(19)   |             |  | Amendment No. 6 to Preferred Shares Rights
    Agreement dated as of June 18, 2004 between the Registrant
    and Equiserve Trust Company, as rights agent                            
|            | 4.6(16)     |             |  | 2003 Stock Incentive Plan                                                                                                                                                             
|            | 4.7(16)     |             |  | 2003 Director Stock Option Plan                                                                                                                                                       
|            | 4.8(12)     |             |  | 1998 Special Equity Incentive Plan                                                                                                                                                    
|            | 10.27(1)*   |             |  | Form of Indemnification Agreement entered into by
    Registrant with each of its directors and executive officers.                                                                   
|            | 10.38(2)    |             |  | Standard Industrial Lease dated March 22,
    1996 between Marin County Employees Retirement Association and
    Registrant                                                           
|            | 10.39(2)   |             |  | Master Agreement dated February 7, 1996
    between United Microelectronics Corporation and the Registrant                                                                            
|            | 10.61(4)    |             |  | Standstill Agreement dated as of May 26,
    1998 between the Registrant and Elex N.V.                                                                                                
|            | 10.61.1(6)  |             |  | Amended and Restated Standstill Agreement dated
    as of September 14, 1998 between the Registrant and Elex
    N.V.                                                                 
|            | 10.61.2(18) |             |  | Amendment No. 1 to Amended and Restated
    Standstill Agreement dated as of April 22, 2004                                                                                           
|            | 10.61.3(18) |             |  | Second Amended and Restated Standstill Agreement
    dated as of June 10, 2004                                                                                                        
|            | 10.83(14)   |             |  | Stock Purchase Agreement dated April 19,
    2002 between Elex NV and Registrant                                                                                                      
|            | 10.84(15)*  |             |  | Form of Change of Control Agreement between
    Registrant and its non-employee directors                                                                                             
|            | 10.85(20)*  |             |  | Employment Agreement dated May 23, 2003
    between Gelu Voicu and Registrant                                                                                                         
|            | 10.86(18)   |             |  | Stock Transfer Agreement dated as of
    April 22, 2004 between the Registrant and Elex N.V.                                                                                          
|            | 10.87*      |             |  | Severance Agreement dated October 14, 2002
    between George Smarandoiu and Registrant                                                                                               
|            | 10.88(21)   |             |  | Sale-Purchase Promissory Agreement, dated
    November 6, 2003, between Registrant and S.C. Hathor Impex
    SRL                                                                      
|            | 10.89(4)    |             |  | Common Stock Purchase Agreement dated as of
    May 26, 1998 between Registrant and Elex N.V.                                                                                         
|            | 10.90(6)    |             |  | Common Stock Purchase Agreement dated as of
    September 14, 1998 between Registrant and Elex N.V.                                                                                   
|            | 21.1(20)    |             |  | List of Subsidiaries of Registrant.                                                                                                                                                   
|            | 23.1        |             |  | Consent of Independent Registered Public
    Accounting Firm                                                                                                                          
|            | 31.1        |             |  | Certification of Chief Executive Officer pursuant
    to U.S.C. Section 302 of the Sarbanes-Oxley Act of 2002                                                                         
|            | 31.2        |             |  | Certification of Chief Financial Officer pursuant
    to U.S.C. Section 302 of the Sarbanes-Oxley Act of 2002                                                                         
|            | 32          |             |  | Certification of Chief Executive Officer and
    Chief Financial Officer pursuant to U.S.C. Section 1350, as
    adopted pursuant to Section 902 of the Sarbanes-Oxley Act
    of 2002



---



##### Table of Contents





---



|    |                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference to Registrants
    Registration Statement on Form S-1 filed with the
    Securities and Exchange Commission on May 11, 1993 (File
    No. 33-60132), as amended.
|   
|(2) | Incorporated by reference to Registrants
    Form 10-K filed with the Securities and Exchange Commission
    for the year ended April 30, 1996.                                           
|   
|(3) | Incorporated by reference to Registrants
    Form 8-A filed with the Securities and Exchange Commission
    on January 22, 1997.                                                          
|   
|(4) | Incorporated by reference to Registrants
    Form 10-K filed with the Securities and Exchange Commission
    for the year ended May 3, 1998.                                              
|   
|(5) | Incorporated by reference to Registrants
    Form 10-K/ A filed with the Securities and Exchange
    Commission for the year ended May 3, 1998.                                           
|   
|(6) | Incorporated by reference to Registrants
    Form 10-Q filed with the Securities and Exchange Commission
    for the quarter ended August 2, 1998.                                        
|   
|(7) | Incorporated by reference to Registrants
    Form 10-Q/ A filed with the Securities and Exchange
    Commission for the quarter ended November 1, 1998.                                   
|   
|(8) | Incorporated by reference to an Appendix to
    Registrants Definitive Proxy Statement filed with the
    Securities and Exchange Commission on December 18, 1998.                        
|   
|(9) | Incorporated by reference to Registrants
    Form 10-Q filed with the Securities and Exchange Commission
    for the quarter ended January 21, 1999.                                      



|     |                                                                                                                                                                                       
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Incorporated by reference to Registrants
    Form 10-K filed with the Securities and Exchange Commission
    for the year ended May 2, 1999.                                         
|    
|(11) | Incorporated by reference to Registrants
    Form 10-K filed with the Securities and Exchange Commission
    for the year ended April 30, 2000.                                      
|    
|(12) | Incorporated by reference to an Appendix to
    Registrants Definitive Proxy Statement previously filed
    with the Securities and Exchange Commission on July 27,
    2000.        
|    
|(13) | Incorporated by reference to Registrants
    Form 10-K filed with the Securities and Exchange Commission
    for the year ended April 30, 2001.                                      
|    
|(14) | Incorporated by reference to Registrants
    Form 10-Q filed with the Securities and Exchange Commission
    for the quarter ended October 28, 2001.                                 
|    
|(15) | Incorporated by reference to Registrants
    Form 10-K filed with the Securities and Exchange Commission
    for the year ended April 30, 2002.                                      
|    
|(16) | Incorporated by reference to Registrants
    Registration Statement on Form S-8 filed with the
    Securities and Exchange Commission on December 24, 2002
    (File No. 333-102201).
|    
|(17) | Incorporated by reference to Registrants
    Registration Statement on Form 8-A/ A filed with the Securities
    and Exchange Commission on April 29, 1993.                          
|    
|(18) | Incorporated by reference to Registrants
    Registration Statement on Form S-3 filed with the
    Securities and Exchange Commission on June 14, 2004 (File
    No. 333-116425).    
|    
|(19) | Incorporated by reference to Registrants
    Registration Statement on Form S-3/ A filed with the
    Securities and Exchange Commission on June 22, 2004 (File
    No. 333-116425). 
|    
|(20) | Incorporated by referenced to Registrants
    Form 10-K filed with the Securities and Exchange Commission
    for the year ended April 27, 2003.                                     
|    
|(21) | Incorporated by reference to Registrants
    Form 10-Q filed with the Securities and Exchange Commission
    for the quarter ended February 1, 2004.                                 



| |   |                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.