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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 April 27,
    2003                                                
|                              
|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

As of October 25, 2002, the last business
day of Registrants most recently completed second fiscal
quarter, there were 16,705,115 shares of Registrants
Common Stock outstanding and the aggregate market value of
Common Stock held by non-affiliates of Registrant was
approximately $29 million (based upon the closing bid for
shares of Registrants Common Stock as reported by the
Nasdaq SmallCap Market on October 25, 2002). Shares of
Common Stock held by each officer, director and holder of 5% or
more of the outstanding Common Stock (including shares with
respect to which a holder has the right to acquire beneficial
ownership within 60 days) have been excluded in that such
persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination
for other purposes.

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

The number of shares of Registrants Common
Stock outstanding as of June 24, 2003 was 16,502,062.

DOCUMENTS INCORPORATED BY REFERENCE

The Registrant has incorporated by reference into
Part III of this Annual Report on Form 10-K portions
of its Proxy Statement for the 2003 Annual Meeting of
Stockholders.



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TABLE OF CONTENTS



|                  |                                                                                               |  |  |  |  |  |  | 
|----------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I           
|                  | Item 1. Business                                                                             
|                  | Item 2. Properties                                                                           
|                  | Item 3. Legal Proceedings                                                                    
|                  | Item 4. Submission of Matters to a Vote of Security Holders                                  
|PART II          
|                  | Item 5. Market for Registrants Common Stock and Related Stockholder Matters                 
|                  | Item 6. Selected Consolidated Financial Data                                                 
|                  | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                  | Item 7A. Quantitative and Quantitative Disclosures About Market Risk                         
|                  | Item 8. Financial Statements and Supplementary Data                                          
|                  | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
|PART III         
|                  | Item 10. Directors and Executive Officers of the Registrant                                  
|                  | Item 11. Executive Compensation                                                              
|                  | Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|                  | Item 13. Certain Relationships and Related Transactions                                      
|                  | Item 14. Controls and Procedures                                                             
|PART IV          
|                  | Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K                     
|SIGNATURES       
|INDEX TO EXHIBITS
|INDEX TO EXHIBITS
|EXHIBIT 10.85    
|EXHIBIT 21.1     
|EXHIBIT 23.1     
|EXHIBIT 99.1     



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CATALYST SEMICONDUCTOR, INC.

|                                           |  |                                                                                                    |     |      |    | 
|------------------------------------------ |  | -------------------------------------------------------------------------------------------------- | --- | ---- | -- | 
|                                           |  |                                                                                                    |     | Page
|                                           |  |                                                                                                    |     |     
|PART I                                    
|Item 1.                                    |  | Business                                                                                           |     |      | 1  | 
|Item 2.                                    |  | Properties                                                                                         |     |      | 10 | 
|Item 3.                                    |  | Legal Proceedings                                                                                  |     |      | 10 | 
|Item 4.                                    |  | Submission of Matters to a Vote of Security
    Holders                                            |     |      | 10 | 
|PART II                                   
|Item 5.                                    |  | Market for Registrants Common Stock and
    Related Stockholder Matters                           |     |      | 11 | 
|Item 6.                                    |  | Selected Consolidated Financial Data                                                               |     |      | 12 | 
|Item 7.                                    |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations          |     |      | 13 | 
|Item 7A.                                   |  | Quantitative and Qualitative Disclosures about
    Market Risk                                     |     |      | 29 | 
|Item 8.                                    |  | Financial Statements and Supplementary Data                                                        |     |      | 29 | 
|Item 9.                                    |  | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure           |     |      | 29 | 
|PART III                                  
|Item 10.                                   |  | Directors and Executive Officers of the Registrant                                                 |     |      | 30 | 
|Item 11.                                   |  | Executive Compensation                                                                             |     |      | 30 | 
|Item 12.                                   |  | Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters |     |      | 30 | 
|Item 13.                                   |  | Certain Relationships and Related Transactions                                                     |     |      | 30 | 
|Item 14.                                   |  | Controls and Procedures                                                                            |     |      | 30 | 
|PART IV                                   
|Item 15.                                   |  | Exhibits, Financial Statement Schedules and
    Reports on Form 8-K                                |     |      | 31 | 
|Signatures                                 |  |                                                                                                    | 32  |     
|Index to Exhibits                          |  |                                                                                                    | 35  |     
|Index to Consolidated Financial Statements |  |                                                                                                    | F-1 |     



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CATALYST SEMICONDUCTOR, INC.






PART I





Item 1.     Business

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.

Catalyst Semiconductor Inc. (Catalyst, we, us or
Registrant) designs, develops and markets a broad range of
programmable IC products serving the micro-controller
applications market. These applications include communication,
computing, industrial automation, consumer and automotive
applications. Our product portfolio includes serial and parallel
flash/ electrically erasable programmable read only memories
(EEPROM), programmable micro-controller supervisory and voltage
reference circuits and mixed signal devices.

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

Our business is highly cyclical and has been
subject to significant downturns at various times which have
been characterized by reduced product demand, production
overcapacity and significant erosion of average selling prices.
The market for certain Flash and EEPROM devices, which comprise
the majority of our business, is currently experiencing an
excess market supply relative to demand which is resulting in a
significant downward pressure on the selling prices for our
products. However, during the fiscal year ended April 30,
2000 (fiscal 2000) and the first half of the fiscal year ended
April 30, 2001 (fiscal 2001), the results of our operations
improved significantly, primarily due to an improvement in
market conditions. During this period, the semiconductor market
rebounded from a cyclical decline which had a favorable impact
on our revenues and gross margins and we also realized
reductions in product costs and operating expenses through a
cost reduction program that had a favorable impact on
profitability. During the last half of fiscal 2001 and the first
half of the fiscal year ended April 30, 2002 (fiscal 2002),
we experienced a twelve month period of declines in our
revenues, gross profits and net income due to a resumption of
the competitive factors that result in decreasing revenues and
margins. During the last six months of fiscal 2002 and
throughout the fiscal year ended April 30, 2003 (fiscal
2003), unit volumes shipped, revenues, gross profits and net
income were comparatively steady although with lower revenues,
margins and profits than experienced in fiscal 2000. We could
experience a resumption of the downward trend in revenues,
product pricing and unit volumes shipped which could adversely
affect our future operating results.

Total revenues for the quarter and the fiscal
year ended April 30, 2003 were approximately
$12.5 million and $48.2 million, respectively,
compared to total revenues of approximately $12.5 million
and $42.8 million for the quarter and fiscal year ended
April 30, 2002. In addition, we earned net income for the
quarter and for the year ended April 30, 2003 of
approximately $4.0 million and $6.3 million
respectively, compared to net income of approximately
$1.2 million and $770,000 for the comparable periods in the
prior year. During fiscal 2003, we had a net decrease in
inventory reserves of approximately $495,000 primarily related
to the sale of approximately $3.1 million in finished goods
inventory that was over one year old and other inventory that we

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did not expect to be sold within a predictable
period, generally one year, the effect of which on our cost of
revenues was offset by the addition of approximately
$2.7 million to our inventory reserves for other inventory
that we do not expect to sell within a predictable period,
generally one year. During fiscal 2002, we benefited from the
sale of approximately $2.0 million of previously reserved
inventory, the effect of which on our cost of revenues was
reduced by the addition of approximately $2.1 million to
our inventory reserves. During fiscal 2001, we recorded
approximately $5.0 million of additional reserves for
inventory that we did not expect to be sold within a predictable
period. Additionally, in fiscal 2001, we benefited from the
release of approximately $2.3 million of reserves caused by
the sales of inventories we had previously reserved. We can
provide no assurance that we will be able to sustain the
profitability we have experienced in the most recent quarters.


Our number of full time equivalent employees
increased to 108 in April 2003 from 67 in April 2002. The
increase was principally due to the establishment in January
2003 of our wholly owned subsidiary in Romania which had 34
employees as of April 2003. Our manufacturing activities are
also supported in part by our subcontracting of certain other
operations and manufacturing activities to approximately 83
contract employees, as of April 30, 2003, located at
Trio-Tech (Bangkok) Co. Ltd. (Trio-Tech) and NS Electronics
Bangkok (1993) Ltd. (NSEB), both located in Bangkok,
Thailand and ASE Holding Electronics (Phil.) Inc. (ASE), located
in the Philippines.

In June 2001 we paid the balance owed to a bank
and made the final payments to various equipment lessors when
due in October 2000. Since that time, we have operated without
incurring any debt other than standard trade obligations. At
this time, we believe that we have sufficient cash on hand and
will not immediately need to enter into another borrowing
agreement for the near term. As of April 30, 2003, we were
indebted to various creditors in the amount of approximately
$3.7 million of which approximately $2.9 million
related to wafer production and inventory processing and
approximately $800,000 million related to other goods and
services.

We market our products through a direct sales
force and a worldwide network of independent distributors and
sales representatives. For fiscal 2003, sales outside the United
States represented 80% of our product sales. End user customers
of our products include Hewlett Packard Inc., Jabil Circuit
Inc., LG Electronics Inc., Samsung Asia Ltd. and VTech
Communications Ltd.

Corporate Background

We were 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 address is:
www.catalyst-semiconductor.com.

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 web site 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 web site is
not incorporated by reference into this Annual Report on
Form 10-K.

Industry Background

Catalyst Semiconductor designs and, through third
party foundries in Japan and Texas, manufactures a broad range
of multi-industry non-volatile (NVM) memories and has, more
recently, introduced a limited number of mixed-signal products.

Memory Products

There are two general classes of semiconductor
memories incorporated into electronic systems, volatile memory
and nonvolatile memory. The principal distinguishing
characteristic between the two classes is that volatile memory
devices require a continuous application of power to retain
data, while nonvolatile memory devices do not. Among volatile
memory devices, DRAM devices are the most prevalent because they
are

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capable of high-speed data transfer, feature high
density circuitry and can be manufactured at relatively low
cost. DRAMs are used primarily as the main memory in computers
for temporary storage of application program data while the
system is operating. Nonvolatile memory (NVM) devices, in
contrast, are used by computers and electronic systems primarily
to store system-critical data when the power to the system is
turned off. The continuous memory capability of NVM renders
these devices well suited for a wide range of applications in
the computer, consumer electronics, telecommunications,
automotive, industrial control and instrumentation markets.


NVM devices are used to store essential data such
as BIOS software for personal computers, which regulates the
flow of data to and from system peripherals such as the keyboard
and monitor and disk drives. In addition, NVM devices that can
be programmed and reprogrammed in the system are used to store
user-selected system configurations in consumer electronics
devices such as preset stations in automobile radios and to
store numbers in cellular telephones. NVM devices have generally
not been used for computer main memory applications because
historically they have been more expensive, provided slower
performance and were more costly to produce than volatile memory
such as DRAMs.

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



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | EEPROMs.EEPROMs can
    be erased and reprogrammed electrically within the system,
    eliminating the need for physical removal, as required by
    erasable programmable read only memories (EPROMs).
    Full-featured EEPROMs, which have on-chip error
    correction capabilities that enhance system reliability,
    individual bytes or segments of the stored data can be erased
    and rewritten tens of thousands of times. These features
    generally offer greater flexibility to systems designers than
    EPROMs. EEPROMs are used to store system-critical information
    which needs to be updated on a periodic basis, including:



| |   |                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------
| |  | control panel settings and other
    user-configurable system parameters in consumer devices;                
|
| |  | cache memory for disk drives;                                                                                
|
| |  | system protocols; and                                                                                        
|
| |  | stored telephone numbers in cellular telephones,
    facsimile machines and other telecommunications devices.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | EEPROMs are generally available in two
    configurations, serial EEPROM devices, which transmit data
    through a single input-output port, and parallel EEPROMs, which
    transmit data via multiple ports concurrently. Each cell of an
    EEPROM (the discrete area on the device in which one bit is
    stored) consists of two transistors, one to store data and one
    to permit the cell to be selected when erasing data, as compared
    to the single, storage transistor of an EPROM. EEPROMs can be
    modified to be utilized as programmable erasable read only
    memory (PEROM) devices for 5-volt FLASH applications
    involving sector-by-sector data read and write. EEPROMs are more
    expensive to produce than EPROMs, due to their more complex
    circuitry.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | NVRAMs.NVRAMs
    consist of a Static Random Access Memory (SRAM) device and
    an EEPROM incorporated in a single semiconductor die. This
    enables the device to provide both the high speed data transfer
    rates and read/ write rates typical of volatile SRAMs and the
    memory retention of NVMs when the system power is off. However,
    the complexity of NVRAM devices, which typically utilize 8
    transistors per cell, makes them too costly for most commercial
    applications. Accordingly, NVRAMs are generally limited in
    application to critical, high-performance systems, such as
    antilock braking systems.                                                                                                                        
|
| | Flash Memory.Flash
    EEPROMs, or Flash memories, combine the benefits of high-speed
    data alterability and data transfer rates and, potentially, the
    low cost manufacturability of volatile memory, with the
    flexibility and continuous data retention of NVM. Flash memory
    products can potentially be manufactured with storage densities
    as great as DRAM densities and thereby achieve manufacturing
    costs approaching the low cost of DRAMs. In addition, the
    architecture of Flash memory potentially permits data
    alterability and transfer rates as fast as DRAMs. Flash memory
    exhibits certain limitations as compared to DRAMs, including a
    finite life span of read/ write cycles, which limits its use in
    computer

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| |                                                                                                                                                                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | main memory applications. However, Flash memory
    is being designed into a wide variety of applications beyond the
    traditional application of NVM in fixed program and data storage
    and into applications in dynamic data storage due to its
    nonvolatility, high storage densities, rapid access speed and
    decreasing cost.

The different NVM semiconductor devices that we
sell are reprogrammable NVM devices such as electrically
erasable programmable memory (EEPROM), nonvolatile random access
memory (NVRAM) and low density Flash memory. Each
successive generation of NVM memory offers increasing
functionality, flexibility and performance.



| |                                                  
| | -------------------------------------------------
| | Non-Volatile Memory Products and
    Applications

Catalyst provides a broad range of NVM products,
including serial and parallel EEPROMs, low density Flash
memories, and NVRAMs products. Our principal memory product
lines are as follows:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 (I2C) bus interface of
    Philips Electronics, the Microwire interface protocol of
    National Semiconductor and the Serial Peripheral Interface
    (SPI) bus protocol of Motorola. Additionally, we offer
    4-wire bus interface protocol type products. We offer products
    in a wide variety of density (1 kilobit (Kbit) to
    256 Kbit) and voltage (1.8 volt to 6.0 volt)
    ranges. Serial EEPROM products are used in many applications to
    store user reconfigurable data. Some of the more common
    applications are digital cameras, disk drives, cellular phones,
    DVD and CD players, hearing aids, cordless phones, laser
    printers, DIMM modules for computers, and various automotive
    applications.
|
| | Parallel EEPROM.We
    offer parallel EEPROM products for battery operated applications
    in a broad range of densities. We offer both standard
    5 volt-only and 3.3 volt-only parallel EEPROMs to meet
    battery operated application requirements. We also offer
    products with 16 Kbit to 512 Kbit densities. Parallel
    EEPROMs transfer data in multiple bits, generally eight bits at
    a time. They provide faster transfer rates than serial EEPROMs,
    which transfer data through a single port. Parallel EEPROMs are
    more costly than serial EEPROMs and, accordingly, are used
    primarily in high performance applications. Parallel EEPROMs are
    primarily used in applications such as POS terminals, industrial
    controllers, LAN adapters, and telecommunication switches.                                                                                                         
|
| | Flash Memory.We
    currently offer flash memory in a limited variety of densities.
    We offer Intel-licensed, 12 volt Flash memory devices in
    densities ranging from 512 Kbit to 2 megabit (Mb).
    This family includes Intel-licensed boot block and bulk erase
    technologies available in 1 Mb and 2 Mb densities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| | NVRAMs.We offer
    NVRAMS in a variety of configurations. NVRAMs consist of an SRAM
    and an EEPROM incorporated onto a single semiconductor die.
    NVRAMs provide superior performance over other NVM products and
    are ideal for applications that require high speed read/ write
    operations with nonvolatile memories, including parallel
    processing controllers for LANs and antilock braking systems.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      



| |                                 
| | --------------------------------
| | Mixed Signal Products
    (AE2)

Building on its worldwide customer base, Catalyst
Semiconductor has been developing a broad range of mixed-signal
analog products to complement its memory families. As all of the
applications for NVM incorporate microcontrollers or
microprocessors, we have been developing products which would
interface with the controllers in various applications such as
power management, supervisory management and systems support.

These development programs have been underway for
the past three years, and are now beginning to be released to
the market, with some initial design-in successes. The product
families are summarized below:



| |                                                                                                                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Supervisory Products with EEPROM Memory.We have introduced a family of
    micro-controller supervisory products, which combine serial
    EEPROM with the reset and watchdog functions required by many
    micro-controllers to ensure safe sustained operation. These
    products of ours combine in the same

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | chip, two functions which are typically offered
    in two separate products, to provide a saving in critical
    printed circuit board space along with a component cost saving.
    Initial design-ins have been in the automotive industry and in
    power metering. Currently the family offers 2Kbit and 16Kbit of
    EEPROM with the supervisory functions. Higher memory density
    products are under development.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| | Supervisory Products without Memory.We are also introducing the first of
    several families of multi-industry supervisory products without
    EEPROM memory, but based on using a floating gate EEPROM
    technology which allows very low standby power, and the ability
    to program the critical threshold voltage after packaging, which
    reduces our inventory costs while providing higher precision to
    the customer at lower cost. We are one of the few analog
    semiconductor companies with floating gate EEPROM technology.                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| | Digitally Programmable Potentiometers
    (DPPTM).We have introduced a number of solid state digital
    potentiometers (DPP) integrated circuits (ICs) which are
    targeted at replacing mechanical potentiometers used in a
    variety of applications for the purpose of fine tuning and
    trimming electronic circuitry. DPP ICs are built using the same
    processes as our EEPROM products. We have released
    17 digital potentiometers to the market thus far, with more
    in development. Several of these products are pin-compatible
    with potentiometers from other suppliers. Early design-ins have
    been in digital cameras and optical transceivers. As a result of
    the agreement with Xicor Corporation to settle a patent issue,
    we pay royalties to Xicor on the digital potentiometers sold by
    us. See Patents and Licenses.                                                                                                             
|
| | White LED Drivers.We have under development several products intended to drive the
    white light emitting diodes (LEDs), used as backlights in color
    LCD screens in cell phones, digital cameras, MP3 music players,
    personal digital assistants, industrial instrumentation, and
    domestic white goods. The transition from mono-tone displays to
    color is irreversible as the costs of color displays continue to
    decline, and consumers demand it. Our initial products will
    drive up to four LEDs in series, using boost converter designs,
    and six LEDs in parallel, using regulated charge pumps. Our ICs
    tightly regulate the current to the LEDs to ensure the uniform
    brightness and color purity necessary for the greatest clarity
    in viewing the color displays. Demonstration boards populated
    with our parts and using industry standard white LEDs have
    already been sampled by our customers in Asia, Europe and the US.
|
| | DC-DC Converters.Converting one DC voltage to another within a system is a common
    requirement, particularly in battery-powered applications where
    the power available from the batteries will decline over time
    and use. Using various circuit design techniques, including our
    patented technology, our designs allow continued unimpaired
    operation of a system down to the end of the life of the
    batteries in the system. Our initial offering is a family of
    industry standard converters which can either invert the
    positive voltage input to a corresponding negative (useful for
    contrast control in LCD displays), or to double the input
    voltage. The converters will operate at selectable frequencies
    from 10 to 135 kilohertz, with synchronized operation up to
    1 megahertz (MHz).                                                                                                                                        
|
| | Precision Voltage
    References.A tight voltage reference
    stable over temperature is required for the operation of
    virtually any electronic system. We will introduce a family of
    0.5% accuracy thermally stable voltage references at
    1.24 volts and 0.6 volts for applications in low
    voltage switching power supplies, microcontroller support and
    other applications. Our references are stable over the
    Industrial temperature range, -40C to +85C.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

Sales and Distribution

We market our products through a direct sales
force and a network of independent distributors and sales
representatives. As of April 30, 2003, we employed 21
people in our sales organization, compared to 23 and 24 as of
April 30, 2002 and April 30, 2001, respectively. In
addition to our Sunnyvale headquarters facility, we have
domestic sales employees in Southern California, Illinois and
Texas and international sales employees in China, England, South
Korea and Taiwan. Our sales offices support both original
equipment manufacturers (OEM) and distributors. In
addition, Nippon Catalyst K.K., our subsidiary in Japan, works
closely with our principal foundry and our Japanese distributors
and OEM customers.

We seek to develop strategic relationships with
major OEMs and other customers. We offer a broad range of NVM
devices compatible with the most common industry standards and
we also work closely with

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our customers to provide semi-custom solutions to
address individual customers needs. In fiscal 2003, we
shipped products directly or through our distribution network to
customers in the computer, consumer electronics,
telecommunications, automotive, data communication and other
industries. OEM customers purchasing our products include
Hewlett Packard Inc., Jabil Circuit Inc., LG Electronics Inc.,
Samsung Asia Ltd. and VTech Communications Ltd.


During fiscal 2003, sales to no customer exceeded
10% of our revenues. During fiscal 2002, sales to Future
Electronics, Inc. (Future), a distributor which sells
principally in North America and Europe represented 11% of our
revenues and 14% of our revenues in fiscal 2001. Product
revenues from sales to customers outside the United States
represented approximately 80%, 71% and 61% of our total product
revenues in fiscal 2003, 2002 and 2001, respectively. The
increase in percentage of international revenues in fiscal 2003
was primarily attributable to increased sales to Japan and
Europe while sales in the US diminished. The increase in
percentage of international revenues in fiscal 2003 was
primarily attributable to our increased sales in Japan and
Europe due to our increased sales efforts in those regions. All
sales of our products are billed in U.S. dollars,
minimizing the effects of currency fluctuations. Due to the
magnitude of our international sales, we are subject to the
risks of conducting business internationally, including
unexpected changes in regulatory requirements and fluctuations
in the value of the U.S. dollar, which among other
conditions could increase the sales price of our products in
local currencies, tariffs and other barriers and restrictions
and the burdens of complying with a variety of foreign laws.

Manufacturing

We subcontract the manufacture of all of our
products through independent semiconductor manufacturers,
primarily through Oki and Xfab, our semiconductor fabricators
and NSEB, our principal provider of assembly and test services.
We also subcontract certain production planning, product
engineering, shipping and tape and reel activities to Trio-Tech,
NSEB and ASE, which in the aggregate, utilized the services of
approximately 83 people in performing these services for us
as of April 30, 2003. We have designed our proprietary
circuit designs and fabrication processes to operate within the
overall semiconductor manufacturing processes of our contract
manufacturers. Our designs are manufactured utilizing Okis
processes developed for high volume and high yield production of
DRAMs. We also endeavor to develop our processes in a manner
that permits the manufacture of our products in the fabrication
facilities of different semiconductor manufacturing suppliers.
During the fourth quarter of fiscal 2000, we made the first
volume shipments of products fabricated at Xfab. Xfab is owned
and operated by Elex NV, the Belgian holding company that owns
28% of our outstanding shares as of June 20, 2003. If we
were forced to switch more of our manufacturing from Oki or
Xfab, our production and delivery of products would be delayed
and our cost for such products might be materially increased,
which could adversely affect our business, financial condition
and results of operations.

Manufacturing semiconductor products is a highly
complex process that is sensitive to a wide variety of factors
including the level of contaminants in the manufacturing
environment, impurities in the materials used and the
performance of personnel and equipment. While we believe that we
have suppliers willing to provide an adequate wafer supply to
meet our currently anticipated needs, we may not receive
sufficient quantities of wafers at favorable prices on a timely
basis, if at all. As is typical in the semiconductor industry,
our outside foundries have from time to time experienced lower
than anticipated production yields. We can provide no assurance
that manufacturing problems will not occur in the future. The
loss of Oki or Xfab as a supplier, any prolonged inability to
obtain adequate yields or deliveries from Oki or other
subcontractors or manufacturers, or any other circumstance that
would require us to seek alternative sources of supply, could
increase our cost for such supplies, delay shipments and have a
material adverse effect on our operating results. We currently
purchase wafer supplies on a purchase order basis from Oki and
Xfab. We also have a purchase agreement with UMC for certain
Flash products which runs through February 2006. Due to
declining Flash bookings and other circumstances, we have not
ordered any wafers from UMC since December 1997. See
Item 7. Managements Discussion and Analyses of
Financial Condition and Results of Operations 
Results of Operations and  Liquidity and
Capital Resources.

To address our wafer supply concerns, we plan to
continue working with Oki, our primary wafer supplier, to
qualify our products in multiple fabrication plants owned by
Oki. Once this qualification process is complete

6



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we will not only have potential access to greater
quantities of wafers, but we shall also have a redundant source
of wafer capacity in the event that one of Okis
fabrication plants is damaged or destroyed by fire, earthquake
or some other catastrophic event. We are also in the process of
qualifying certain of our large volume products with Xfab, our
secondary wafer supplier, which should further reduce the risks
of quantity, quality and sourcing for a portion of our wafer
supply. To further alleviate our concerns of wafer supply, we
have significantly increased the quantity of wafers in our
inventory, through die banking rather than more expensive
finished goods, and intend to maintain such increased levels of
wafer inventory throughout fiscal 2004.


We have wafer sorting operations at our
headquarters facility in Sunnyvale 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 and tested in accordance with our own
internally-developed procedures. Following assembly, the
packaged devices are further tested and inspected pursuant to
our quality assurance program prior to shipment to our
customers. The majority of such assembly and test services are
provided by NSEB and Millennium Microtech Holding Corp. in
Bangkok, Thailand, Orient Semiconductor Electronics, Inc. and
ASE Holdings Electronics (Phil) Inc. in the Philippines and
ChipPAC Limited in China and Korea. While the timeliness, yield
and quality of semiconductor deliveries from our suppliers have
been acceptable to date, we can provide no assurance that
manufacturing problems will not occur in the future. Any
prolonged inability to obtain adequate yields or deliveries from
these manufacturers, or any other circumstance that would
require us to seek alternate sources of supply, could delay
shipments. Any significant delays would have an adverse effect
on our operating results. Failure to have such services
available would have a material adverse effect on our business,
financial condition and results of operations.

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

Research and Development

We continue to invest significant sums in
research and development to improve our fabrication processes
and develop additional products with the following
characteristics:



| |   |                                    
| | - | -----------------------------------
| |  | higher performance and reliability;
|
| |  | lower voltage requirements;        
|
| |  | smaller die sizes; and             
|
| |  | improved manufacturability.        

Our efforts include the development of successive
generations of our EEPROM and Flash memory products scaled to
smaller geometries, as well as mixed signal and micro-controller
supervisory circuits with embedded EEPROM technologies. As of
April 30, 2003, we employed 55 people in research and
development activities, compared to 24 and 22 as of
April 30, 2002 and 2001, respectively. The increase of
31 employees in fiscal 2003 is primarily attributable to
our establishment and staffing of a research and development
subsidiary in Romania in January 2003. The engineers at our
subsidiary in Romania were hired to replace and expand the
outsourced services from Lxi Corporation that had supplied the
full-time equivalent of approximately 15 engineers as of
April 30, 2002. We invested $5.2 million,
$4.4 million and $4.5 million in research and
development activities in fiscal 2003, 2002 and 2001,
respectively.

We 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), 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.
For example, during January 2003, Essex employed the equivalent
of approximately 12 full-time engineers to perform services
on our behalf. 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

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unaffiliated third parties. Two of our officers,
Messrs. Voicu and Gay, 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. Messrs. Voicu and Gay received no payments
from Lxi during 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 CEO, Mr. Radu Vanco, continues to
own a majority of the outstanding shares of Lxi. In January
2003, we formed a wholly owned subsidiary in Romania, Catalyst
Semiconductor, Romania com SRL (CSR), to perform these
engineering design services on our behalf and discontinued our
use of the engineering services of Lxi in January 2003. During
fiscal 2003, 2002 and 2001 we recorded $605,000, $852,000 and
$714,000, respectively, of engineering fees from Lxi for
engineering design services provided by Essex. As of
April 30, 2003, there was no amount owed to Lxi.


Patents and Licenses

Our success and ability to generate future
revenues will depend, in part, on our ability to protect our
intellectual property. We rely on a combination of patents,
copyrights, trademarks and trade secrets, as well as
nondisclosure agreements and other methods to protect various
aspects of our products.

As of April 30, 2003, we owned
17 U.S. patents and one international patent. The term
of patent protection in the United States is generally the
greater of 17 years from the issue date or 20 years
from the earliest effective filing date of the patent
application. The expiration dates of our patents range from
January 2008 to September 2021. The process of seeking patent
protection can be expensive and time consuming. We can provide
no assurance that patents will be issued from our pending or
future applications and, if patents are issued, they will
provide meaningful protection or other commercial advantage to
us. Moreover, our patent rights may not be upheld in the future
and we may not be able to preserve our other intellectual
property rights. We also occasionally enter into licenses with
third parties to provide additional functionality for our
products or to offer our technology to third parties for
integration into their products on an original equipment or
other basis. The continued production of certain of our products
and a portion of our revenues are dependent upon these licenses.
In fiscal 2003, less than one percent of our revenues was
subject to a royalty-bearing licensing agreement.

In April 2001, Xicor, a competitor in the
nonvolatile memory and mixed signal markets, served us with a
suit alleging that some of our recently announced digital
potentiometer products infringed on a patent that Xicor obtained
in 1988. In June 2002, we entered into a settlement agreement
with Xicor according to which we received a license to
manufacture the disputed products in exchange for certain
royalty payments based upon shipments after July 22, 2002.
This license expires in 2020. As a result of this agreement, we
will be able to further develop such products and market them to
our customers. The complaint was dismissed on July 22, 2002.

In 1989, we entered into a license agreement with
Philips Export B.V. and U.S. Philips Corporation (Philips) to
license technology pertinent to their I2C bus
technology patent which expires in 2004. Catalyst paid royalties
under this license through 1993, at which point we believed that
the license became fully paid-up and no further royalties were
owing. In May 2001, the Company received a written communication
from Philips suggesting that royalties under this license were
still owing on certain products. In January 2003, Philips again
stated that it did not believe that the license was paid-up and
that royalties had continued to accrue. The Company does not
believe that Philips position is meritorious and that,
even if a current royalty obligation is demonstrated, it does
not extend retroactively back as far as Philips contends.
Nonetheless, if Philips position is ultimately
demonstrated to be correct, the Company may owe Philips an
amount estimated to range from zero to $2.9 million in back
royalty payments and an estimated amount ranging from zero to
$1.5 million in interest payments.

In the semiconductor industry it is typical for
companies to receive notices from time to time alleging
infringement of patents or other intellectual property rights of
others. We can provide no assurance that we will not receive
additional notices alleging infringement and no additional
proceedings alleging infringement of intellectual property
rights will be commenced against us in the future. If either or
both of these events occur, we may not be able to obtain any
required licenses of third party intellectual property rights or
obtain such licenses on commercially reasonable terms. Failure
to obtain a license in either or both events could require us

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to cease production of our products until we
develop a non-infringing design or process. Moreover, the cost
of litigation of any claim or damages resulting from either or
both events could be substantial and could materially and
adversely affect our business, financial condition and results
of operations.


Competition

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

Our more mature products, such as EEPROM devices,
compete on the basis of product performance, price and customer
service. We believe that we compete successfully with respect to
each of these competitive factors. Price competition is
significant and expected to continue. Principal competitors with
respect to our EEPROM products currently include Atmel
Corporation, STMicroelectronics N.V., Microchip Technology Inc.,
Information Storage Devices Inc. and Fairchild Semiconductor
International, Inc., most of which have substantially greater
resources than we do.

The limited market for the low density Flash
memory products that Catalyst manufactures has been
characterized by long production cycles, irregular yields,
competing technologies and a shrinking market due to the shift
by most customers to the larger Flash memory sizes that we do
not offer. We can provide no assurance that we will be able to
compete successfully in the future against our competitors for
Flash products business.

Employees

As of April 30, 2003, we had 108 full time
employees, of whom 55 were engaged in research and development.
Our employees are also supported in part by our subcontracting
of certain other operations and manufacturing activities to
approximately 83 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,
who are in great demand. Our employees are not represented by
any collective bargaining organization and we have never
experienced any work stoppage. We believe that our employee
relations are good.

Executive Officers and Key Personnel

Our executive officers and certain key personnel
and their ages as of June 20, 2003 are as follows:

|                  |  |     |    |             |  |                                                                             
|----------------- |  | --- | -- | ----------- |  | ----------------------------------------------------------------------------
|Name              |  | Age |    | Position(s)
|                  |  |     |    |            
|Gelu Voicu        |  |     | 53 |             |  | President and Chief Executive Officer                                       
|Thomas E. Gay III |  |     | 54 |             |  | Vice President of Finance and Administration and
    Chief Financial Officer
|Sorin Georgescu   |  |     | 51 |             |  | Vice President of Technology Development                                    
|Irvin W. Kovalik  |  |     | 66 |             |  | Vice President of Sales                                                     
|George Smarandoiu |  |     | 57 |             |  | Vice President of Design                                                    
|Barry Wiley       |  |     | 66 |             |  | Vice President of Corporate Marketing                                       

Mr. Voicuhas
served as our President, 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, Product Engineering and Manufacturing. From July 1995
to April 1998 he was our Director of Flash Product Lines. From
October 1993 to July 1995 he was our Manager of Product
Engineering. From June 1991 to October 1993 he served with
Cypress Semiconductor, Inc., a semiconductor company, most
recently as Senior Product Engineer. Mr. Voicu holds a MS
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 he was

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Controller of Sanmina Corporation, a contract
manufacturing company. Mr. Gay holds a BS 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 he 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 a MS in Electrical
Engineering from the Polytechnical Institute, Bucharest, Romania.

Mr. Kovalikhas
served as our Vice President, 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, he was Director of Strategic Sales for
Sequel, Inc., a semiconductor company. From June 1992 to June
1995, he was our Vice President, Sales. Mr. Kovalik holds a
BS in Electrical Engineering for the University of Illinois.

Dr. Smarandoiuhas served as our Vice President of
Design since December 2002. From July 1990 to December 2002 he
served in a variety of roles at Atmel Corporation, a
semiconductor company, most recently as Director of Mixed-Mode
Product Development. Mr. Smarandoiu holds Master of
Engineering and Doctor of Engineering degrees from the
University of California, Berkeley.

Mr. Wileyhas
served as our Vice President, 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 manufacturer of semiconductors. Mr. Wiley
holds a MBA from the Harvard School of Business Administration
and a MA in Physics from the University of Southern California.




Item 2.     Properties

We rent our 42,500 square foot principal
facility in Sunnyvale, California, pursuant to a lease that
expires in July 2006. We also lease space for our research and
development facility in Romania, domestic sales offices located
in Southern California, Illinois and Texas and international
sales offices in China, England, 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

In 1989, we entered into a license agreement with
Philips Export B.V. and U.S. Philips Corporation (Philips) to
license technology pertinent to their I2C bus
technology patent which expires in 2004. The Company paid
royalties under this license through 1993, at which point the
Company believed that the license became fully paid-up and no
further royalties were owing. In May 2001, the Company received
a written communication from Philips suggesting that royalties
under this license were still owing on certain products. In
January 2003, Philips again stated that it did not believe that
the license was paid-up and that royalties had continued to
accrue. The Company does not believe that Philips position
is meritorious and that, even if a current royalty obligation is
demonstrated, it does not extend retroactively back as far as
Philips contends. Nonetheless, if Philips position is
ultimately demonstrated to be correct, the Company may owe
Philips an amount estimated to range from zero to
$2.9 million in back royalty payments and an estimated
amount ranging from zero to $1.5 million in interest
payments.




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, 2003.

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##### Table of Contents






PART II




Item 5.     Market
for Registrants Common Stock and Related Stockholder
Matters

Common Stock Market Prices and
Dividends

Our Common Stock is currently traded on the
Nasdaq SmallCap Market under the symbol CATS. During
fiscal 2000 and part of fiscal 2001, our Common Stock was traded
on the over-the-counter bulletin board. The following table sets
forth the high and low closing sales price for the Common Stock
as reported on the Nasdaq SmallCap Market for each calendar
quarter of the last two fiscal years.

|                                     |                                |      |   |      |  |  |   |      | 
|------------------------------------ | ------------------------------ | ---- | - | ---- |  |  | - | ---- | 
|                                     |                                | High |   | Low 
|                                     |                                |      |   |     
|Fiscal Year Ended April 30,
    2002 |                                |      |   |      |  |  |   |     
|                                     | Quarter ended July 31, 2001    |      | $ | 5.97 |  |  | $ | 3.55 | 
|                                     | Quarter ended October 31, 2001 |      |   | 4.35 |  |  |   | 1.73 | 
|                                     | Quarter ended January 31, 2002 |      |   | 3.30 |  |  |   | 2.23 | 
|                                     | Quarter ended April 30, 2002   |      |   | 3.95 |  |  |   | 2.67 | 
|Fiscal Year Ended April 30,
    2003 |                                |      |   |      |  |  |   |     
|                                     | Quarter ended July 31, 2002    |      |   | 2.63 |  |  |   | 2.34 | 
|                                     | Quarter ended October 31, 2002 |      |   | 2.71 |  |  |   | 2.00 | 
|                                     | Quarter ended January 31, 2003 |      |   | 2.77 |  |  |   | 2.17 | 
|                                     | Quarter ended April 30, 2003   |      |   | 3.36 |  |  |   | 2.08 | 

As of June 24, 2003, there were
approximately 175 registered holders of record of our
Common Stock including one holder who is the nominee for an
undetermined number of beneficial holders. This number also does
not include stockholders whose shares are held in trust by other
entities. The actual number of our stockholders is greater than
this number of holders of record. Based on the number of annual
reports requested by brokers, we estimate that we have
approximately 5,200 beneficial owners of our Common Stock.

No cash dividends have been declared or paid by
us on the Common Stock.

During certain portions of fiscal 2003 and 2002,
we repurchased a total of 1,276,400 and 193,700 shares of our
Common Stock, respectively, pursuant to an open market
repurchase program and in fiscal 2002 also repurchased a block
of 1.5 million shares of our common stock in a separately
authorized private transaction. Please refer to Note
7  Stockholders Equity in the Notes to
Consolidated Financial Statements for additional information
regarding our repurchase program.

11



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##### Table of Contents






Item 6.     Selected
Consolidated Financial Data

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

|                                      |                                     |                                       |        |        |  |      |        |        |  |      |        |        |  |   |        |       |  |   |        |       | 
|------------------------------------- | ----------------------------------- | ------------------------------------- | ------ | ------ |  | ---- | ------ | ------ |  | ---- | ------ | ------ |  | - | ------ | ----- |  | - | ------ | ----- | 
|                                      |                                     |                                      
|                                      |                                     | Year Ended April 30,                 
|                                      |                                     |                                      
|                                      |                                     | 2003                                  |        | 2002   |  | 2001 |        | 2000   |  | 1999
|                                      |                                     |                                       |        |        |  |      |        |        |  |     
|                                      |                                     |                                      
|                                      |                                     | (In thousands, except per share data)
|Statement of Operations Data:         |                                     |                                       |        |        |  |      |        |        |  |      |        |        |  |   |        |       |  |   |        |      
|Net revenues                          |                                     | $                                     | 48,221 |        |  | $    | 42,791 |        |  | $    | 98,015 |        |  | $ | 49,527 |       |  | $ | 31,987 |      
|Cost of revenues                      |                                     |                                       | 28,396 |        |  |      | 27,158 |        |  |      | 50,863 |        |  |   | 26,837 |       |  |   | 20,909 |      
|                                      |                                     |                                       |        |        |  |      |        |        |  |      |        |        |  |   |        |       |  |   |        |      
|Gross profit (loss)                   |                                     |                                       | 19,825 |        |  |      | 15,633 |        |  |      | 47,152 |        |  |   | 22,690 |       |  |   | 11,078 |      
|Operating expenses:                   |                                     |                                       |        |        |  |      |        |        |  |      |        |        |  |   |        |       |  |   |        |      
|                                      | Research and development            |                                       |        | 5,223  |  |      |        | 4,380  |  |      |        | 4,543  |  |   |        | 2,846 |  |   |        | 2,335 | 
|                                      | Selling, general and administrative |                                       |        | 10,020 |  |      |        | 10,652 |  |      |        | 13,490 |  |   |        | 9,042 |  |   |        | 7,718 | 
|                                      |                                     |                                       |        |        |  |      |        |        |  |      |        |        |  |   |        |       |  |   |        |      
|Income (loss) from operations         |                                     |                                       | 4,582  |        |  |      | 601    |        |  |      | 29,119 |        |  |   | 10,802 |       |  |   | 1,025  |      
|Interest income (expense), net        |                                     |                                       | 382    |        |  |      | 663    |        |  |      | 793    |        |  |   | (492   | )     |  |   | (802   | )    
|                                      |                                     |                                       |        |        |  |      |        |        |  |      |        |        |  |   |        |       |  |   |        |      
|Income (loss) before income taxes     |                                     |                                       | 4,964  |        |  |      | 1,264  |        |  |      | 29,912 |        |  |   | 10,310 |       |  |   | 223    |      
|Income tax provision (benefit)        |                                     |                                       | (1,354 | )      |  |      | 494    |        |  |      | 2,560  |        |  |   | 300    |       |  |   |       |      
|                                      |                                     |                                       |        |        |  |      |        |        |  |      |        |        |  |   |        |       |  |   |        |      
|Net income (loss)                     |                                     | $                                     | 6,318  |        |  | $    | 770    |        |  | $    | 27,352 |        |  | $ | 10,010 |       |  | $ | 223    |      
|                                      |                                     |                                       |        |        |  |      |        |        |  |      |        |        |  |   |        |       |  |   |        |      
|Net income (loss) per share: Basic    |                                     | $                                     | 0.38   |        |  | $    | 0.04   |        |  | $    | 1.63   |        |  | $ | 0.69   |       |  | $ | 0.02   |      
|                                      |                                     |                                       |        |        |  |      |        |        |  |      |        |        |  |   |        |       |  |   |        |      
|Diluted                               |                                     | $                                     | 0.34   |        |  | $    | 0.04   |        |  | $    | 1.36   |        |  | $ | 0.50   |       |  | $ | 0.02   |      
|                                      |                                     |                                       |        |        |  |      |        |        |  |      |        |        |  |   |        |       |  |   |        |      
|Weighted average common shares: Basic |                                     |                                       | 16,721 |        |  |      | 17,829 |        |  |      | 16,744 |        |  |   | 14,552 |       |  |   | 12,189 |      
|                                      |                                     |                                       |        |        |  |      |        |        |  |      |        |        |  |   |        |       |  |   |        |      
|Diluted                               |                                     |                                       | 18,339 |        |  |      | 20,439 |        |  |      | 20,169 |        |  |   | 19,974 |       |  |   | 13,678 |      
|                                      |                                     |                                       |        |        |  |      |        |        |  |      |        |        |  |   |        |       |  |   |        |      

|                                                              |  |                 |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        |  
|------------------------------------------------------------- |  | --------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ |  |  | - | ------ | -
|                                                              |  |                
|                                                              |  | As of April 30,
|                                                              |  |                
|                                                              |  | 2003            |        | 2002 |  | 2001 |        | 2000 |  | 1999
|                                                              |  |                 |        |      |  |      |        |      |  |     
|                                                              |  |                
|                                                              |  | (In thousands) 
|Balance Sheet Data:                                           |  |                 |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        |  
|Cash, cash equivalents and short-term investments             |  | $               | 27,906 |      |  | $    | 26,295 |      |  | $    | 30,534 |  |  | $ | 6,205  |  |  | $ | 1,852  |  
|Total working capital                                         |  |                 | 47,252 |      |  |      | 45,510 |      |  |      | 50,589 |  |  |   | 21,087 |  |  |   | 9,627  |  
|Total assets                                                  |  |                 | 50,588 |      |  |      | 47,924 |      |  |      | 53,178 |  |  |   | 22,943 |  |  |   | 11,566 |  
|Total current liabilities                                     |  |                 | 8,235  |      |  |      | 9,296  |      |  |      | 12,073 |  |  |   | 12,378 |  |  |   | 12,697 |  
|Total long-term liabilities and capital lease
    obligations |  |                 |       |      |  |      | 3,262  |      |  |      | 1,992  |  |  |   | 64     |  |  |   | 81     |  
|Stockholders equity (deficit)                                |  |                 | 42,353 |      |  |      | 35,366 |      |  |      | 39,113 |  |  |   | 10,501 |  |  |   | (1,212 | )

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

The following discussion should be read in
conjunction with the consolidated financial statements and notes
thereto included in this annual report on Form 10-K. In
addition, in order to take advantage of the safe
harbor provisions of the Private Securities Litigation
Reform Act of 1995, we hereby notify our readers that the
factors set forth in Certain Factors that May Affect Our
Future Results as set forth below in this Item 7, as
well as other factors, in the past have affected and in the
future could affect our actual results and could cause our
results for future periods to differ materially from those
expressed in any forward looking statements made by or on our
behalf, including without limitation those made in this report.
All forward looking statements included in this report are based
upon information available to us on the date of filing and we
assume no obligation to update such forward looking
statements.

Overview

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

Our business is highly cyclical and has been
subject to significant downturns at various times which have
been characterized by reduced product demand, production
overcapacity and significant erosion of average selling prices.
Throughout fiscal 1998 and fiscal 1999, the market for certain
FLASH and EEPROM devices, which comprise the majority of our
business, experienced an excess market supply relative to demand
which resulted in a significant downward trend in prices. During
fiscal 2000 and the first half of fiscal 2001, we reduced our
manufacturing costs, increased the efficiency of our
manufacturing operations and the selling prices for certain
products that we produce increased, all contributing to the
increased gross margin percentages. During the second half of
fiscal 2001, we experienced cancellations of orders by our
customers, increased supplies of competitive products, decreased
prices and decreasing revenues. Revenues, gross profits, selling
prices and net income continued to decline through the second
quarter of fiscal 2002. In the second half of fiscal 2002 and
throughout fiscal 2003, quarterly revenues, gross profits and
net income were steadier. We could, however, experience an
increase in our manufacturing costs, a decrease in our unit
shipments and a further downward trend in product pricing in the
future, all factors which could adversely affect our operating
results. Because a large portion of our orders are scheduled for
shipment within a short time and our backlog is subject to
cancellation and rescheduling, the value of our backlog is not a
meaningful indicator of our business.

Critical Accounting Policies and
Estimates

The preparation of consolidated financial
statements in conformity with generally accepted accounting
principles (GAAP) in the United States of America requires
management to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses,
and related disclosures. On an on-going basis, we evaluate our
estimates, including those related to product shipments and
returns, bad debts, inventories, income taxes, warranty
obligations, contingencies and litigation. We base these
estimates on historical experience and on various other
assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or
conditions.

Specifically, we believe that the following
accounting policies and estimates are most important to the
portrayal of our financial condition and results and require
managements most difficult judgments:



| |                   
| | ------------------
| | Inventory Reserves

We record inventory reserves for estimated
unmarketable inventory equal to the cost of inventory estimated
to be in excess based upon assumptions about future demand and
market conditions. We generally reserve inventory in excess of
future demand for the ensuing twelve months. If actual market
conditions are less favorable than those projected by
management, inventory write-downs are also required. Inventory
reserves are also taken based upon our estimate of the future
selling prices of our inventories. Whenever the estimated future
selling price is less than the value of and the estimated cost
to sell any portion of our

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inventory, a reserve is taken for the amount by
which the cost of the inventory and costs to sell exceeds the
estimated future selling price. 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, inventory reserves are not reversed
until the associated inventory has been sold or physically
scrapped.




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

For products sold directly to end-users, original
equipment manufacturers, or to resellers that do not receive
price concessions and do not have rights of return, we recognize
revenue upon shipment and title transfer if we believe
collection is reasonably assured. Reserves for sales returns and
allowances are estimated based primarily upon historical
experience and provided at the time of shipment.

For sales to distributors with agreements
allowing for price concessions and product returns, we recognize
revenue at the time the distributor sells the product to its end
customer. Revenue is not recognized upon shipment since, due to
various forms of price concessions, the sales price is not
substantially fixed or determinable at that time. Additionally,
these distributors have contractual rights to return products,
up to a specified amount, for a given period of time. Revenue is
recognized when a distributor sells the product to an end-user,
at which time the sales price becomes fixed.

On our sales to end-users, we record estimated
reductions to revenue for the return of products at the time
revenue is recognized. If market conditions were to weaken, we
may face higher volumes of product returns possibly resulting in
an incremental reduction of revenue at the time products are
returned. If we were to experience an increased rate of product
returns, our sales would be further reduced by the increased
reserves taken to cover the increased amount of our products
expected to be returned.

At the time of shipment to distributors, we
record a trade receivable for the selling price since there is a
legally enforceable right to payment, we relieve inventory for
the carrying value of the goods shipped since legal title has
passed to the distributor and we record the gross margin in
deferred gross profit on shipments to distributors,
a component of current liabilities on our balance sheet.
Deferred margin represents the gross margin on the sale to the
distributor; however, the amount of gross margin we recognize in
future periods could be less than the deferred margin as a
result of price concessions. We do not reduce deferred margin by
estimated future price concessions; instead, price concessions
are recorded when incurred, which is generally at the time the
distributor sells the product to an end-user. The difference
between deferred margin and the margin actually recognized has
not been material in the past, however, since price concessions
are highly dependent upon market conditions, there can be no
assurance that the difference will not be material in the
future. Price concessions are not granted for amounts in excess
of the deferred margin.



| |                                     
| | ------------------------------------
| | Allowances for Doubtful
    Accounts

We maintain allowances for doubtful accounts for
estimated losses resulting from the inability of our customers
to make required payments. If the financial condition of our
customers were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances may be
required. Bad debt expenses, when incurred, are included in our
selling expenses.



| |                      
| | ---------------------
| | Valuation Allowances.

In prior years, we recorded substantial valuation
allowances to reduce our deferred tax assets to the amount that
was more likely than not to be realized. As of April 30,
2003, we estimated that amount based on the experience during
the year then ended. We have considered estimated future taxable
income in assessing the need for the valuation allowance. In the
fourth quarter of fiscal 2003, we determined that the amount of
deferred tax assets that we would be able to realize aggregated
$1.9 million and the valuation allowance was reduced
accordingly which increased income and shareholders equity for
the fourth quarter and fiscal 2003.

We continue to record a valuation allowance of
$8.6 million as of April 30, 2003 which may be
released as we revise our estimates of the likelihood of
portions of that amount being realized. The release of up to
$4.6 million of that allowance will also benefit our net
income and shareholders equity if and when it is

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released. The remaining $4.0 million of
valuation allowance will be credited to additional
paid-in-capital if and when it is released.


Results of Operations



| |                                                                                  
| | ---------------------------------------------------------------------------------
| | Fiscal Year Ended April 30, 2003
    Compared to Fiscal Year Ended April 30, 2002

Revenues.Total
revenues consist of net product sales. A substantial portion of
net product sales are made through independent distributors.
Revenues from product sales to original equipment manufacturers
and from sales to distributors who have no, or limited, product
return rights and no price protection rights, is recognized upon
shipment net of allowances for estimated returns. When
distributors have rights to return products or price protection
rights, we defer revenue recognition until the distributor sells
the product to the end customer. Total revenues increased by 13%
to $48.2 million in fiscal 2003 from $42.8 million in
fiscal 2002. The increase was primarily attributable to a 26%
increase in the quantity of our EEPROM products sold, the impact
of which on our revenues was partially reduced by the effect of
a 12% reduction in the average selling price of our products
during fiscal 2003 caused by an excess supply of semiconductors
and other unfavorable industry-wide conditions. Shipments of our
EEPROM devices increased by $6.2 million to
$41.7 million, or 87% of revenues, in fiscal 2002 compared
to $35.5 million, or 83% of revenues, in the prior year.
The increase was also attributable to the slightly improved
market conditions. Shipments of our Flash memory devices
decreased by $1.1 million to $5.8 million, or 12% of
revenues, in fiscal 2003 compared to $6.9 million, or 16%
of revenues, in the prior year. The decrease in Flash product
sales was also attributable to the deteriorating market
conditions for the smaller memory sizes that we produce.
Shipments of our mixed signal products were approximately
$700,000 for fiscal 2003, compared to approximately $400,000 in
fiscal 2002. The increase in mixed signal product shipments was
due to the limited but growing number of products available for
sale and because most of these products were recently
introduced. We expect sales of our mixed signal products to
increase in absolute dollars and on a percentage of revenue
basis as we continue to introduce additional products and
continue our efforts to gain customer acceptance of this product
line. Sales to customers outside the United States contributed
approximately 80% of total revenues in fiscal 2003 as compared
to 71% of total revenues in fiscal 2002. The increase in
percentage of international revenues in fiscal 2003 was
primarily attributable to our increased sales in Japan and
Europe due to our increased sales efforts in those regions.
Substantially all sales of our products are in
U.S. dollars, minimizing the effects of currency
fluctuations.

Gross Profit.Gross
profit for fiscal 2003 was $19.8 million, or a gross margin
of 41%, compared to gross profit of $15.6 million, or a
gross margin of 37%, for fiscal 2002. The increase in gross
profit was primarily attributable to the impact of a 25%
increase in units shipped, the impact of which on gross profit
was reduced by a 14% decrease in the average selling prices or
our products. In fiscal 2003 and 2002, we benefited from the
release of $3.1 and $2.0 million, respectively, in
inventory reserves due to the sale or other disposal of
inventories previously reserved. The impacts on our gross
profits from such reserve releases were reduced by additions to
our inventory reserves of $2.7 and $2.1 million,
respectively, in fiscal 2003 and 2002. It is our policy to fully
reserve all inventories that are not expected to be sold in a
reasonable period of time from the balance sheet date, generally
within the ensuing twelve months. We pay certain foreign
manufacturing expenses in local currency, primarily Baht in
Thailand and Yen in Japan. These expenses in foreign currencies
have not been material to us in the past. We do not hedge our
exposure fluctuations in these currencies relative to the
U.S. dollar. A 10% change in the exchange rate of the Thai
Baht to the U.S. dollar would have had a 0.4% impact on our
cost of goods sold in fiscal 2003. A 10% change in the exchange
rate of the Japanese Yen to the U.S. dollar would have had
a 0.1% impact on our cost of goods sold in fiscal 2003.

Research and Development.Research and development (R&D)
expenses consist principally of salaries for engineering,
technical and support personnel, contract engineering services,
depreciation of equipment and the cost of wafers used to
evaluate new products and new versions of current products.
R&D expenses increased 18% to $5.2 million in fiscal
2003 from $4.4 million in fiscal 2002. The increase was
primarily attributable to a $700,000 increase in personnel
related expenses and a $100,000 increase in the depreciation of
software and equipment purchased for development purposes. As of
April 30, 2003, we employed 55 people in research and
development activities, compared to 24 employees plus
15 under our informal arrangement with Lxi as of
April 30, 2002. The increase was primarily attributable to
the hiring of 28 engineers at Catalyst

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Semiconductor Romania SRL (CSR), our
recently formed subsidiary in Romania, to replace and expand the
engineering services previously provided by Lxi. As a percentage
of revenues, R&D expenses increased to 11% in fiscal 2003
from 10% in fiscal 2002. Since most of the costs of CSR such as
rent and payroll are valued in United States dollars, the amount
of our R&D expenses in currencies other than the
U.S. dollar has been minimal.


Selling, General and Administrative.Selling, general and administrative
(SG&A) expenses consist principally of salaries for sales,
marketing and administrative personnel, commissions, promotional
activities, professional fees and director and officer (D&O)
insurance. SG&A expenses decreased $700,000, or 7%, to
$10.0 million in fiscal 2003 from $10.7 million in
fiscal 2002. This decrease was primarily attributable to a
$400,000 decrease in commissions paid to outside
representatives, a $200,000 reduction in legal expenses and a
$200,000 decrease in bad debt expense. As a percentage of
revenues, SG&A expenses decreased to 21% in fiscal 2003 from
25% in fiscal 2002. The reason for the decrease in SG&A
expenses as a percentage of revenue was the decrease in expenses
on an absolute dollar basis and the increase in revenues. A 10%
change in the exchange rate of the Japanese Yen to the
U.S. dollar would have had a 0.6% impact on our SG&A
expenses in fiscal 2003.

Net Interest Income and Expense.We earned net interest income of
$382,000, or 1% of revenues, in fiscal 2003 compared to net
interest income of $663,000, or 2% of revenues, in fiscal 2002.
The decrease in net interest income was primarily attributable
to the decreased interest rate paid on our cash balances.

Income Tax Provision.The effective income tax benefit rate
was 27% in fiscal 2003, as compared to an income tax expense
rate of 39% in fiscal 2002. The difference between our fiscal
2003 and 2002 tax rates is primarily attributable to the release
of a portion of the valuation allowance previously provided on
net deferred tax assets.



| |                                                                                  
| | ---------------------------------------------------------------------------------
| | Fiscal Year Ended April 30, 2002
    Compared to Fiscal Year Ended April 30, 2001

Revenues.Total
revenues decreased by 56% to $42.8 million in fiscal 2002
from $98.0 million in fiscal 2001. The decrease was
primarily attributable to a decrease in sales of our EEPROM
products, as well as a 44% reduction in the average selling
price of our products during fiscal 2002, caused by an excess
supply of semiconductors and other unfavorable industry-wide
conditions. Shipments of our EEPROM devices decreased by
$46.2 million to $35.3 million, or 83% of revenues, in
fiscal 2002 compared to $81.5 million, or 83% of revenues,
in the prior year. The decrease was also attributable to the
deteriorating market conditions. Shipments of our Flash memory
devices decreased by $9.4 million to $6.9 million, or
16% of revenues, in fiscal 2002 compared to $16.3 million,
or 17% of revenues, in the prior year. The decrease in Flash
product sales was also attributable to the deteriorating market
conditions. Shipments of our mixed signal products were $400,000
for fiscal 2002, compared to $200,000 in fiscal 2001. The
increase in mixed signal product shipments was due to the
limited number of products available for sale and because most
of these products were introduced in fiscal 2002. International
sales contributed 71% of total revenues in fiscal 2002 as
compared to 61% of total revenues in fiscal 2001. The increase
in percentage of international revenues in fiscal 2002 was
primarily attributable to our increased sales in Asia due to
increased market demand and our ability to be more competitive
in the region as a result of certain cost reductions.

Gross Profit.Gross
profit for fiscal 2002 was $15.6 million, or a gross margin
of 37%, compared to gross profit of $47.2 million, or a
gross margin of 48%, for fiscal 2001. The decrease in gross
profit was primarily attributable to decreased selling prices
and decreased revenues. In fiscal 2002 and 2001, we benefited
from the release of $2.0 and $2.3 million, respectively, in
inventory reserves due to the sale or other disposal of
inventories previously reserved. The decrease in gross margin
percentage in fiscal 2002 was due to decreased selling prices
and decreases in the level of sales of products with higher
gross margins.

Research and Development.R&D expenses decreased 2% to
$4.4 million in fiscal 2002 from $4.5 million in
fiscal 2001. The decrease was primarily attributable to a
$0.1 million decrease in wafers purchased for development
purposes. As of April 30, 2002, we employed 24 people
in research and development activities in addition to the
equivalent of 15 more at Lxi, compared to 21 employees
plus 11 at Lxi as of April 30, 2001. As a percentage
of revenues, R&D expenses increased to 10% from 5% from
fiscal 2001 to fiscal 2002. This increase in percentage was
attributable to the decrease in revenues.

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Selling, General and Administrative.SG&A expenses decreased
$2.8 million, or 21%, to $10.7 million in fiscal 2002
from $13.5 million in fiscal 2001. This decrease was
primarily attributable to a $1.5 million decrease in
personnel related expenses, principally related to reduced
bonuses and commissions for employees due to our decreased
profitability and a $1.0 million decrease in commissions
paid to outside representatives as a result of the decrease in
revenues. As a percentage of revenues, SG&A expenses
increased to 25% from 14% from fiscal 2001 to fiscal 2002. The
reason for the increase in the percentage of revenue was the
decrease in revenues.

Net Interest Income and Expense.We earned net interest income of
$663,000, or 2% of revenues, in fiscal 2002 compared to net
interest income of $793,000, or 1% of revenues, in fiscal 2001.
The decrease in net interest income was primarily attributable
to the decreased interest rate paid on our cash balances.

Income Tax Provision.The effective income tax expense rate
was 39% in fiscal 2002 as compared with 9% in fiscal 2001. The
difference between our fiscal 2002 and 2001 tax rates was due to
our utilization of net operating loss and credit carryforwards
in fiscal 2001, and our inability to benefit from net operating
losses and credits carryforwards generated in fiscal 2002.

Liquidity and Capital Resources

Total cash decreased $18.5 million to
$7.8 million as of April 30, 2003 from
$26.3 million as of April 30, 2002 primarily due to
our net purchase of $20.1 million in short-term
investments. Net cash provided by operations was
$6.3 million for fiscal 2003, which was due primarily to
net income of $6.3 million, adjusted for 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 and an increase in accrued
expenses and other liabilities of $1.1 million mostly from
tax related adjustments. Such increases were partially offset by
releases of inventory reserves of $3.1 million resulting
from shipments of previously reserved inventory, a reduction in
gross inventories of $169,000, a reduction in accounts payable
of $1.4 million primarily due to reductions in 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. For fiscal 2002, net cash of
$3.3 million was provided by operations, principally by net
income of $770,000, adjusted for depreciation and amortization
of approximately $1.0 million, an addition to the provision
for doubtful accounts of $200,000, a net increase in the
provision for excess and obsolete inventory of $72,000 and a
decrease in gross accounts receivable of $1.7 million
related to decreased sales, an increase in accounts payable of
$852,000, related to our increased wafer purchases and an
increase in other credits of $1.3 million. Such increases
were partially offset by 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.

Our investing activities used $21.8 million
during fiscal 2003 which was primarily related to
$20.1 million utilized for the net purchases of short-term
investments and to $1.8 million primarily for the
acquisition of design software and equipment for R&D and our
manufacturing operations. Cash used in investing activities for
fiscal 2002 was $833,000 which was primarily related to the
purchase of equipment for our manufacturing operations.

Financing activities used $2.9 million
during fiscal 2003, consisting primarily of $3.2 million
utilized for the repurchase of an aggregate of
1,276,400 shares of our common stock from open market
purchases made through our announced open market repurchase
program. Net cash provided by the sale of our Common Stock
through the exercise of stock options totaled $296,000 during
fiscal 2003. Financing activities used $6.7 million during
fiscal 2002, consisting primarily of $5.1 million utilized
for the repurchase of an aggregate of 1,693,700 shares of
our Common Stock, 1.5 million of which were repurchased in
a private transaction and the remainder of which were open
market purchases made through our announced open market
repurchase program and approximately $2.1 million was used
to pay off the bank credit line and the remaining capital lease
obligations. Net cash provided by the sale of common stock
through the exercise of stock options totaled $451,000 during
fiscal 2002.

In September 2001, the Board of Directors
authorized a program for the open market repurchase of up to
1.5 million shares of our Common Stock and in March 2003
increased the authorized limit to a total of

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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. We have no immediate plans to reissue
the repurchased shares and we intend to hold such shares in
treasury until suitable opportunities arise. The following table
summarizes the activity of the repurchase program through
April 30, 2003:


|                      |  |             |           |            |  |           |           |  |  |   |      | 
|--------------------- |  | ----------- | --------- | ---------- |  | --------- | --------- |  |  | - | ---- | 
|                      |  | Shares      |           | Total Cost |  | Avg. Cost
|Years Ended April 30, |  | Repurchased |           | of Shares  |  | Per Share
|                      |  |             |           |            |  |          
|2002                  |  |             | 193,700   |            |  | $         | 417,000   |  |  | $ | 2.15 | 
|2003                  |  |             | 1,276,400 |            |  |           | 3,235,000 |  |  |   | 2.53 | 
|                      |  |             |           |            |  |           |           |  |  |   |      | 
|Total                 |  |             | 1,470,100 |            |  | $         | 3,652,000 |  |  | $ | 2.48 | 
|                      |  |             |           |            |  |           |           |  |  |   |      | 

Additionally, in a separately authorized
transaction in April 2002, we purchased 1.5 million shares
of our Common Stock from our largest shareholder, Elex for $3.13
per share which represented a 5% discount from the closing price
on the date of the purchase.

As of April 30, 2003, we were indebted to
various creditors in the amount of approximately
$3.7 million. This amount is comprised of approximately
$2.9 million for wafers and inventory processing and
approximately $800,000 for other goods and services.

We do not have any material contractual
obligations or commercial commitments to make any future
payments other than with respect to the facilities lease for our
principal business office in Sunnyvale which will expire in
2006. The lease agreement allows us to exercise an option to
extend the term by an additional five years. Further, we do not
engage in any off-balance sheet financing arrangements or
transactions other than the standard building leases. The
following table shows the aggregate future minimum lease
payments, by fiscal year, that we are obligated to pay under the
terms of the non-cancelable operating leases we currently have
for our various facilities, principally our headquarters
building in Sunnyvale, California (in thousands):

|                       |  |           |       | 
|---------------------- |  | --------- | ----- | 
|                       |  | Operating
|Years Ending April 30, |  | Leases   
|                       |  |          
|2004                   |  | $         | 628   | 
|2005                   |  |           | 560   | 
|2006                   |  |           | 454   | 
|2007                   |  |           | 112   | 
|2008                   |  |           |      | 
|                       |  |           |       | 
|                       |  | $         | 1,754 | 
|                       |  |           |       | 

In light of the current economic and competitive
climate, we continue to monitor our liquid resources. We believe
our existing cash and cash equivalents and anticipated cash
flows from our operating activities will be sufficient to fund
our working capital and capital expenditure needs for at least
the next 12 months. In our competitive industry, we must
constantly consider the need to make significant expenditures in
connection with our research and development efforts. We may use
cash to invest in businesses, products and/or technologies which
we believe to be strategic. However, we have no present
commitments or obligations with respect to any acquisition of
other businesses or technology. We have no present intention to
seek additional debt or equity financing, but our need to do so
is highly dependent upon factors such as the demand for our
products and changes in industry and general economic
conditions. In the event that we do determine to seek such
financing, there can be no assurance that such financing will be
available on acceptable terms, if at all, and any additional
equity financing could result in incremental dilution to our
existing investors.

Effects of Transactions with Related
Parties

During the fourth quarter of fiscal 2000,
Catalyst began taking delivery of wafers fabricated at X-fab
Texas, Inc. (Xfab), a wholly owned subsidiary of Elex NV, a
Belgian holding company that owned 28% of our outstanding Common
Stock as of June 24, 2003. Mr. Roland Duchâtelet,
the Chairman and Chief Executive Officer of Elex NV, serves as a
member of our board of directors. The wafers provided by Xfab
supplement the same designs fabricated at Oki Semiconductor in
Japan, our principal wafer fab. Other than purchase

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orders currently open with Xfab, there is no
purchasing agreement in place with Xfab. Each purchase order
remains open until the wafers are delivered, which is generally
within two months of placement of the order, although in the
case of one particular wafer design under development, we have
prepaid a purchase order which calls for a mask set and delivery
of a prototype wafer lot at a future time to be determined by
future events. The prices of wafers purchased from Xfab are
determined by periodic negotiations with the management of Xfab
and compared to quotes obtained from other prospective wafer
fabricators and pricing surveys published by various industry
trade organizations. During fiscal 2003, our purchases from Xfab
totaled $1.4 million. As of April 30, 2003, the total
amount owed Xfab was $18,000.


We 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), 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.
For example, during the month of January 2003, Essex employed
the equivalent of approximately 12 full-time engineers to
perform services on our behalf. 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, Messrs. Voicu and Gay, 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. Messrs. Voicu and Gay received no payments
from Lxi during 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 CEO, Mr. Radu Vanco, continues to
own a majority of the outstanding shares of Lxi. In January
2003, we formed a wholly owned subsidiary in Romania, Catalyst
Semiconductor, Romania com SRL (CSR), to perform these
engineering design services on our behalf and discontinued our
use of the engineering services of Lxi in January 2003. During
fiscal 2003, 2002 and 2001 we recorded $605,000, $852,000 and
$714,000, respectively, of engineering fees from Lxi for
engineering design services provided by Essex. As of
April 30, 2003, there was no amount owed to Lxi.

One of our directors, Mr. Lionel Allan, also
served as a consultant to us through his consulting company,
Allan Advisors, Inc. Under the terms of his consulting
agreement, we paid consulting fees of $8,333 per month
throughout fiscal 2003 and in April 2003, we terminated the
agreement and paid the $29,000 balance due as required by the
agreement. The consulting agreement was to expire on
August 14, 2003. Mr. Allan no longer provides
consulting services to us and we have no continuing obligations
to Mr. Allan under the prior agreement.

Recent Accounting Pronouncements

In June 2002, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 146, Accounting for Exit or
Disposal Activities (SFAS 146). SFAS 146
addresses significant issues regarding the recognition,
measurement and reporting of costs that are associated with exit
and disposal activities, including restructuring activities that
are currently accounted for under EITF No. 94-3,
Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (Including Certain
Costs Incurred in a Restructuring). The scope of
SFAS 146 also includes costs related to terminating a
contract that is not a capital lease and termination benefits
that employees who are involuntarily terminated receive under
the terms of a one-time benefit arrangement that is not an
ongoing benefit arrangement or an individual
deferred-compensation contract. SFAS 146 was effective for
exit or disposal activities that were initiated after
December 31, 2002. We adopted SFAS 146 during the
quarter ended January 31, 2003 which had no effect on our
financial statements. The provisions of EITF No. 94-3
shall continue to apply for an exit activity initiated under an
exit plan that met the criteria of EITF No. 94-3 prior
to the adoption of SFAS 146. The effect of the adoption of
SFAS 146 will change on a prospective basis the timing of
when restructuring charges are recorded from a commitment date
approach to the date the liability is incurred.

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).

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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. The initial recognition and initial measurement
provisions of FIN 45 are applicable on a prospective basis
to guarantees issued or modified after December 31, 2002,
irrespective of the guarantors fiscal year-end. Catalyst
applied the recognition provisions of FIN 45 prospectively
to guarantees issued after December 31, 2002. The adoption
of FIN 45 did not have a significant impact on our
consolidated financial statements.


In December 2002, the FASB issued
SFAS No. 148, Accounting for Stock-Based
Compensation, Transition and Disclosure(SFAS 148).
SFAS 148 provides alternative methods of transition for a
voluntary change to the fair value based method of accounting
for stock-based employee compensation. SFAS 148 also
requires that disclosures of the pro forma effect of using the
fair value method of accounting for stock-based employee
compensation be displayed more prominently and in a tabular
format. Additionally, SFAS 148 requires disclosure of the
pro forma effect in interim financial statements. The transition
and annual disclosure requirements of SFAS 148 are
effective for fiscal years ended after December 15, 2002.
The interim disclosure requirements are effective for interim
periods beginning after December 15, 2002. The adoption of
this standard did not have a material impact on our financial
statements. The disclosure required by SFAS 148 is made in
these consolidated financial statements.

In January 2003, the FASB issued FASB
Interpretation No. 46, Consolidation of Variable
Interest Entities, an Interpretation of
ARB No. 51 (FIN 46). FIN 46
requires certain variable interest entities to be consolidated
by the primary beneficiary of the entity if the equity investors
in the entity do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for
the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46
is effective immediately for all new variable interest entities
created or acquired after January 31, 2003. For variable
interest entities created or acquired prior to February 1,
2003, the provisions of FIN 46 must be applied for the
first interim or annual period beginning after June 15,
2003. We do not expect the adoption of FIN 46 to have a
significant impact on our consolidated financial statements.

In May 2003, FASB issued SFAS No. 150,
Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity. This
Statement establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of
both liabilities and equity. It requires that an issuer
classifies a financial instrument that is within its scope as a
liability (or an asset in some circumstances). Many of those
instruments were previously classified as equity. The Statement
is effective for financial instruments entered into or modified
after May 31, 2003. It is to be implemented by reporting
the cumulative effect of a change in an accounting principle for
financial instruments created before the issuance date of the
Statement and still existing at the beginning of the interim
period of adoption. Restatement is not permitted. We believe
that adoption of this standard will not have a material impact
on our financial statements.

Certain Risks that May Affect Our Future
Results

Our quarterly operating results may fluctuate
due to many factors and are difficult to forecast.

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



| |   |                                                                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | fluctuations in customer demand for our products;                                                                                                                                                                                                                                 
|
| |  | volatility in supply and demand affecting
    semiconductor market prices generally such as the increases in
    supply of competitive products and significant declines in
    average selling prices experienced by us in fiscal 2002, 1999
    and 1998;                       
|
| |  | the need to establish additional inventory
    reserves due to the expected average selling prices falling
    below the amounts paid to produce and sell certain parts, or if
    our expectations for sales of our inventory fall below the
    quantities that we have on hand;
|
| |  | charges to bad debt expense caused by accounts
    receivable that become unlikely to be collected in a reasonable
    amount of time, if ever;                                                                                                                                   

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| |   |                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------
| |  | the timing of new product introductions and
    significant orders of our products;                                       
|
| |  | increased expenses associated with new product
    introductions, process changes and/or expanding our sales
    channels;
|
| |  | gains or losses of significant customers;                                                                                 
|
| |  | fluctuations in manufacturing yields;                                                                                     
|
| |  | changes in our product mix;                                                                                               
|
| |  | increases in wafer prices due to increased market
    demand and other factors;                                           
|
| |  | prices charged by our suppliers due to increased
    costs, decreased competition and other factors;                      
|
| |  | foreign currency fluctuations; and                                                                                        
|
| |  | general economic conditions.                                                                                              

We anticipate that a significant portion of our
revenues may be derived from a limited number of large orders
and we expect that the timing of receipt and fulfillment of
these orders may cause fluctuations which could be material to
our operating results, particularly on a quarterly basis.

Our quarterly revenues and operating results are
difficult to forecast. We base our expense levels, in
significant part, on our expectations as to future revenues and
our expenses are therefore relatively fixed in the short term.
If our revenues fall below our forecasts, as occurred during
fiscal 2002, net income is likely to be disproportionately
adversely affected because our costs are relatively fixed in the
short term.

The semiconductor industry is highly cyclical
in nature.

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. This type of
downturn occurred in calendar 1997 and 1998 and 2001. We
currently face and in the future may face diminished product
demand, accelerated erosion of average selling prices and gross
margins and production overcapacity during such downturns, which
may last for more than a year. Accordingly, we may experience
substantial period to period fluctuations in future operating
results due to general semiconductor industry conditions,
overall economic conditions or other factors.

For example, 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 during that period.
During late fiscal 2000, the semiconductor market rebounded from
its cyclical decline which had a favorable impact on both our
revenues and our gross margins through the quarter ended October
2000. During the second half of fiscal 2001 and the first half
of fiscal 2002, however, the market for our products became more
competitive as a result of increased availability of products
when demand was decreasing. Since the quarter ended October
2001, we have seen increased quarterly revenues but the rate of
revenue growth that we experienced may not be sustained and
could be reversed. Thus we are concerned about the ability of
continued price and other competitive pressures to adversely
affect our future operating results similar to the adverse
affects on our fiscal 1998, 1999 and 2000 operating results.

Our continued success depends in large part on
the continued growth of various electronics industries that use
semiconductors. The improved market conditions we experienced in
calendar 1999 and calendar 2000 have deteriorated significantly.
During late calendar 2000 to mid-calendar 2002, we experienced
decreases in orders from customers and found that lower selling
prices were necessary to remain competitive in the market. 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 customers products.

General economic conditions may reduce our
revenues and harm our business.

We are subject to the risks arising from adverse
changes in domestic and global economic conditions. Because of
the current worldwide economic slowdown and, the recession in
the United States in particular, many industries are delaying or
reducing technology purchases. The impact of this slowdown on us
is difficult

21



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to predict, but it may result in reductions in
purchases of our products by our customers, longer sales cycles
and increased price competition. As a result, if the current
economic slowdown continues or worsens, we may fall short of our
expectations of revenues for any given quarter or for the entire
fiscal year. These conditions would negatively affect our
business, financial condition and results of operations.


If our products fail to keep pace with the
rapid technological changes in the semiconductor industry, we
could lose customers and revenue.

Our product markets are characterized by rapidly
changing technology and product obsolescence. A key factor to
our business success is the timely introduction of new products
at competitive price 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
achieve higher product densities and thereby reduce product
costs. For example, most of our products are currently designed
and manufactured using a 0.8 micron CMOS EEPROM process or
a 0.6 micron Flash memory process. Although we have
recently implemented a 0.8 micron CMOS process for our
EEPROM products, the time and expense of converting our products
to this process will consume a considerable portion of our
resources which may result in a reduction of our costs more
slowly than the price erosion the effort is intended to
counteract, resulting in limited benefit, if any. We may not be
able to select and develop new products and technologies and
introduce them to the market in a timely manner and with
acceptable fabrication yields and production costs. Furthermore,
our products may not achieve market acceptance. Our failure to
complete and introduce new products at competitive price/
performance levels could materially and adversely affect our
business, financial condition and operating results. Our
business, financial condition and results of operations could be
materially adversely affected by delays in developing new
products, achievement of volume production of new products,
successful completion of technology transitions with acceptable
yields and reliability, or the lack of commercial acceptance of
new products we introduce to the market.

We depend on a small number of suppliers for
the supply of wafers.

We do not manufacture the semiconductor wafers
used for our products. Oki in Japan has supplied wafers to us
since 1987 and was our sole foundry source until the end of
fiscal 2000. At that time, an additional foundry, Xfab, began to
provide a limited number of products to us and the volumes
currently provided by Xfab are considerably less than Oki
currently provides. We do not presently have a wafer supply
agreement with Oki or Xfab and instead purchase wafers on a
purchase order and acceptance basis. Our almost exclusive
reliance on these independent foundries involves a number of
risks, including:



| |   |                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------
| |  | the risk of inadequate wafer supplies to meet our
    production needs;                                     
|
| |  | increased prices charged by such independent
    foundries;                                                 
|
| |  | the unavailability of or interruption in access
    to required or more cost effective process technologies;
|
| |  | reduced control over delivery schedules,
    manufacturing yields and costs; and                            
|
| |  | the risks associated with international
    operations more fully described below.                          

We are not always able to obtain sufficient
increased quantities of wafers from Oki and Xfab to fulfill some
of the current customer demand. Although we have a wafer
purchase agreement with UMC for certain Flash products which
runs through February 2006, due to declining Flash bookings and
other circumstances, we have not ordered any wafers from UMC
since December 1997.

To address our wafer supply concerns, we plan to
continue working on expanding our primary foundry capability at
Oki and our secondary foundry capability with Xfab at its
facility in Lubbock, Texas. Xfab is owned by Elex NV which is a
28% stockholder of Catalyst as of June 24, 2003 and
Mr. Roland Duchâtelet, the chairman and CEO of Elex
NV, serves as a member of our Board of Directors. The addition
of Xfab as a second foundry source has enabled us to somewhat
reduce the risks associated with the sourcing and quantity of
our wafer supply and thereby improve control over an important
component of our business; however, sufficient capacity may not
be available from Xfab. Additionally, Oki may not continue to
provide sufficient capacity in the future and that capacity may
not be available from another manufacturer at prices acceptable
to us. Even if such capacity is available, the qualification
process and time required to make the foundry fully

22



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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 Xfab as a supplier;                                                               
|
| |  | our inability to obtain additional capacity at
    Oki or Xfab;                                      
|
| |  | our inability to qualify Xfab for additional
    products;                                           
|
| |  | our ability to qualify other wafer manufacturers
    for desired foundry capacity; or                
|
| |  | any other circumstances causing a significant
    interruption in our supply of semiconductor wafers.

Although we have earned a profit for the five
most recent fiscal years, we may not be able to sustain or
increase that profitability.

We have incurred significant losses or
experienced significant negative cash flow from operations
during several fiscal years previous to fiscal 1999. Such
negative cash flow significantly reduced our available capital
to a point that, as of April 30, 1998, we had a net worth
deficit of $3.9 million. Although as of April 30,
2003, we had cash on hand and short-term investments totaling
$27.9 million, we may not continue to generate sufficient
revenues and net income to fund our operations. We have pursued
many measures designed to reduce expenses and conserve our cash
in prior periods when we experienced decreased or negative cash
flow such as the renegotiation of pricing with manufacturers and
suppliers, the transition of engineering services to a lower
cost model, the implementation of employee hiring freezes, the
reduction of employee headcount and the increased oversight of
authorized expense. We continue to monitor expenses and to
conserve our available cash. However, to the extent we suffer
any adverse effects to our revenues or net income because of
delays in new product introductions, price competition or other
competitive factors, our cash position and our business,
operating results and financial condition will be adversely
affected.

We may need to seek additional equity or debt
financing to address our working capital needs and to provide
funding for capital expenditures although we have no present
intention to do so. If required, additional funding may not be
available at acceptable terms, if at all. If we are successful
in raising additional funds through the issuance of equity
securities, our existing stockholders could experience
significant dilution or the securities may have rights,
preferences or privileges senior to those of our common stock.
If adequate funds are not available to us or are not available
on acceptable terms, further reductions in our operating
expenses and capital expenditures may be required to continue
operations, either of which could have a material adverse effect
on our business, operating results and financial condition.

The trading price of our common stock could be
subject to wide fluctuations in response to a variety of
factors.

Our stock price has been and may continue to be
subject to significant volatility. For example, in fiscal 2003,
the closing sales prices of our Common Stock ranged from a low
of $2.00 to a high of $3.36. Any shortfall in revenues or
earnings from levels expected or projected by investors or
others could have an immediate and significant adverse effect on
the trading price of our common stock in any given period. In
addition, the stock market in general has experienced extreme
price and volume fluctuations, affecting the market prices for
many high technology companies and small capitalization
companies and these fluctuations have often been unrelated to
the operating performance of the specific companies. These broad
fluctuations may adversely affect the market price for our
common stock.

The manufacture of semiconductor wafers is
highly complex and sensitive to a wide variety of factors that
may adversely affect our ability to generate future
revenues.

The manufacture of semiconductor wafers for our
products is highly complex and sensitive to a wide variety of
factors typical in the semiconductor industry such as:



| |   |                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------
| |  | lower than anticipated production yields
    experienced by outside wafer foundries from time to time;
|
| |  | incurring the time and expense to develop
    alternative foundry sources;                            
|
| |  | experiencing substandard yield during the initial
    developmental stages of a new process;          

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| |   |                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------
| |  | inability to receive sufficient quantities of
    wafers at favorable prices on a timely basis, especially in
    periods of increased demand;
|
| |  | material disruptions in the supply of wafers as a
    result of low manufacturing yield or other manufacturing
    problems; and              
|
| |  | production transition delays.                                                                                                                 

Our ability to generate future revenues may be
adversely affected by such delays and reductions that result in
the cancellation of customer orders. Thus, any of the following
events could delay shipments, result in the loss of customers
and have a material adverse effect on our business and operating
results:



| |   |                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------
| |  | the loss of Oki or Xfab as a supplier;                                                                              
|
| |  | the failure to further develop Xfab as a reliable
    foundry in an expeditious and cost-effective manner;          
|
| |  | any prolonged inability to obtain adequate yields
    or deliveries from Oki or Xfab; and                           
|
| |  | any other circumstance that would require us to
    seek and qualify alternative sources of supply of such products.

Although we are exploring and seeking to develop
alternative wafer supply sources such as Xfab, we may not be
able to obtain such alternative sources nor may we have adequate
facilities available. Failure to have such supplies available
would have a material adverse effect on our business, financial
condition and results of operations.

Intense competition in our markets may lead to
reduced average selling prices of our products, reduced sales of
our products and reduced gross margins.

The semiconductor industry is intensely
competitive and has been characterized by rapid price erosion,
declining gross margins, rapid technological change, product
obsolescence and heightened international competition in many
markets. Average selling prices in the semiconductor industry
generally and, for our products in particular, have decreased
significantly and rapidly over the life of each product. We
expect that average selling prices for our existing products
will decline rapidly in the future and that average selling
prices for each new product will decline significantly over the
life of the product. Declines in average selling prices for 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 valuation of our inventories and
could materially and adversely affect our operating results.

We compete with major domestic and international
semiconductor companies, most of which have substantially
greater financial, technical, sales, marketing, production,
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 and customer service. We believe that
we compete successfully with respect to each of these factors;
however price competition is significant and expected to
continue. Principal competitors with respect to our EEPROM
products currently include Atmel Corporation, STMicroelectronics
N.V., Microchip Technology Inc., Information Storage Devices
Inc. and Fairchild Semiconductor International, Inc., all of
which have substantially greater resources than we do.

The market for Flash memory products has been
characterized by long production cycles, irregular yields,
competing technologies and, particularly since the first quarter
of fiscal 1997, intense price competition resulting in major
reductions in average selling prices and corresponding
reductions in margins. Our Flash memory products compete on the
basis of product performance, price and customer service.
However, given the development of higher density/lower cost
products and the intense price competition prevalent for these
products, we may not be able to compete successfully in the
future against our competitors on the bases of these or other
competitive factors.

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We periodically experience an oversupply or
shortage of wafer fabrication capacity due to volatile demand
and thus we risk forecasting incorrectly and producing excess or
insufficient inventories of particular products, which may
adversely affect our results.

We have previously experienced periodic
oversupply or shortages of wafer fabrication capacity due to the
cyclical nature of the semiconductor industry. Since we must
order products and build inventory substantially in advance of
product shipments, we risk forecasting incorrectly and producing
excess or insufficient inventories of particular products.
Demand for our products is volatile and customers often place
orders with short lead times. 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. Our inventory may not be reduced by
the fulfillment of customer orders and in the future we may
produce excess quantities of our products. To the extent we have
excess inventories of particular products, our operating results
could be adversely affected by charges to cost of goods sold
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 writedowns or
other related factors.

For example, during the last half of fiscal 1998,
we recorded charges of approximately $7.5 million to our
cost of sales due to the rapid decrease in demand for and the
selling prices of our products. The net effect of such
adjustments amounted to less than $0.5 million in fiscal
1999 and were not material in fiscal 2000. Inventory reserve
adjustments in fiscal 2001 totaled $5.6 million which were
partially offset by the release of $2.9 million of
inventory reserves taken in previous periods relating to
products that were sold during fiscal 2001. During fiscal 2002,
the net effect of inventory reserve adjustments was minimal.
During fiscal 2003 the net effect of inventory reserve
adjustments was a net release of approximately $500,000 of
inventory reserves.

In addition, in fiscal 1998 and to some extent
during fiscal 2001 and fiscal 2002, our ability to forecast
future demand and selling prices diminished due to the increased
uncertainty of the semiconductor market. It is our policy to
fully reserve all inventories that we do not expect to be sold
in a reasonable period of time, generally within the ensuing
twelve months from the balance sheet date. During most of our
recent fiscal years, as a result of reductions in estimated
demand for our various products, we have provided additional
reserves for excess quantities and obsolescence for certain
products, primarily our Flash and EEPROM products. In fiscal
1998, the rapid erosion of selling prices also left us with
significant amounts of inventory with a carrying value that
exceeded its current selling price resulting in adjustments to
the carrying value of the inventory to the lower of cost or
market value. We may suffer similar reductions in values of our
inventories in the future and we may be unable to liquidate our
inventory at acceptable prices.

We may not be able to sustain market
acceptance for our Flash memory products.

A significant amount of our net revenues have
been and continue to be derived from sales of Flash memory
products. Flash memory products represented 12% of our shipments
during fiscal 2003, 16% in fiscal 2002 and 18% of our shipments
in fiscal 2001. The market for Flash memory products has been
characterized by intense price competition, long production
cycles, inconsistent yields, competing technologies, rapidly
declining average selling prices, declines in gross margins and
intense overall competition. Our operating results in fiscal
1999 and 1998 were adversely affected by intense price
competition caused by increased supplies of products and other
adverse industry-wide conditions. Intel and other competitors
(which include Advanced Micro Devices Inc., Atmel Corporation,
Fujitsu Ltd., Hitachi Ltd., Micron Technology Inc., Mitsubishi
Electric Corp., STMicroelectronics N.V., Sharp Corp., Texas
Instruments Inc. and Toshiba Corp.) are expected to further
increase Flash memory production. Most of these competitors are
manufacturing and selling devices with larger memories which are
utilized in more recently developed products such as digital
cameras. Due to intense competition, limited development
resources and other factors, we have decided not to develop any
of the higher density Flash memory devices at this time. We may
not be able to sustain the market acceptance for our Flash
memory products.

We rely on third-party subcontractors to sort,
assemble, test and ship our products to customers.

We outsource portions of our planning, finish
work and test functions for certain products, as well as our
inventory management function to subcontractors who are
primarily located in Thailand and the Philippines. This reliance
on third parties subjects us to risks such as reduced control
over delivery schedules and quality, a

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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 currency risks. Such risks could lead to delays in
product deliveries, lost sales and increased costs which could
harm our customer relationships and result in lower
profitability.


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

For fiscal 2003, 2002 and 2001, international
sales comprised approximately 80%, 71% and 61%, respectively, of
our net revenues. The rising percentage of our international
sales has been primarily attributable to our increased sales
efforts in those markets and our ability to compete with the low
selling prices in certain Asian markets. We expect that
international sales will continue to represent a significant
portion of our product sales 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;                                                                                                                   
|
| |  | imposition of government controls;                                                                                                                
|
| |  | political and financial instability;                                                                                                              
|
| |  | trade restrictions;                                                                                                                               
|
| |  | changes in regulatory requirements;                                                                                                               
|
| |  | difficulties in staffing international
    operations; and                                                                                        
|
| |  | longer payment cycles.                                                                                                                            

Currently, all our sales are invoiced and paid in
U.S. dollars, reducing our direct exposure to currency
fluctuations. Recently, several customers in Europe have
requested that we develop the ability to invoice them in Euros.
Except for Yoshikawa Semiconductor in Japan, a provider of wafer
sorting services and certain contract personnel costs and
incidental manufacturing supply purchases in Thailand, over 98%
of our inventory purchases are in U.S. dollars, minimizing any
direct currency fluctuation risk. Our business however, is
subject to other risks generally associated with doing business
with foreign subcontractors including, but not limited to
foreign government regulations and political and financial
unrest which may cause disruptions or delays in shipments to our
customers or access to our inventories. Our business, financial
condition and results of operations may be materially adversely
affected by these or other factors related to our international
operations.

We have formed a wholly owned subsidiary in
Romania that, if not managed effectively, could cause our
business to suffer.

In January 2003, we formed a wholly owned
subsidiary in Romania to perform the engineering design services
previously provided to us by Lxi. 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,
    including product development management and financial
    consolidation;

26



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| |   |                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | political and economic instability, which may
    have an adverse impact on foreign exchange rates in Romania, and
    could impair our ability to conduct our business in Romania; and
|
| |  | inadequacy of the local infrastructure to support
    our needs.                                                                                                                       

A relatively small number of customers
accounted for a significant portion of our net revenues in the
past and the loss of one or more of our current customers,
additional volume pricing arrangements or unanticipated
termination of our agreements with these customers or delay in
shipments can affect our operating results adversely.

A relatively small number of customers have
accounted for a significant portion of our net revenues in the
past. For fiscal 2003, none of our customers represented more
than 10% of our sales. In fiscal 2002 and 2001, sales to Future
Electronics, Inc., a worldwide distributor, represented 11% and
14%, respectively, of our revenues.

In addition, we have experienced and may continue
to experience lower margins on sales to significant customers as
a result of volume pricing arrangements. We also do not
typically enter into long-term contracts with our customers and
we cannot be certain as to future order levels from our
customers. When we do enter into a long-term contact, the
contract is generally terminable at the convenience of the
customer and it may be difficult to replace that source of
revenues in the short-term upon cancellation.

Our business, operating results and financial
condition could be materially adversely affected by the loss of
one or more of our current customers, additional volume pricing
arrangements, an early termination or delay in shipments by one
of our major customers.

We have been unable to fulfill all our
customers orders according to the schedule originally
requested due to the constraints in our wafer supply.

Due to the lead time constraints in our wafer
supply, from time to time we have been unable to fulfill all our
customers orders according to the schedule originally
requested. Although we attempt to maintain an adequate supply of
wafers and communicate to our customers delivery dates that we
believe that 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
revenues and net income, excess inventories and increased
inventory reserves.

Our operating results have historically been and
in future quarters may be adversely affected or otherwise
fluctuate due to factors such as timing of new product
introductions and announcements by us and our competitors,
fluctuations in customer demand for our products, volatility in
supply and demand affecting market prices generally (such as the
increases in supply of competitive products and significant
declines in average selling prices experienced by us in recent
fiscal years).

We rely upon our intellectual property and
proprietary technology and may receive notices from time to time
that allege we have infringed the intellectual property rights
of others.

In the semiconductor industry, companies place
extensive reliance upon their intellectual property and
proprietary technology and it is typical for companies to
receive notices from time to time that allege infringement of
patents or other intellectual property rights of others. For
example, we were served with a complaint alleging that we are
infringing the intellectual property rights of Xicor. We entered
into a settlement agreement with Xicor in June 2002
pursuant to which we received a license to manufacture the
disputed products in exchange for certain royalty payments to
Xicor. We may receive other notices and/or become a party to
proceedings alleging our infringement of intellectual property
rights in the future. Such claims, if successful, could require
us to pay royalties on previous sales of the products which are
alleged to infringe. Additionally, in such event, we may not be
able to obtain any required licenses of third party intellectual
property rights or be able to obtain such licenses on
commercially reasonable terms. Failure to obtain such a license
in any event could require us to cease production of our
products until we develop a non-infringing design or process.
Our business, financial condition and results of operations
could be materially adversely affected by the cost of litigation
of any such claim or resulting damage award.

27



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##### Table of Contents



Our securities are traded in a limited
market.

Our common stock was traded on the Nasdaq
National Market from May 1993 until it was delisted in
August 1998 for sustained trading below the minimum level
of $1.00 per share required by the Nasdaq National Market for
continued listing. Our stock was traded on the over the counter
bulletin board market until September 6, 2000 when we
listed on the Nasdaq SmallCap Market. We may reapply for Nasdaq
National Market listing if and when our shares trade for an
extended period above the $5.00 level, but we are unable to
ascertain the amount of time Nasdaq will take to consider such
application, if Nasdaq will reply favorably to such application
or, if additional information is requested, how much time and
effort will be required on our part to adequately demonstrate
and verify our qualifications.

Our backlog may not result in future revenues,
which may adversely affect our business.

Due to possible customer changes in delivery
schedules and cancellations of orders, our backlog at any
particular date is not necessarily indicative of actual sales
for any succeeding period. A reduction of backlog during any
particular period or the failure of our backlog to result in
future revenues could harm our business.

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 such
personnel, particularly for highly skilled design, process and
test engineers, is intense and we may not be able to retain such
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 any such highly qualified personnel.

We depend on manufacturers
representatives and distributors to distribute our
products.

We market and distribute our products primarily
through manufacturers representatives and independent
distributors. Our distributors typically offer competing
products. The distribution channels have been characterized by
rapid change, including consolidations and financial
difficulties. Our operating results could be materially
adversely affected by the loss of one or more
manufacturers representatives or distributors, or the
decision by one or more distributors to reduce the number of our
products offered by such distributors or to carry the product
lines of our competitors.

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 strategy. 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, distract our
management and employees and increase our expenses.

A change of control may be delayed by
resistive measures adopted by us.

Our Stockholder Rights Plan, which provides
stockholders with certain rights to acquire shares of common
stock in the event a third party acquires more than 15% of our
stock, our Boards ability to issue blank check
Preferred Stock without stockholder approval and our staggered
terms for our directors, could have the effect of delaying or
preventing a change in control of our company.

28



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|         |                                                                
|-------- | ---------------------------------------------------------------
|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
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 conservative nature of our
investment portfolio, we do not expect any material loss with
respect to our investment portfolio.

Foreign Currency Exchange Rate Risk.The majority of our sales, costs of
manufacturing, 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. If the U.S. dollar would have
decreased in value 10% against the Thai Baht and Japanese Yen,
the two foreign currencies in which we incurred expenses in
fiscal 2003, our net profits before taxes for the year would
have decreased 4.2%. 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 and
Supplementary Data required by this Item are set forth at the
pages indicated in Item 15(a). Please refer to the index to
Consolidated Financial Statements on page F-1 hereof.

|                             |         |                                       |        |             |  |             |       |           |   |          |        |             |  |             |        |           |  |   |        |      |  |   |        |      |  |   |        |      |  |   |        |      | 
|---------------------------- | ------- | ------------------------------------- | ------ | ----------- |  | ----------- | ----- | --------- | - | -------- | ------ | ----------- |  | ----------- | ------ | --------- |  | - | ------ | ---- |  | - | ------ | ---- |  | - | ------ | ---- |  | - | ------ | ---- | 
|                             |         |                                      
|                             |         | Quarterly Results of Operations      
|                             |         | (In thousands, except per share data)
|                             |         |                                      
|                             |         | Three Months Ended                   
|                             |         |                                      
|                             |         | July 31,                              |        | October 31, |  | January 31, |       | April 30, |   | July 31, |        | October 31, |  | January 31, |        | April 30,
|                             |         | 2001                                  |        | 2001        |  | 2002        |       | 2002      |   | 2002     |        | 2002        |  | 2003        |        | 2003     
|                             |         |                                       |        |             |  |             |       |           |   |          |        |             |  |             |        |          
|Net revenues                 |         | $                                     | 10,516 |             |  | $           | 9,166 |           |   | $        | 10,654 |             |  | $           | 12,455 |           |  | $ | 12,457 |      |  | $ | 12,047 |      |  | $ | 11,207 |      |  | $ | 12,510 |     
|Gross profit                 |         |                                       | 4,038  |             |  |             | 2,659 |           |   |          | 3,762  |             |  |             | 5,174  |           |  |   | 5,438  |      |  |   | 4,973  |      |  |   | 4,118  |      |  |   | 5,296  |     
|Net income (loss)            |         |                                       | 371    |             |  |             | (977  | )         |   |          | 164    |             |  |             | 1,212  |           |  |   | 1,160  |      |  |   | 843    |      |  |   | 314    |      |  |   | 4,001  |     
|Net income (loss) per share: |         |                                       |        |             |  |             |       |           |   |          |        |             |  |             |        |           |  |   |        |      |  |   |        |      |  |   |        |      |  |   |        |     
|                             | Basic   |                                       | $      | 0.02        |  |             | $     | (0.05     | ) |          | $      | 0.01        |  |             | $      | 0.07      |  |   | $      | 0.07 |  |   | $      | 0.05 |  |   | $      | 0.02 |  |   | $      | 0.24 | 
|                             | Diluted |                                       |        | 0.02        |  |             |       | (0.05     | ) |          |        | 0.01        |  |             |        | 0.06      |  |   |        | 0.06 |  |   |        | 0.05 |  |   |        | 0.02 |  |   |        | 0.22 | 






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

None.

29



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##### Table of Contents






PART III






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

The information required by this item concerning
our directors is incorporated by reference to the sections
captioned Election of Directors and
Section 16(a) Beneficial Reporting
Compliance contained in our Proxy Statement related to
our 2003 Annual Meeting of Stockholders, to be filed with the
Securities and Exchange Commission within 120 days of the
end of our fiscal year pursuant to General Instruction G(3)
of Form 10-K (the Proxy Statement).
Certain information required by this item concerning executive
officers is set forth in Part I of this Report in
Business  Executive Officers and Key
Personnel.






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

The information required by this item is
incorporated by reference to the sections captioned
Executive Compensation and
Compensation Committee Report on Executive
Compensation contained in our Proxy Statement.






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

The information required by this item concerning
security ownership of certain beneficial owners and management
is incorporated by reference to the sections captioned
Security Ownership of Certain Beneficial Owners and
Management and Equity Benefit Plans
contained in our Proxy Statement.






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

The information required by this item is
incorporated by reference to the sections captioned
Certain Relationships and Related
Transactions contained in our Proxy Statement.






|         |                        
|-------- | -----------------------
|Item 14. | Controls and Procedures

(a) Disclosure Controls and
Procedures

We maintain disclosure controls and procedures
that are designed to ensure that the information required to be
disclosed in its Exchange Act reports is recorded, processed,
summarized and reported within the time periods specified in the
SECs rules and forms, and that such information is
accumulated and communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required
disclosure based closely on the definition of disclosure
controls and procedures in Rule 13a-14(c). In
designing and evaluating the disclosure controls and procedures,
our management recognized that any controls and procedures, no
matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control
objectives, and management necessarily was required to apply its
judgment in evaluating the cost-benefit relationship of possible
controls and procedures in reaching that level of reasonable
assurance. We do not expect that our disclosure controls and
procedures will prevent all error and all fraud. Because of
inherent limitations in any system of disclosure controls and
procedures, no evaluation of controls can provide absolute
assurance that all instances of error or fraud, if any, within
our company may be detected.

Within 90 days prior to the date of this
report, we carried out an evaluation, under the supervision and
with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure
controls and procedures. Based on the foregoing, the Chief
Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were effective.

(b) Changes in Internal
Controls

There have been no significant changes in our
internal controls or in other factors that could significantly
affect the internal controls subsequent to the date that we
completed our evaluation.

30



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##### Table of Contents






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 February 20, 2003, the Registrant filed a
Current Report on Form 8-K announcing the Registrants
third fiscal quarter financial results.

(c) Exhibits

The exhibits listed in the accompanying Index to
Exhibits are filed or incorporated by reference as part of this
Report on Form 10-K.

31



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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 July 16, 2003.



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



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

| |                                          
| | -----------------------------------------
| |                                          
| | Gelu Voicu                               
| | President and Chief Executive
    Officer

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 July 16, 2003.

|                                                                                                                                                                        |  |              
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------
|                                                                                                                                                                       
|By: /s/ GELU VOICUGelu VoicuPresident and Chief Executive Officer
    (Principal Executive Officer)                                                                     |  | July 16, 2003
|                                                                                                                                                                       
|By: /s/ THOMAS E. GAY IIIThomas E. Gay IIIVice President of Finance and Administration
    and Chief Financial Officer
    (Principal Financial and Accounting Officer) |  | July 16, 2003
|                                                                                                                                                                       
|By: /s/ LIONEL M. ALLANLionel M. AllanDirector                                                                                                                          |  | July 16, 2003
|                                                                                                                                                                       
|By: /s/ ROLAND M. DUCHÂTELETRoland M. DuchâteletDirector                                                                                                                |  | July 16, 2003
|                                                                                                                                                                       
|By: /s/ GARRETT GARRETTSONGarrett GarrettsonDirector                                                                                                                    |  | July 16, 2003
|                                                                                                                                                                       
|By: /s/ HENRY C. MONTGOMERYHenry C. MontgomeryChairman of the Board                                                                                                     |  | July 16, 2003
|                                                                                                                                                                       
|By: /s/ GLEN G. POSSLEYGlen G. PossleyDirector                                                                                                                          |  | July 16, 2003

32



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##### Table of Contents



CEO CERTIFICATE

I, Gelu Voicu, certify that:

1.     I have reviewed
this Annual Report on Form 10-K of Catalyst Semiconductor,
Inc.;

2.     Based on my
knowledge, this Annual Report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this Annual
Report;

3.     Based on my
knowledge, the financial statements, and other financial
information included in this Annual Report, fairly present in
all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this Annual Report;

4.     The
registrants other certifying officer and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and
15d-14) for the registrant and we have:



| |                                                                                                                                                                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this Annual Report is being prepared;                                                                        
|
| | b) evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this Annual
    Report; and c) presented in this Annual Report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the filing date of
    this Annual Report;

5.     The
registrants other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrants
auditors and the audit committee of registrants board of
directors:



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the registrants ability to record, process,
    summarize and report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                    

6.     The
registrants other certifying officer and I have indicated
in this Annual Report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.

Date: July 16, 2003



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

| |                                          
| | -----------------------------------------
| |                                          
| | Gelu Voicu                               
| | Chief Executive Officer and
    President
| | (Principal Executive Officer)            

33



---



##### Table of Contents



CFO CERTIFICATE

I, Thomas E. Gay III, certify that:

1.     I have reviewed
this Annual Report on Form 10-K of Catalyst Semiconductor,
Inc.;

2.     Based on my
knowledge, this Annual Report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this Annual
Report;

3.     Based on my
knowledge, the financial statements, and other financial
information included in this Annual Report, fairly present in
all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this Annual Report;

4.     The
registrants other certifying officer and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and
15d-14) for the registrant and we have:



| |                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this Annual Report is being prepared;
|
| | b) evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this Annual
    Report; and                                                                                                                              
|
| | c) presented in this Annual Report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the filing date of
    this Annual Report;                                                                                                          

5.     The
registrants other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrants
auditors and the audit committee of registrants board of
directors:



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the registrants ability to record, process,
    summarize and report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                    

6.     The
registrants other certifying officer and I have indicated
in this Annual Report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.

Date: July 16, 2003



| |     |                      
| | --- | ---------------------
| | By: | /s/ THOMAS E. GAY III

| |                                                 
| | ------------------------------------------------
| |                                                 
| | Thomas E. Gay III                               
| | Vice President of Finance and
    Administration
| | and Chief Financial Officer
    (Principal      
| | Financial and Accounting Officer)               

34



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##### Table of Contents






INDEX TO EXHIBITS

|        |            |             |  |                                                                                                                                                                                                                                                                                                                                                                                                          
|------- | ---------- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |            |            
|No.     |            | Description
|        |            |            
|        | 3.2(8)     |             |  | Restated Certificate of Incorporation of
    Registrant.                                                                                                                                                                                                                                                                                                                                                 
|        | 3.4(7)     |             |  | Bylaws of Registrant                                                                                                                                                                                                                                                                                                                                                                                     
|        | 4.1(3)     |             |  | Preferred Shares Rights Agreement, dated as of
    December 3, 1996, between Catalyst Semiconductor, Inc. and
    First National Bank of Boston, including the Certificate of
    Designation of Rights, Preferences and Privileges of
    Series A Participating Preferred Stock, the Form of Rights
    Certificate and the Summary of Rights attached thereto as
    Exhibits A, B and C respectively.
|        | 4.2(15)    |             |  | Amendment No. 1 to Preferred Shares Rights
    Agreement dated as of May 22, 1998 between Registrant and
    BankBoston, N.A., as rights agent.                                                                                                                                                                                                                                                          
|        | 4.3(15)    |             |  | Amendment No. 2 to Preferred Shares Rights
    Agreement dated as of September 14, 1998 between Registrant
    and BankBoston, N.A., as rights agent.                                                                                                                                                                                                                                                    
|        | 4.4(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.                                                                                                                                                                                                                                        
|        | 4.5(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.                                                                                                                                                                                                                                             
|        | 4.6(16)    |             |  | 2003 Stock Incentive Plan.                                                                                                                                                                                                                                                                                                                                                                               
|        | 4.7(16)    |             |  | 2003 Director Stock Option Plan.                                                                                                                                                                                                                                                                                                                                                                         
|        | 10.12(1)   |             |  | Distributor Agreement dated February 1990 between
    Arrow Electronics, Inc. and Registrant.                                                                                                                                                                                                                                                                                                            
|        | 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.                                                                                                                                                                                                                                                                                              
|        | 10.51(4)   |             |  | Commercial Security Agreement dated April 1,
    1998 between Registrant and Oki Electric Industry Co., Ltd.                                                                                                                                                                                                                                                                                             
|        | 10.52(4)   |             |  | Wafer Purchase Agreement dated March 23,
    1998 between Registrant and Trio-Tech International PTE LTD with
    Variation Agreement dated April 16, 1998 between Registrant
    and Trio-Tech.                                                                                                                                                                                                         
|        | 10.59(4)*  |             |  | Severance Agreement dated June 1, 1998
    between Thomas E. Gay III and Registrant.                                                                                                                                                                                                                                                                                                                     
|        | 10.61(4)   |             |  | Common Stock Purchase Agreement dated as of
    May 26, 1998 between Registrant and Elex N.V. (Elex) with
    Standstill Agreement dated as of May 26, 1998 between
    Registrant and Elex.                                                                                                                                                                                                             
|        | 10.63(5)*  |             |  | Agreement dated August 14, 1995 between
    Registrant and Lionel M. Allan (Amendment).                                                                                                                                                                                                                                                                                                                  
|        | 10.64(6)   |             |  | Common Stock Purchase Agreement dated as of
    September 14, 1998 between Registrant and Elex NV with
    Standstill Agreement dated as of September 14, 1998 between
    Registrant and Elex, NV                                                                                                                                                                                                       
|        | 10.67(9)*  |             |  | Modification dated January 1, 1999 of
    Consulting Agreement dated August 14, 1995 between the
    Company and Allan Advisors, Inc.                                                                                                                                                                                                                                                                    
|        | 10.69(12)  |             |  | 1998 Special Equity Incentive Plan                                                                                                                                                                                                                                                                                                                                                                       
|        | 10.71(10)* |             |  | Severance Agreement dated May 11, 1999
    between Irv Kovalik and Registrant.                                                                                                                                                                                                                                                                                                                           
|        | 10.72(11)* |             |  | Severance Agreement dated May 11, 1999
    between Frank Reynolds and Registrant.                                                                                                                                                                                                                                                                                                                        
|        | 10.75(13)* |             |  | Extension of Consulting Agreement dated
    June 7, 2001 between Allan Advisors, Inc. and Registrant.                                                                                                                                                                                                                                                                                                    
|        | 10.76(13)* |             |  | Severance Agreement dated September 21, 1999
    between Barry Wiley and Registrant.                                                                                                                                                                                                                                                                                                                     
|        | 10.78(15)* |             |  | Severance Agreement dated November 8, 2001
    between Sorin Georgescu and Registrant.                                                                                                                                                                                                                                                                                                                   
|        | 10.79(15)* |             |  | Extension to Severance Agreement dated as of
    February 27, 2002 between Thomas E. Gay and Registrant.                                                                                                                                                                                                                                                                                                 

35



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##### Table of Contents



|        |            |             |  |                                                                                                                                                                                        
|------- | ---------- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |            |            
|No.     |            | Description
|        |            |            
|        | 10.80(15)* |             |  | Extension to Severance Agreement dated as of
    February 27, 2002 between Irv Kovalik and Registrant.                                                                                 
|        | 10.81(15)* |             |  | Extension to Severance Agreement dated as of
    February 27, 2002 between Barry Wiley and Registrant.                                                                                 
|        | 10.82(15)* |             |  | Extension to Severance Agreement dated as of
    February 27, 2002 between Frank Reynolds and Registrant.                                                                              
|        | 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*     |             |  | Employment Agreement dated May 23, 2003
    between Gelu Voicu and Registrant.                                                                                                         
|        | 21.1       |             |  | List of Subsidiaries of Registrant.                                                                                                                                                    
|        | 23.1       |             |  | Consent of Independent Accountants.                                                                                                                                                    
|        | 99.1       |             |  | 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
    Commission on May 11, 1993 (File No. 33-60132), as
    amended.
|
| | (2) | Incorporated by reference to Registrants
    Form 10-K filed for the year ended April 30, 1996.                                                                   
|
| | (3) | Incorporated by reference to Exhibit 1 to
    Registrants Form 8-A filed on January 22, 1997.                                                                     
|
| | (4) | Incorporated by reference to Registrants
    Form 10-K filed for the year ended May 3, 1998.                                                                      
|
| | (5) | Incorporated by reference to Registrants
    Form 10-K/A (Am. No. 1) filed for the year ended
    May 3, 1998.                                                    
|
| | (6) | Incorporated by reference to Registrants
    Form 10-Q filed for the quarter ended August 2, 1998.                                                                
|
| | (7) | Incorporated by reference to Registrants
    Form 10-Q/A (Am. No. 1) filed for the quarter ended
    November 1, 1998.                                            
|
| | (8) | Incorporated by reference to an Appendix to
    Registrants Definitive Proxy Statement filed
    December 18, 1998.                                               
|
| | (9) | Incorporated by reference to Registrants
    Form 10-Q filed for the quarter ended January 21, 1999.                                                              



|     |                                                                                                                                                                               
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Incorporated by reference to Registrants
    Form 10-K filed for the year ended May 2, 1999.                                                                                 
|    
|(11) | Incorporated by reference to Registrants
    Form 10-K filed for the year ended April 30, 2000.                                                                              
|    
|(12) | Incorporated by reference to an Appendix to
    Registrants Definitive Proxy Statement previously filed
    July 27, 2000.                                                   
|    
|(13) | Incorporated by reference to Registrants
    Form 10-K filed for the year ended April 30, 2001.                                                                              
|    
|(14) | Incorporated by reference to Registrants
    Form 8-K filed April 30, 2002.                                                                                                  
|    
|(15) | Incorporated by reference to Registrants
    Form 10-K filed for the year ended April 30, 2002.                                                                              
|    
|(16) | Incorporated by reference to Registrants to
    Registrants Registration Statement on Form S-8 filed
    with the Commission on December 24, 2002 (File
    No. 333-102201).



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

36



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##### Table of Contents



CATALYST SEMICONDUCTOR, INC.

INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS

|                                                                                                                    |  |       |     | 
|------------------------------------------------------------------------------------------------------------------- |  | ----- | --- | 
|                                                                                                                    |  | Pages
|                                                                                                                    |  |      
|Report of Independent Accountants                                                                                   |  |       | F-2 | 
|Consolidated Balance Sheets as of April 30,
    2003 and 2002                                                       |  |       | F-3 | 
|Consolidated Statements of Operations for the
    years ended April 30, 2003, 2002 and 2001                         |  |       | F-4 | 
|Consolidated Statements of Stockholders
    Equity (Deficit) for the years ended April 30, 2003, 2002
    and 2001 |  |       | F-5 | 
|Consolidated Statements of Cash Flows for the
    years ended April 30, 2003, 2002 and 2001                         |  |       | F-6 | 
|Notes to Consolidated Financial Statements                                                                          |  |       | F-7 | 

F-1



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##### Table of Contents



REPORT OF INDEPENDENT ACCOUNTANTS

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, 2003 and 2002 and the results of
their operations and their cash flows for each of the three
years in the period ended April 30, 2003, 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) presents 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
auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.

/s/     PRICEWATERHOUSECOOPERS
LLP

San Jose, California

May 28, 2003


F-2



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##### Table of Contents



CATALYST SEMICONDUCTOR, INC.

CONSOLIDATED BALANCE SHEETS

|                                                                                      |                                                                                                                                                                                                                    |                                            |        |        |        |  |        |        |        | 
|------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------ | ------ | ------ | ------ |  | ------ | ------ | ------ | 
|                                                                                      |                                                                                                                                                                                                                    |                                           
|                                                                                      |                                                                                                                                                                                                                    | April 30,                                 
|                                                                                      |                                                                                                                                                                                                                    |                                           
|                                                                                      |                                                                                                                                                                                                                    | 2003                                       |        | 2002  
|                                                                                      |                                                                                                                                                                                                                    |                                            |        |       
|                                                                                      |                                                                                                                                                                                                                    |                                           
|                                                                                      |                                                                                                                                                                                                                    | (In thousands, except                     
|                                                                                      |                                                                                                                                                                                                                    | par value data)                           
|ASSETS                                                                               
|Current assets:                                                                       |                                                                                                                                                                                                                    |                                            |        |        |        |  |        |       
|                                                                                      | Cash and cash equivalents                                                                                                                                                                                          |                                            | $      | 7,828  |        |  | $      | 26,295 |       
|                                                                                      | Short term investments                                                                                                                                                                                             |                                            |        | 20,078 |        |  |        |       |       
|                                                                                      | Accounts receivable, net                                                                                                                                                                                           |                                            |        | 7,863  |        |  |        | 8,929  |       
|                                                                                      | Inventories                                                                                                                                                                                                        |                                            |        | 8,423  |        |  |        | 8,749  |       
|                                                                                      | Deferred tax assets                                                                                                                                                                                                |                                            |        | 1,914  |        |  |        |       |       
|                                                                                      | Other assets                                                                                                                                                                                                       |                                            |        | 1,146  |        |  |        | 1,503  |       
|                                                                                      |                                                                                                                                                                                                                    |                                            |        |        |        |  |        |       
|                                                                                      |                                                                                                                                                                                                                    | Total current assets                       |        |        | 47,252 |  |        |        | 45,476 | 
|Property and equipment, net                                                           |                                                                                                                                                                                                                    |                                            | 3,091  |        |        |  | 2,414  |       
|Other assets                                                                          |                                                                                                                                                                                                                    |                                            | 245    |        |        |  | 34     |       
|                                                                                      |                                                                                                                                                                                                                    |                                            |        |        |        |  |        |       
|                                                                                      |                                                                                                                                                                                                                    | Total assets                               |        | $      | 50,588 |  |        | $      | 47,924 | 
|                                                                                      |                                                                                                                                                                                                                    |                                            |        |        |        |  |        |       
|LIABILITIES AND STOCKHOLDERS
    EQUITY                                             
|Current liabilities:                                                                  |                                                                                                                                                                                                                    |                                            |        |        |        |  |        |       
|                                                                                      | Accounts payable                                                                                                                                                                                                   |                                            | $      | 3,674  |        |  | $      | 4,701  |       
|                                                                                      | Accounts payable  related parties                                                                                                                                                                                 |                                            |        | 18     |        |  |        | 412    |       
|                                                                                      | Accrued expenses                                                                                                                                                                                                   |                                            |        | 3,126  |        |  |        | 2,367  |       
|                                                                                      | Deferred gross profit on shipments to distributors                                                                                                                                                                 |                                            |        | 1,417  |        |  |        | 1,816  |       
|                                                                                      |                                                                                                                                                                                                                    |                                            |        |        |        |  |        |       
|                                                                                      |                                                                                                                                                                                                                    | Total current liabilities                  |        |        | 8,235  |  |        |        | 9,296  | 
|Other credits                                                                         |                                                                                                                                                                                                                    |                                            |       |        |        |  | 3,262  |       
|                                                                                      |                                                                                                                                                                                                                    |                                            |        |        |        |  |        |       
|                                                                                      |                                                                                                                                                                                                                    | Total liabilities                          |        |        | 8,235  |  |        |        | 12,558 | 
|                                                                                      |                                                                                                                                                                                                                    |                                            |        |        |        |  |        |       
|Commitments and contingencies (Notes 4
    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; 19,247 shares issued and 16,285 shares outstanding
    at April 30, 2003 and 18,696 shares issued and 17,002
    shares outstanding at April 30, 2002 |                                            |        | 19     |        |  |        | 19     |       
|Additional paid-in-capital                                                            |                                                                                                                                                                                                                    |                                            | 52,632 |        |        |  | 48,755 |       
|Treasury stock, 2,970 shares at April 30,
    2003 and 1,694 shares at April 30, 2002 |                                                                                                                                                                                                                    |                                            | (8,340 | )      |        |  | (5,105 | )     
|Accumulated deficit                                                                   |                                                                                                                                                                                                                    |                                            | (1,985 | )      |        |  | (8,303 | )     
|Accumulated other comprehensive income                                                |                                                                                                                                                                                                                    |                                            | 27     |        |        |  |       |       
|                                                                                      |                                                                                                                                                                                                                    |                                            |        |        |        |  |        |       
|                                                                                      |                                                                                                                                                                                                                    | Total stockholders equity                 |        |        | 42,353 |  |        |        | 35,366 | 
|                                                                                      |                                                                                                                                                                                                                    |                                            |        |        |        |  |        |       
|                                                                                      |                                                                                                                                                                                                                    | Total liabilities and stockholders equity |        | $      | 50,588 |  |        | $      | 47,924 | 
|                                                                                      |                                                                                                                                                                                                                    |                                            |        |        |        |  |        |       

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

|                                            |                                     |                                       |        |        |  |      |        |        |  |   |        |        | 
|------------------------------------------- | ----------------------------------- | ------------------------------------- | ------ | ------ |  | ---- | ------ | ------ |  | - | ------ | ------ | 
|                                            |                                     |                                      
|                                            |                                     | Year Ended April 30,                 
|                                            |                                     |                                      
|                                            |                                     | 2003                                  |        | 2002   |  | 2001
|                                            |                                     |                                       |        |        |  |     
|                                            |                                     |                                      
|                                            |                                     | (In thousands, except per share data)
|Net revenues                                |                                     | $                                     | 48,221 |        |  | $    | 42,791 |        |  | $ | 98,015 |       
|Cost of revenues                            |                                     |                                       | 28,396 |        |  |      | 27,158 |        |  |   | 50,863 |       
|                                            |                                     |                                       |        |        |  |      |        |        |  |   |        |       
|Gross profit                                |                                     |                                       | 19,825 |        |  |      | 15,633 |        |  |   | 47,152 |       
|                                            |                                     |                                       |        |        |  |      |        |        |  |   |        |       
|Operating expenses:                         |                                     |                                       |        |        |  |      |        |        |  |   |        |       
|                                            | Research and development            |                                       |        | 5,223  |  |      |        | 4,380  |  |   |        | 4,543  | 
|                                            | Selling, general and administrative |                                       |        | 10,020 |  |      |        | 10,652 |  |   |        | 13,490 | 
|                                            |                                     |                                       |        |        |  |      |        |        |  |   |        |       
|Income from operations                      |                                     |                                       | 4,582  |        |  |      | 601    |        |  |   | 29,119 |       
|Interest income, net                        |                                     |                                       | 382    |        |  |      | 663    |        |  |   | 793    |       
|                                            |                                     |                                       |        |        |  |      |        |        |  |   |        |       
|Income before income taxes                  |                                     |                                       | 4,964  |        |  |      | 1,264  |        |  |   | 29,912 |       
|Provision for (benefit from) income taxes   |                                     |                                       | (1,354 | )      |  |      | 494    |        |  |   | 2,560  |       
|                                            |                                     |                                       |        |        |  |      |        |        |  |   |        |       
|Net income                                  |                                     | $                                     | 6,318  |        |  | $    | 770    |        |  | $ | 27,352 |       
|                                            |                                     |                                       |        |        |  |      |        |        |  |   |        |       
|Net income per share:                       |                                     |                                       |        |        |  |      |        |        |  |   |        |       
|                                            | Basic                               |                                       | $      | 0.38   |  |      | $      | 0.04   |  |   | $      | 1.63   | 
|                                            |                                     |                                       |        |        |  |      |        |        |  |   |        |       
|                                            | Diluted                             |                                       | $      | 0.34   |  |      | $      | 0.04   |  |   | $      | 1.36   | 
|                                            |                                     |                                       |        |        |  |      |        |        |  |   |        |       
|Weighted average common shares outstanding: |                                     |                                       |        |        |  |      |        |        |  |   |        |       
|                                            | Basic                               |                                       |        | 16,721 |  |      |        | 17,829 |  |   |        | 16,744 | 
|                                            | Diluted                             |                                       |        | 18,339 |  |      |        | 20,439 |  |   |        | 20,169 | 

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

F-4



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##### Table of Contents



CATALYST SEMICONDUCTOR, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY (DEFICIT)

|                                |  |                |        |            |  |          |    |               |  |             |        |              |  |        |        |   |  |   |    |  |  |   |         |   |  |   |        |  
|------------------------------- |  | -------------- | ------ | ---------- |  | -------- | -- | ------------- |  | ----------- | ------ | ------------ |  | ------ | ------ | - |  | - | -- |  |  | - | ------- | - |  | - | ------ | -
|                                |  |                |        |            |  |          |    | Accumulated   |  |             |        |             
|                                |  | Common Stock   |        | Additional |  |          |    | Other         |  |             |        | Total       
|                                |  |                |        | Paid-In    |  | Treasury |    | Comprehensive |  | Accumulated |        | Stockholders
|                                |  | Shares         |        | Par Value  |  | Capital  |    | Stock         |  | Income      |        | Deficit      |  | Equity
|                                |  |                |        |            |  |          |    |               |  |             |        |              |  |       
|                                |  |               
|                                |  | (In thousands)
|Balance at April 30, 2000       |  |                | 16,010 |            |  | $        | 16 |               |  | $           | 46,910 |              |  | $      |       |   |  | $ |   |  |  | $ | (36,425 | ) |  | $ | 10,501 |  
|Exercise of stock options       |  |                | 1,522  |            |  |          | 2  |               |  |             | 1,258  |              |  |        |       |   |  |   |   |  |  |   |        |   |  |   | 1,260  |  
|Net income                      |  |                |       |            |  |          |   |               |  |             |       |              |  |        |       |   |  |   |   |  |  |   | 27,352  |   |  |   | 27,352 |  
|                                |  |                |        |            |  |          |    |               |  |             |        |              |  |        |        |   |  |   |    |  |  |   |         |   |  |   |        |  
|Balance at April 30, 2001       |  |                | 17,532 |            |  |          | 18 |               |  |             | 48,168 |              |  |        |       |   |  |   |   |  |  |   | (9,073  | ) |  |   | 39,113 |  
|Exercise of stock options       |  |                | 1,164  |            |  |          | 1  |               |  |             | 587    |              |  |        |       |   |  |   |   |  |  |   |        |   |  |   | 588    |  
|Purchase of stock for treasury  |  |                | (1,694 | )          |  |          |   |               |  |             |       |              |  |        | (5,105 | ) |  |   |   |  |  |   |        |   |  |   | (5,105 | )
|Net income                      |  |                |       |            |  |          |   |               |  |             |       |              |  |        |       |   |  |   |   |  |  |   | 770     |   |  |   | 770    |  
|                                |  |                |        |            |  |          |    |               |  |             |        |              |  |        |        |   |  |   |    |  |  |   |         |   |  |   |        |  
|Balance at April 30, 2002       |  |                | 17,002 |            |  |          | 19 |               |  |             | 48,755 |              |  |        | (5,105 | ) |  |   |   |  |  |   | (8,303  | ) |  |   | 35,366 |  
|Exercise of stock options       |  |                | 559    |            |  |          |   |               |  |             | 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 |  |  |   |        |   |  |   | 27     |  
|                                |  |                |        |            |  |          |    |               |  |             |        |              |  |        |        |   |  |   |    |  |  |   |         |   |  |   |        |  
|Net income                      |  |                |       |            |  |          |   |               |  |             |       |              |  |        |       |   |  |   |   |  |  |   | 6,318   |   |  |   | 6,318  |  
|                                |  |                |        |            |  |          |    |               |  |             |        |              |  |        |        |   |  |   |    |  |  |   |         |   |  |   |        |  
|Total comprehensive income      |  |                |       |            |  |          |   |               |  |             |       |              |  |        |       |   |  |   |   |  |  |   |        |   |  |   | 6,345  |  
|                                |  |                |        |            |  |          |    |               |  |             |        |              |  |        |        |   |  |   |    |  |  |   |         |   |  |   |        |  
|Balance at April 30, 2003       |  |                | 16,285 |            |  | $        | 19 |               |  | $           | 52,632 |              |  | $      | (8,340 | ) |  | $ | 27 |  |  | $ | (1,985  | ) |  | $ | 42,353 |  
|                                |  |                |        |            |  |          |    |               |  |             |        |              |  |        |        |   |  |   |    |  |  |   |         |   |  |   |        |  

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

|                                                         |                                                             |                                                                                       |                                                    |         |         |        |        |        |        |        |        |        |        |        |  
|-------------------------------------------------------- | ----------------------------------------------------------- | ------------------------------------------------------------------------------------- | -------------------------------------------------- | ------- | ------- | ------ | ------ | ------ | ------ | ------ | ------ | ------ | ------ | ------ | -
|                                                         |                                                             |                                                                                      
|                                                         |                                                             | Year Ended April 30,                                                                 
|                                                         |                                                             |                                                                                      
|                                                         |                                                             | 2003                                                                                  |                                                    | 2002    |         | 2001  
|                                                         |                                                             |                                                                                       |                                                    |         |         |       
|                                                         |                                                             |                                                                                      
|                                                         |                                                             | (In thousands)                                                                       
|Cash flows from operating
    activities:                |                                                             |                                                                                       |                                                    |         |         |        |        |        |        |        |        |       
|                                                         | Net income                                                  |                                                                                       | $                                                  | 6,318   |         |        | $      | 770    |        |        | $      | 27,352 |       
|                                                         |                                                             | Adjustments to reconcile net income to net cash
    provided by operating activities: |                                                    |         |         |        |        |        |        |        |        |        |        |       
|                                                         |                                                             |                                                                                       | Depreciation of property and equipment             |         |         | 1,078  |        |        |        | 1,008  |        |        |        | 1,051  |  
|                                                         |                                                             |                                                                                       | Provision for doubtful accounts receivable         |         |         |       |        |        |        | 200    |        |        |        | 464    |  
|                                                         |                                                             |                                                                                       | Benefit from sale of inventory previously reserved |         |         | (3,148 | )      |        |        | (2,045 | )      |        |        | (2,259 | )
|                                                         |                                                             |                                                                                       | Provision for excess and obsolete inventory        |         |         | 2,653  |        |        |        | 2,117  |        |        |        | 4,957  |  
|                                                         |                                                             |                                                                                       | Loss on sale of fixed assets                       |         |         | 11     |        |        |        |       |        |        |        |       |  
|                                                         |                                                             | Changes in assets and liabilities:                                                    |                                                    |         |         |        |        |        |        |        |        |        |        |       
|                                                         |                                                             |                                                                                       | Accounts receivable                                |         |         | 1,066  |        |        |        | 1,682  |        |        |        | (548   | )
|                                                         |                                                             |                                                                                       | Inventories                                        |         |         | (169   | )      |        |        | (472   | )      |        |        | (7,516 | )
|                                                         |                                                             |                                                                                       | Other assets                                       |         |         | 146    |        |        |        | (642   | )      |        |        | (271   | )
|                                                         |                                                             |                                                                                       | Accounts payable (including related parties)       |         |         | (1,421 | )      |        |        | 852    |        |        |        | (2,484 | )
|                                                         |                                                             |                                                                                       | Deferred tax assets                                |         |         | (1,914 | )      |        |        |       |        |        |        |       |  
|                                                         |                                                             |                                                                                       | Accrued expenses                                   |         |         | 1,078  |        |        |        | (1,139 | )      |        |        | 3,947  |  
|                                                         |                                                             |                                                                                       | Deferred gross profit on shipments to distributors |         |         | (399   | )      |        |        | (270   | )      |        |        | 1,092  |  
|                                                         |                                                             |                                                                                       | Other credits                                      |         |         |       |        |        |        | 1,270  |        |        |        |       |  
|                                                         |                                                             |                                                                                       |                                                    |         |         |        |        |        |        |        |        |       
|                                                         |                                                             | Net cash provided by operating activities                                             |                                                    |         | 6,289   |        |        |        | 3,331  |        |        |        | 25,785 |       
|                                                         |                                                             |                                                                                       |                                                    |         |         |        |        |        |        |        |        |       
|Cash flows from investing
    activities:                |                                                             |                                                                                       |                                                    |         |         |        |        |        |        |        |        |       
|                                                         | Purchase of short-term investments                          |                                                                                       |                                                    | (20,051 | )       |        |        |       |        |        |        |       |       
|                                                         | Acquisition of property and equipment                       |                                                                                       |                                                    | (1,766  | )       |        |        | (833   | )      |        |        | (1,784 | )     
|                                                         |                                                             |                                                                                       |                                                    |         |         |        |        |        |        |        |        |       
|                                                         |                                                             | Net cash used in investing activities                                                 |                                                    |         | (21,817 | )      |        |        | (833   | )      |        |        | (1,784 | )     
|                                                         |                                                             |                                                                                       |                                                    |         |         |        |        |        |        |        |        |       
|Cash flows from financing
    activities:                |                                                             |                                                                                       |                                                    |         |         |        |        |        |        |        |        |       
|                                                         | Common stock issuances                                      |                                                                                       |                                                    | 296     |         |        |        | 451    |        |        |        | 540    |       
|                                                         | Treasury stock purchases                                    |                                                                                       |                                                    | (3,235  | )       |        |        | (5,105 | )      |        |        |       |       
|                                                         | Payment of line of credit                                   |                                                                                       |                                                    |        |         |        |        | (2,025 | )      |        |        | (3     | )     
|                                                         | Payment of long-term debt and capital lease
    obligations |                                                                                       |                                                    |        |         |        |        | (58    | )      |        |        | (209   | )     
|                                                         |                                                             |                                                                                       |                                                    |         |         |        |        |        |        |        |        |       
|                                                         |                                                             | Net cash provided by (used in) financing
    activities                               |                                                    |         | (2,939  | )      |        |        | (6,737 | )      |        |        | 328    |       
|                                                         |                                                             |                                                                                       |                                                    |         |         |        |        |        |        |        |        |       
|Net increase (decrease) in cash and cash
    equivalents |                                                             |                                                                                       | (18,467                                            | )       |         |        | (4,239 | )      |        |        | 24,329 |       
|Cash at beginning of the period                          |                                                             |                                                                                       | 26,295                                             |         |         |        | 30,534 |        |        |        | 6,205  |       
|                                                         |                                                             |                                                                                       |                                                    |         |         |        |        |        |        |        |        |       
|Cash at end of the period                                |                                                             | $                                                                                     | 7,828                                              |         |         | $      | 26,295 |        |        | $      | 30,534 |       
|                                                         |                                                             |                                                                                       |                                                    |         |         |        |        |        |        |        |        |       
|Non-cash financing activity:                             |                                                             |                                                                                       |                                                    |         |         |        |        |        |        |        |        |       
|                                                         | Deferred compensation on exercised stock options            |                                                                                       | $                                                  | 164     |         |        | $      | 137    |        |        | $      | 720    |       
|                                                         |                                                             |                                                                                       |                                                    |         |         |        |        |        |        |        |        |       
|Supplemental cash flow disclosures:                      |                                                             |                                                                                       |                                                    |         |         |        |        |        |        |        |        |       
|                                                         | Cash paid during the year for:                              |                                                                                       |                                                    |         |         |        |        |        |        |        |        |        |       
|                                                         |                                                             | Interest                                                                              |                                                    | $       |        |        |        | $      | 45     |        |        | $      | 362    |       
|                                                         |                                                             |                                                                                       |                                                    |         |         |        |        |        |        |        |        |       
|                                                         |                                                             | Income taxes                                                                          |                                                    | $       | 33      |        |        | $      | 91     |        |        | $      | 768    |       
|                                                         |                                                             |                                                                                       |                                                    |         |         |        |        |        |        |        |        |       

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  Description of Operations
and Summary of Significant Accounting Policies



| |           
| | ----------
| | Operations

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



| |                      
| | ---------------------
| | Basis of Presentation

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

The preparation of consolidated financial
statements in conformity with generally accepted accounting
principles in the United States of America requires management
to make estimates and judgments that affect the reported amounts
of assets, liabilities, revenues and expenses and related
disclosures. On an on-going basis, the Company evaluates its
estimates, including those related to product shipments and
returns, bad debts, inventories, income taxes, warranty
obligations, contingencies and litigation. Catalyst bases these
estimates on historical experience and on various other
assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or
conditions.



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

The functional currency of the Companys
subsidiaries in Japan and Romania is the United States Dollar.
As such, gains and losses resulting from translation from local
currency to the U.S. dollar are included in determining income
or loss for the period and were not material for the period
presented.



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

The Companys customers include original
equipment manufacturers, resellers and distributors. We
recognize revenue from sales when the rights and risks of
ownership have passed to the customer, when persuasive evidence
of an arrangement exists, the product has shipped, the price is
fixed or determinable and collection of the resulting receivable
is reasonably assured. Revenue from product sales to original
equipment manufacturers and from sales to resellers who have no,
or limited, product return rights and no price protection
rights, is recognized upon shipment net of allowances for
estimated returns. When distributors have rights to return
products or price protection rights, the Company defers revenue
recognition until the time the distributor sells the product to
the end customer. Upon shipment by the Company, amounts billed
to distributors with rights to product returns or price
protection rights are included as accounts receivable, inventory
is relieved, the sale is deferred and the gross profit is
reflected as a current liability until the merchandise is sold
to the end customer by the distributors.



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

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

F-7



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##### Table of Contents



CATALYST SEMICONDUCTOR, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



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

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



| |                       
| | ----------------------
| | Short-Term Investments

The Company purchases U.S. government securities
with portions of its available cash. These investments have
limited maturities to minimize gains or losses caused by changes
in interest rates and can be readily liquidated should a need
for cash arise before maturity. Net unrealized gains or losses
are recorded in stockholders equity.



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

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



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

Inward bound shipping and all product handling
costs are included in the Companys cost of sales. Shipping
costs that the Company incurs associated with outbound freight
are included in selling, general and administrative expenses and
totaled $389,000, $520,000 and $581,000 in fiscal 2003, 2002 and
2001, respectively.



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

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



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

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

No one customer accounted for more than 10% of
revenues during fiscal 2003. One customer accounted for 11% of
revenues during fiscal 2002. One customer accounted for 14% of
revenues during fiscal 2001.

No one customer accounted for more than 10% of
gross accounts receivable as of April 30, 2003. One
customer accounted for 14% of gross accounts receivable as of
April 30, 2002. Two customers accounted for 15% and 12% of
gross accounts receivables as of April 30, 2001.



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

The semiconductor industry is characterized by
rapid technological change, competitive pricing pressures, and
cyclical market patterns. The Companys results of
operations are affected by a wide variety of factors, including
general economic conditions, both at home and abroad; economic
conditions specific to the semiconductor industry; demand for
the Companys products; the timely introduction of new
products; implementation of new manufacturing technologies;
manufacturing capacity; the ability to manufacture efficiently;
the availability of materials and supplies; competition; the
ability to safeguard patents and intellectual property in a
rapidly evolving market; and reliance on assembly and wafer
fabrication subcontractors and on independent distributors and
sales representatives. As a result, the Company may experience
substantial period-to-period fluctuations in future operating
results due to the factors mentioned above or other factors.

F-8



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##### Table of Contents



CATALYST SEMICONDUCTOR, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                              
| | -----------------------------
| | Dependence on Wafer Suppliers

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



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

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

The Company accounts for equity instruments
issued to non-employees in accordance with the provisions of
SFAS No. 123 and Emerging Issues Task
Force (EITF) No. 96-18, Accounting
for Equity Instruments That Are Issued to Other Than Employees
for Acquiring, or in Conjunction with Selling, Goods or
Services, which requires that such equity instruments are
recorded at their fair value on the measurement date.



| |                     
| | --------------------
| | Net Income Per Share

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

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

|                                     |               |                       |        |       |  |      |        |       |  |   |        |       | 
|------------------------------------ | ------------- | --------------------- | ------ | ----- |  | ---- | ------ | ----- |  | - | ------ | ----- | 
|                                     |               |                      
|                                     |               | Year Ended April 30, 
|                                     |               |                      
|                                     |               | 2003                  |        | 2002  |  | 2001
|                                     |               |                       |        |       |  |     
|                                     |               |                      
|                                     |               | (In thousands, except
|                                     |               | per share data)      
|Net income                           |               | $                     | 6,318  |       |  | $    | 770    |       |  | $ | 27,352 |      
|                                     |               |                       |        |       |  |      |        |       |  |   |        |      
|Shares calculation:                  |               |                       |        |       |  |      |        |       |  |   |        |      
|Average shares outstanding  basic   |               |                       | 16,721 |       |  |      | 17,829 |       |  |   | 16,744 |      
|Effect of dilutive securities:       |               |                       |        |       |  |      |        |       |  |   |        |      
|                                     | Stock options |                       |        | 1,619 |  |      |        | 2,610 |  |   |        | 3,425 | 
|                                     |               |                       |        |       |  |      |        |       |  |   |        |      
|Average shares outstanding  diluted |               |                       | 18,339 |       |  |      | 20,439 |       |  |   | 20,169 |      
|                                     |               |                       |        |       |  |      |        |       |  |   |        |      
|Net income per share  basic         |               | $                     | 0.38   |       |  | $    | 0.04   |       |  | $ | 1.63   |      
|                                     |               |                       |        |       |  |      |        |       |  |   |        |      
|Net income per share  diluted       |               | $                     | 0.34   |       |  | $    | 0.04   |       |  | $ | 1.36   |      
|                                     |               |                       |        |       |  |      |        |       |  |   |        |      

Options to purchase 1,213,000 shares at
prices ranging from $2.46 to $9.50 per share were outstanding
during fiscal 2003 and were not included in the computation of
diluted EPS because the inclusion of such options and shares
would have been antidilutive. Options to purchase
1,719,300 shares at prices ranging from $4.07 to $9.50 per
share were outstanding during fiscal 2002 and were excluded in
the computation of diluted EPS because their effect would have
been antidilutive. Options to purchase 612,500 shares at
prices ranging from $6.88 to $9.50 per share were outstanding
during fiscal 2001 and were excluded in the computation of
diluted EPS because their effect would have been antidilutive.

F-9



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##### Table of Contents



CATALYST SEMICONDUCTOR, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                     
| | --------------------
| | Comprehensive Income

Comprehensive income is defined as the change in
equity of a company during a period from transactions and other
events and circumstances, excluding transactions resulting from
investments by owners and distributions to owners.



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

The Company adopted Statement of Financial
Accounting Standards (SFAS) No. 131, Disclosures
about Segments of an Enterprise and Related Information
(SFAS 131) supersedes SFAS No. 14, Financial
Reporting for Segments of a Business Enterprise, and
replaces the industry segment approach with the
management approach. The management approach
designates the internal organization that is used by management
for making operating decisions and assessing performance as the
source of a companys reportable segments. SFAS 131 also
requires disclosures about products and services, geographic
areas and major customers. The Company operates in one segment;
the semiconductor manufacturing segment.



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

Advertising costs are expensed as incurred and
were not material in fiscal 2003, 2002 or 2001.



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

In June 2002, the Financial Accounting Standards
Board (FASB) issued SFAS No. 146,
Accounting for Exit or Disposal Activities
(SFAS 146). SFAS 146 addresses significant issues
regarding the recognition, measurement and reporting of costs
that are associated with exit and disposal activities, including
restructuring activities that are currently accounted for under
EITF No. 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an
Activity (Including Certain Costs Incurred in a
Restructuring). The scope of SFAS 146 also includes
costs related to terminating a contract that is not a capital
lease and termination benefits that employees who are
involuntarily terminated receive under the terms of a one-time
benefit arrangement that is not an ongoing benefit arrangement
or an individual deferred-compensation contract. SFAS 146
was effective for exit or disposal activities that were
initiated after December 31, 2002. Catalyst adopted
SFAS 146 during the quarter ended January 31, 2003
which had no effect on the Companys financial statements.
The provisions of EITF No. 94-3 shall continue to apply for
an exit activity initiated under an exit plan that met the
criteria of EITF No. 94-3 prior to the adoption of
SFAS 146. The effect of the adoption of SFAS 146 will
change on a prospective basis the timing of when restructuring
charges are recorded from a commitment date approach to the date
the liability is incurred.

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).
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. The initial
recognition and initial measurement provisions of FIN 45
are applicable on a prospective basis to guarantees issued or
modified after December 31, 2002, irrespective of the
guarantors fiscal year-end. Catalyst applied the
recognition provisions of FIN 45 prospectively to
guarantees issued after December 31, 2002. The adoption of
FIN 45 did not have a significant impact on Catalyst
consolidated financial statements.

In December 2002, the FASB issued SFAS
No. 148, Accounting for Stock-Based Compensation,
Transition and Disclosure (SFAS 148). SFAS 148
provides alternative methods of transition for a voluntary
change to the fair value based method of accounting for
stock-based employee compensation. SFAS 148 also requires
that disclosures of the pro forma effect of using the fair value
method of accounting for stock-based employee compensation be
displayed more prominently and in a tabular format.
Additionally, SFAS 148 requires disclosure of the pro forma
effect in interim financial statements. The transition and
annual disclosure

F-10



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##### Table of Contents



CATALYST SEMICONDUCTOR, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

requirements of SFAS 148 are effective for
fiscal years ended after December 15, 2002. The interim
disclosure requirements are effective for interim periods
beginning after December 15, 2002. The adoption of this
standard did not have a material impact on the Companys
financial statements. The Company has made the disclosure
required by SFAS 148 in these consolidated financial
statements.

In January 2003, the FASB issued FASB
Interpretation No. 46, Consolidation of Variable
Interest Entities, an Interpretation of ARB No. 51
(FIN 46). FIN 46 requires certain variable interest
entities to be consolidated by the primary beneficiary of the
entity if the equity investors in the entity do not have the
characteristics of a controlling financial interest or do not
have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support
from other parties. FIN 46 is effective immediately for all
new variable interest entities created or acquired after
January 31, 2003. For variable interest entities created or
acquired prior to February 1, 2003, the provisions of
FIN 46 must be applied for the first interim or annual
period beginning after June 15, 2003. The Company does not
expect the adoption of FIN 46 to have a significant impact
on its consolidated financial statements.

In May 2003, FASB issued SFAS No. 150,
Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity. This
Statement establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of
both liabilities and equity. It requires that an issuer
classifies a financial instrument that is within its scope as a
liability (or an asset in some circumstances). Many of those
instruments were previously classified as equity. The Statement
is effective for financial instruments entered into or modified
after May 31, 2003. It is to be implemented by reporting
the cumulative effect of a change in an accounting principle for
financial instruments created before the issuance date of the
Statement and still existing at the beginning of the interim
period of adoption. Restatement is not permitted. The Company
believes that adoption of this standard will not have a material
impact on its financial statements.

Note 2  Balance Sheet Components
(in thousands):

|                        |                                                                      |                              |   |            |        |           |   |    |    |  |   |        |        | 
|----------------------- | -------------------------------------------------------------------- | ---------------------------- | - | ---------- | ------ | --------- | - | -- | -- |  | - | ------ | ------ | 
|                        |                                                                      |                             
|                        |                                                                      | April 30, 2003              
|                        |                                                                      |                             
|                        |                                                                      |                              |   | Gross      |        |          
|                        |                                                                      |                              |   | Unrealized |        | Estimated
|                        |                                                                      | Cost                         |   | Gains      |        | FMV      
|                        |                                                                      |                              |   |            |        |          
|Short-term investments: |                                                                      |                              |   |            |        |           |   |    |    |  |   |       
|                        | US government debt securities with maturities
    less than one year |                              | $ | 17,442     |        |           | $ | 23 |    |  | $ | 17,465 |       
|                        | US government debt securities with maturities
    over one year      |                              |   | 2,609      |        |           |   | 4  |    |  |   | 2,613  |       
|                        |                                                                      |                              |   |            |        |           |   |    |    |  |   |       
|                        |                                                                      | Total short-term investments |   | $          | 20,051 |           |   | $  | 27 |  |   | $      | 20,078 | 
|                        |                                                                      |                              |   |            |        |           |   |    |    |  |   |       

|                     |                                       |           |       |       |   |   |       |       |  
|-------------------- | ------------------------------------- | --------- | ----- | ----- | - | - | ----- | ----- | -
|                     |                                       |          
|                     |                                       | April 30,
|                     |                                       |          
|                     |                                       | 2003      |       | 2002 
|                     |                                       |           |       |      
|Accounts receivable: |                                       |           |       |       |   |   |       |      
|                     | Accounts receivable                   |           | $     | 8,088 |   |   | $     | 9,879 |  
|                     | Less: Allowance for doubtful accounts |           |       | (225  | ) |   |       | (950  | )
|                     |                                       |           |       |       |   |   |       |      
|                     |                                       | $         | 7,863 |       |   | $ | 8,929 |      
|                     |                                       |           |       |       |   |   |       |      

A total of $725,000, $0 and $0 was written off in
respect to bad debts in fiscal 2003, 2002 and 2001, respectively.

F-11



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##### Table of Contents



CATALYST SEMICONDUCTOR, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                        |                                                 |           |       |        |   |   |       |        |  
|----------------------- | ----------------------------------------------- | --------- | ----- | ------ | - | - | ----- | ------ | -
|                        |                                                 |          
|                        |                                                 | April 30,
|                        |                                                 |          
|                        |                                                 | 2003      |       | 2002  
|                        |                                                 |           |       |       
|Inventories:            |                                                 |           |       |        |   |   |       |       
|                        | Work-in-process                                 |           | $     | 6,487  |   |   | $     | 5,590  |  
|                        | Finished goods                                  |           |       | 1,936  |   |   |       | 3,159  |  
|                        |                                                 |           |       |        |   |   |       |       
|                        |                                                 | $         | 8,423 |        |   | $ | 8,749 |       
|                        |                                                 |           |       |        |   |   |       |       
|Property and equipment: |                                                 |           |       |        |   |   |       |       
|                        | Engineering and test equipment                  |           | $     | 6,552  |   |   | $     | 5,884  |  
|                        | Computer hardware and software                  |           |       | 1,715  |   |   |       | 807    |  
|                        | Furniture and office equipment                  |           |       | 1,348  |   |   |       | 1,337  |  
|                        |                                                 |           |       |        |   |   |       |       
|                        |                                                 |           | 9,615 |        |   |   | 8,028 |       
|                        | Less: accumulated depreciation and amortization |           |       | (6,524 | ) |   |       | (5,614 | )
|                        |                                                 |           |       |        |   |   |       |       
|                        |                                                 | $         | 3,091 |        |   | $ | 2,414 |       
|                        |                                                 |           |       |        |   |   |       |       

Depreciation expense for fiscal 2003, 2002 and
2001 was $1,078, $1,008 and $1,051, respectively.

|                  |                               |           |       |       |  |   |       |       | 
|----------------- | ----------------------------- | --------- | ----- | ----- |  | - | ----- | ----- | 
|                  |                               |          
|                  |                               | April 30,
|                  |                               |          
|                  |                               | 2003      |       | 2002 
|                  |                               |           |       |      
|Accrued expenses: |                               |           |       |       |  |   |       |      
|                  | Accrued employee compensation |           | $     | 1,424 |  |   | $     | 886   | 
|                  | Other                         |           |       | 1,702 |  |   |       | 1,595 | 
|                  |                               |           |       |       |  |   |       |      
|                  |                               | $         | 3,126 |       |  | $ | 2,481 |      
|                  |                               |           |       |       |  |   |       |      
|Other credits:    |                               |           |       |       |  |   |       |      

Other credits at April 30, 2002 of
$3.3 million consisted primarily of tax reductions that
resulted from the exercise of employee stock options which
exceeded recorded compensation expense. Upon completion of its
analysis, the Company transferred $3.1 million of the
balance to stockholders equity and the remaining balance
was transferred to income tax liability.

Note 3  Line of Credit

As of April 30, 2001, the Company had
approximately $2.0 million of secured loans owed to a bank.
As of the same date, the Company had $2.0 million cash
deposited at the same bank in an interest bearing account to
serve as collateral. The borrowing agreement bore interest at a
variable rate equal to the banks prime lending rate (7.5%
at April 30, 2001) plus 2.5%. On June 30, 2001, the
Company repaid the outstanding balance and cancelled the
agreement. The Company does not currently have a borrowing
relationship with any lending institutions.

Note 4  Leases

At April 30, 2001, the net book value of
assets recorded as property and equipment under capital leases
aggregated $36,000 which is net of accumulated amortization of
$743,000. All equipment leases were paid in full during fiscal
2002 and the Company has not entered into any further capital
leasing arrangements. The amortization of assets recorded under
capital leases is included within depreciation and amortization
expense.

The Company leases its office facilities under
operating leases which expire in 2006. Total rent expense under
these leases was $506,000, $541,000 and $539,000 for fiscal
2003, 2002 and 2001, respectively. The

F-12



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##### Table of Contents



CATALYST SEMICONDUCTOR, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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, 2003 are as
follows (in thousands):

|                       |  |           |       | 
|---------------------- |  | --------- | ----- | 
|                       |  | Operating
|Years Ending April 30, |  | Leases   
|                       |  |          
|2004                   |  | $         | 628   | 
|2005                   |  |           | 560   | 
|2006                   |  |           | 454   | 
|2007                   |  |           | 112   | 
|2008                   |  |           |      | 
|                       |  |           |       | 
|                       |  | $         | 1,754 | 
|                       |  |           |       | 

Note 5  Income Taxes

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

|                                     |         |                              |        |      |     |      |     |     |     |   |       |       |       | 
|------------------------------------ | ------- | ---------------------------- | ------ | ---- | --- | ---- | --- | --- | --- | - | ----- | ----- | ----- | 
|                                     |         |                             
|                                     |         | For the Year Ended April 30,
|                                     |         |                             
|                                     |         | 2003                         |        | 2002 |     | 2001
|                                     |         |                              |        |      |     |     
|Current:                             |         |                              |        |      |     |      |     |     |     |   |       |      
|                                     | Federal |                              | $      | 474  |     |      | $   | 421 |     |   | $     | 1,996 |      
|                                     | State   |                              |        | 12   |     |      |     |    |     |   |       | 533   |      
|                                     | Foreign |                              |        | 74   |     |      |     | 73  |     |   |       | 31    |      
|                                     |         |                              |        |      |     |      |     |     |     |   |       |      
|                                     |         | Total current income taxes   |        |      | 560 |      |     |     | 494 |   |       |       | 2,560 | 
|                                     |         |                              |        |      |     |      |     |     |     |   |       |      
|Total deferred income taxes          |         |                              | (1,914 | )    |     |      |    |     |     |   |      |      
|                                     |         |                              |        |      |     |      |     |     |     |   |       |      
|Provision (benefit) for income taxes |         | $                            | (1,354 | )    |     | $    | 494 |     |     | $ | 2,560 |      
|                                     |         |                              |        |      |     |      |     |     |     |   |       |      

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:

|                                 |                                                                           |                    |     |      |   |      |    |     |   |  |   |     |  
|-------------------------------- | ------------------------------------------------------------------------- | ------------------ | --- | ---- | - | ---- | -- | --- | - |  | - | --- | -
|                                 |                                                                           |                   
|                                 |                                                                           | For the Year Ended
|                                 |                                                                           | April 30,         
|                                 |                                                                           |                   
|                                 |                                                                           | 2003               |     | 2002 |   | 2001
|                                 |                                                                           |                    |     |      |   |     
|                                 | Statutory federal tax rate                                                |                    |     | 35   | % |      |    | 35  | % |  |   | 35  | %
|                                 | State taxes                                                               |                    |     |     |   |      |    | 3   |   |  |   | 2   |  
|                                 | Research credits                                                          |                    |     | (23  | ) |      |    | (13 | ) |  |   |    |  
|                                 | Foreign                                                                   |                    |     |     |   |      |    | 6   |   |  |   |    |  
|                                 | Benefit of net operating loss carryforwards not
    previously recognized |                    |     |     |   |      |    |    |   |  |   | (28 | )
|                                 | Release of valuation allowance                                            |                    |     | (39  | ) |      |    |    |   |  |   |    |  
|                                 | Other                                                                     |                    |     |     |   |      |    | 8   |   |  |   |    |  
|                                 |                                                                           |                    |     |      |   |      |    |     |   |  |   |    
|Total provision for income taxes |                                                                           |                    | (27 | )%   |   |      | 39 | %   |   |  | 9 | %  
|                                 |                                                                           |                    |     |      |   |      |    |     |   |  |   |    

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.

F-13



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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):

|                                           |  |           |        |      |  |   |         |  
|------------------------------------------ |  | --------- | ------ | ---- |  | - | ------- | -
|                                           |  |          
|                                           |  | April 30,
|                                           |  |          
|                                           |  | 2003      |        | 2002
|                                           |  |           |        |     
|Capitalized research                       |  | $         | 2,083  |      |  | $ | 2,221   |  
|Non deductible reserves and accruals       |  |           | 1,596  |      |  |   | 2,205   |  
|Credit carryforwards                       |  |           | 1,918  |      |  |   | 1,249   |  
|Loss carryforwards                         |  |           | 3,965  |      |  |   | 3,870   |  
|Deferred income and sales returns reserves |  |           | 578    |      |  |   | 733     |  
|Other                                      |  |           | 420    |      |  |   | 362     |  
|                                           |  |           |        |      |  |   |         |  
|Gross deferred tax assets                  |  |           | 10,560 |      |  |   | 10,624  |  
|Valuation allowance                        |  |           | (8,646 | )    |  |   | (10,624 | )
|                                           |  |           |        |      |  |   |         |  
|Net deferred tax assets                    |  | $         | 1,914  |      |  | $ |        |  
|                                           |  |           |        |      |  |   |         |  

Based on the available objective evidence and the
recent history of profits, in fiscal 2003 management concluded
that a portion of the Companys net deferred tax assets
will be realizable. Accordingly, the Company has released
$1.9 million of its valuation allowance as of
April 30, 2003 compared to a full valuation allowance
against its net deferred tax assets at April 30, 2002.

Deferred tax assets of approximately
$4.0 million at April 30, 2003 pertain to certain
carryforwards resulting from the exercise of employee stock
options. When recognized, this will be accounted for as a credit
to additional paid-in capital rather than a reduction of the
income tax provision.

At April 30, 2003, the Company had a federal
net operating loss carryforward of approximately
$11.0 million available to offset future taxable income
that expire between 2019 and 2022 if not utilized.

At April 30, 2003, the Company had
approximately $1.4 million and $800,000 of federal and
state research credit carryovers, respectively, available to
offset future taxable income. The federal and state credits
begin to expire in fiscal year 2005.

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 6  Stock Plans



| |                   
| | ------------------
| | Stock Option Plans

In October 1989, the Company adopted a founder
stock plan for incentive stock options and non-statutory stock
options. The founder stock plan was amended and restated in
March 1993 as the stock option plan (the 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
Option Plan. In December 2002, the stockholders approved an
amendment and restatement of the Option Plan, extending its
expiration date to January 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 Option Plan. Options granted under the Option
Plan are for periods not to exceed 10 years. Incentive
stock option and non-statutory stock option grants under the
Option Plan 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.

F-14



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##### Table of Contents



CATALYST SEMICONDUCTOR, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

During 1993, the Company adopted a Director Stock
Option Plan (the Director 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 Director Plan. In
December 2002, the stockholders amended and restated the
Director Plan which had the effect of extending its expiration
to December 2012. A total of 770,000 shares of Common Stock
have been reserved for issuance under the Director Plan. Options
granted under the Director Plan 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 Plan 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 and
were immediately vested as of the date of the grant thereafter.
As of April 30, 2003, a total of 407,000 options at
exercise prices ranging from $0.47 to $9.50 per share, had been
granted under the Director Plan, 191,000 of which were
exercisable.

In December 1998, the Company adopted an
additional stock option plan entitled the 1998 Special Equity
Incentive Plan (Special Option Plan) for incentive stock options
and non-statutory stock options for certain directors, officers
and consultants of the Company. A total of 3.5 million
shares of Common Stock have been reserved for issuance under the
Special Option Plan. Options granted under the Special Option
Plan are for periods not to exceed 10 years. Options generally
vest over four year periods. During fiscal 1999, options
totaling 3.0 million shares were granted to employees and
directors under the plan at a price of $0.125 per share when the
market was at $0.33 per share. As a result, an aggregate of
$483,000 of compensation expense was recognized over the four
year vesting period of the options, $61,000, $110,000 and
$120,000 of which was recognized during fiscal 2003, 2002 and
2001, respectively. As of April 30, 2003, no further
compensation expense remained to be recognized.

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

|                           |  |                |        |             |  |            |        |   |  |   |      | 
|-------------------------- |  | -------------- | ------ | ----------- |  | ---------- | ------ | - |  | - | ---- | 
|                           |  | Options        |        |             |  | Weighted  
|                           |  | Available      |        | Options     |  | Avg. Price
|                           |  | for Grant      |        | Outstanding |  | Per Share 
|                           |  |                |        |             |  |           
|                           |  |               
|                           |  | (In thousands)
|Balance at April 30, 2000  |  |                | 965    |             |  |            | 4,912  |   |  | $ | 0.57 | 
|Additional shares reserved |  |                | 2,950  |             |  |            |       |   |  |   |      | 
|Granted                    |  |                | (1,702 | )           |  |            | 1,702  |   |  | $ | 6.42 | 
|Canceled                   |  |                | 715    |             |  |            | (715   | ) |  | $ | 2.20 | 
|Exercised                  |  |                |       |             |  |            | (1,523 | ) |  | $ | 0.35 | 
|                           |  |                |        |             |  |            |        |   |  |   |      | 
|Balance at April 30, 2001  |  |                | 2,928  |             |  |            | 4,376  |   |  | $ | 2.66 | 
|Granted                    |  |                | (2,078 | )           |  |            | 2,078  |   |  | $ | 1.88 | 
|Canceled                   |  |                | 119    |             |  |            | (119   | ) |  | $ | 6.08 | 
|Exercised                  |  |                |       |             |  |            | (1,168 | ) |  | $ | 0.39 | 
|                           |  |                |        |             |  |            |        |   |  |   |      | 
|Balance at April 30, 2002  |  |                | 969    |             |  |            | 5,167  |   |  | $ | 2.78 | 
|                           |  |                |        |             |  |            |        |   |  |   |      | 
|Additional shares reserved |  |                | 1,000  |             |  |            |       |   |  |   |      | 
|Granted                    |  |                | (1,485 | )           |  |            | 1,485  |   |  | $ | 2.26 | 
|Canceled                   |  |                | 1,001  |             |  |            | (1,001 | ) |  | $ | 4.00 | 
|Exercised                  |  |                |       |             |  |            | (559   | ) |  | $ | 0.55 | 
|                           |  |                |        |             |  |            |        |   |  |   |      | 
|Balance at April 30, 2003  |  |                | 1,485  |             |  |            | 5,092  |   |  | $ | 2.63 | 
|                           |  |                |        |             |  |            |        |   |  |   |      | 

F-15



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##### Table of Contents



CATALYST SEMICONDUCTOR, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The range of exercise prices table below
summarizes information regarding stock options outstanding at
April 30, 2003. The options exercisable as of
April 30, 2002 and 2001 were 2,206,000 and 1,057,000
respectively.

|             |             |                     |  |                     |       |           |  |                |     |           |  |  |       |  |  |  |       |  |  |  |       | 
|------------ | ----------- | ------------------- |  | ------------------- | ----- | --------- |  | -------------- | --- | --------- |  |  | ----- |  |  |  | ----- |  |  |  | ----- | 
|             |             |                     |  |                    
|             |             | Options Outstanding |  | Options Exercisable
|             |             |                     |  |                    
|             |             |                     |  | Weighted-           |       | Weighted- |  |                |     | Weighted-
|Actual Range |             | Number              |  | Average             |       | Average   |  | Number         |     | Average  
|of Exercise  |             | Outstanding at      |  | Remaining           |       | Exercise  |  | Exercisable at |     | Exercise 
|Prices       |             | April 30, 2003      |  | Contractual Life    |       | Price     |  | April 30, 2003 |     | Price    
|             |             |                     |  |                     |       |           |  |                |     |          
|             |             | (In thousands)      |  | (Years)             |       |           |  | (In thousands) |     |          
|$            | 0.11 - 0.13 |                     |  |                     | 424   |           |  |                | 5.5 |           |  |  | $0.12 |  |  |  | 424   |  |  |  | $0.12 | 
|             | 0.25 - 0.33 |                     |  |                     | 351   |           |  |                | 5.9 |           |  |  | 0.29  |  |  |  | 347   |  |  |  | 0.29  | 
|             | 0.40 - 0.50 |                     |  |                     | 42    |           |  |                | 0.4 |           |  |  | 0.41  |  |  |  | 42    |  |  |  | 0.41  | 
|             | 1.00 - 1.04 |                     |  |                     | 170   |           |  |                | 6.5 |           |  |  | 1.01  |  |  |  | 141   |  |  |  | 1.01  | 
|             | 1.73 - 2.49 |                     |  |                     | 2,936 |           |  |                | 8.8 |           |  |  | 1.99  |  |  |  | 1,033 |  |  |  | 1.80  | 
|             | 4.07 - 6.06 |                     |  |                     | 752   |           |  |                | 7.4 |           |  |  | 5.41  |  |  |  | 488   |  |  |  | 5.42  | 
|             | 6.38 - 9.50 |                     |  |                     | 417   |           |  |                | 5.8 |           |  |  | 7.49  |  |  |  | 300   |  |  |  | 7.49  | 
|             |             |                     |  |                     |       |           |  |                |     |           |  |  |       |  |  |  |       |  |  |  |       | 
|$            | 0.11 - 9.50 |                     |  |                     | 5,092 |           |  |                | 7.8 |           |  |  | $2.63 |  |  |  | 2,775 |  |  |  | $2.55 | 
|             |             |                     |  |                     |       |           |  |                |     |           |  |  |       |  |  |  |       |  |  |  |       | 

The weighted-average grant-date fair value of
options granted during fiscal 2003, 2002 and 2001 was $1.21,
$1.20 and $4.78, respectively.

Other Stock
Plans

The Board of Directors and Stockholders approved
the Companys Employee Stock Purchase Plan (the
Purchase Plan) in March 1993. A total of
750,000 shares of Common Stock have been reserved for
issuance under the Purchase Plan. Sales made through this plan
will be at the lower of 85% of the market price at the date of
purchase or on the first day of each six-month offering period.
The Purchase Plan was suspended effective June 1998 due to the
Companys delisting from the Nasdaq National stock market
in August 1998 and expired in March 2003. As of April 30,
2003, a total of 231,000 shares had been issued under the
Purchase Plan.

Pro Forma
Stock Compensation Disclosure

The fair value of each option granted under the
Option Plan, the Director Plan and the Special Option Plan is
estimated on the date of grant using the Black-Scholes
option-valuation model with the following weighted-average
assumptions used for options granted in 2003, 2002 and 2001,
respectively: dividend yield of 0% for all years, expected
volatility of 68%, 85% and 100%, risk free interest rates of
2.59%, 3.74% and 5.90% and expected lives of four years for
non-officer/ director employees and four years for officers and
directors for all years.

SFAS No. 148 amended
SFAS No. 123 in December 2002 to require that
disclosures of the pro forma effect of using the fair value
method of accounting for stock-based employee compensation be
displayed more prominently and in a tabular format. The
following table illustrates the effect on our net income and net

F-16



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##### Table of Contents



CATALYST SEMICONDUCTOR, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

income (loss) per share if we had recorded
compensation costs based on the estimated grant date fair value
as defined by SFAS No. 123 for all granted stock-based
awards.

|                                                                                                                              |         |                       |        |      |  |      |        |       |   |   |        |      | 
|----------------------------------------------------------------------------------------------------------------------------- | ------- | --------------------- | ------ | ---- |  | ---- | ------ | ----- | - | - | ------ | ---- | 
|                                                                                                                              |         |                      
|                                                                                                                              |         | Years Ended April 30,
|                                                                                                                              |         |                      
|                                                                                                                              |         | 2003                  |        | 2002 |  | 2001
|                                                                                                                              |         |                       |        |      |  |     
|                                                                                                                              |         |                      
|                                                                                                                              |         | (In thousands, except
|                                                                                                                              |         | per share amounts)   
|Reported net income                                                                                                           |         | $                     | 6,318  |      |  | $    | 770    |       |   | $ | 27,352 |     
|Add: Stock-based employee compensation expense
    included in reported net income, net of tax                                |         |                       | 54     |      |  |      | 67     |       |   |   | 110    |     
|Deduct: Stock-based employee compensation expense
    determined under fair value based method for all awards, net of
    tax |         |                       | (2,678 | )    |  |      | (3,285 | )     |   |   | (1,887 | )   
|                                                                                                                              |         |                       |        |      |  |      |        |       |   |   |        |     
|Pro forma net income (loss)                                                                                                   |         | $                     | 3,694  |      |  | $    | (2,448 | )     |   | $ | 25,575 |     
|                                                                                                                              |         |                       |        |      |  |      |        |       |   |   |        |     
|Pro forma net income (loss) per share:                                                                                        |         |                       |        |      |  |      |        |       |   |   |        |     
|                                                                                                                              | Basic   |                       | $      | 0.22 |  |      | $      | (0.14 | ) |   | $      | 1.53 | 
|                                                                                                                              | Diluted |                       |        | 0.20 |  |      |        | (0.14 | ) |   |        | 1.27 | 
|Reported net income per share:                                                                                                |         |                       |        |      |  |      |        |       |   |   |        |     
|                                                                                                                              | Basic   |                       | $      | 0.38 |  |      | $      | 0.04  |   |   | $      | 1.63 | 
|                                                                                                                              | Diluted |                       |        | 0.34 |  |      |        | 0.04  |   |   |        | 1.36 | 

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 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 7  Stockholders
Equity



| |                                    
| | -----------------------------------
| | Common Stock Repurchase
    Program

In September 2001, the Board of Directors
authorized a program for the open market repurchase of up to
1,500,000 shares of Catalyst common shares. In February 2003 the
Board increased the authorized amount to 2,000,000 shares.
During fiscal 2003 and 2002, respectively, total shares
repurchased under the program were 1,276,400 and 193,700, for a
cost of $3,235,000 and $417,000. In a separately authorized
transaction, the Board made an arrangement to repurchase
1,500,000 shares from its largest shareholder at a price per
share equal to 95% of the closing price April 19, 2002,
resulting in the payment of an aggregate of $4,688,000 for the
shares. The Company accounts for treasury stock using the cost
method.



| |                              
| | -----------------------------
| | Shareholders Rights
    Plan

In December 1996, the Company implemented the
Preferred Shares Rights Agreement (Rights Plan). Under the
Rights Plan, each share of the Companys outstanding common
stock carries one preferred share purchase right (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

F-17



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##### Table of Contents



CATALYST SEMICONDUCTOR, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

purchase shares of common stock of the Company or
its acquirer at a discounted price. The Rights are redeemable by
the Company and expire in 2006. A full description of the Rights
Plan, as amended, may be found by referring to Exhibits 4.1
through 4.5 which are set forth in the Index to
Exhibits contained in the Companys Report of
Form 10-K for fiscal 2002.

Note 8  Segment
Reporting

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

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

|             |             |                      |        |        |  |      |        |        |  |   |        |        | 
|------------ | ----------- | -------------------- | ------ | ------ |  | ---- | ------ | ------ |  | - | ------ | ------ | 
|             |             |                     
|             |             | Year Ended April 30,
|             |             |                     
|             |             | 2003                 |        | 2002   |  | 2001
|             |             |                      |        |        |  |     
|EEPROM       |             | $                    | 41,690 |        |  | $    | 35,456 |        |  | $ | 81,491 |       
|Flash        |             |                      | 5,786  |        |  |      | 6,907  |        |  |   | 16,295 |       
|Mixed signal |             |                      | 745    |        |  |      | 428    |        |  |   | 229    |       
|             |             |                      |        |        |  |      |        |        |  |   |        |       
|             | Total sales |                      | $      | 48,221 |  |      | $      | 42,791 |  |   | $      | 98,015 | 
|             |             |                      |        |        |  |      |        |        |  |   |        |       

Revenues by destination were as follows (in
thousands):

|                 |  |                      |        |      |  |      |        |  |  |   |        | 
|---------------- |  | -------------------- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                 |  |                     
|                 |  | Year Ended April 30,
|                 |  |                     
|                 |  | 2003                 |        | 2002 |  | 2001
|                 |  |                      |        |      |  |     
|United States    |  | $                    | 9,571  |      |  | $    | 12,549 |  |  | $ | 38,305 | 
|Hong Kong/ China |  |                      | 6,609  |      |  |      | 6,154  |  |  |   | 12,253 | 
|Japan            |  |                      | 8,934  |      |  |      | 4,923  |  |  |   | 11,200 | 
|Europe           |  |                      | 6,899  |      |  |      | 4,560  |  |  |   | 13,911 | 
|Korea            |  |                      | 4,600  |      |  |      | 4,560  |  |  |   | 965    | 
|Taiwan           |  |                      | 4,552  |      |  |      | 3,936  |  |  |   | 12,001 | 
|Other Far East   |  |                      | 5,040  |      |  |      | 5,188  |  |  |   | 8,101  | 
|Other Americas   |  |                      | 2,016  |      |  |      | 921    |  |  |   | 1,279  | 
|                 |  |                      |        |      |  |      |        |  |  |   |        | 
|Total sales      |  | $                    | 48,221 |      |  | $    | 42,791 |  |  | $ | 98,015 | 
|                 |  |                      |        |      |  |      |        |  |  |   |        | 

Sales and purchase transactions are denominated
in U.S. dollars, except for certain purchases which were
denominated in Thai Baht and Japanese Yen and which were not
significant for fiscal 2003, 2002 and 2001.

Note 9  Commitments and
Contingencies

On April 17, 2001, Xicor Corporation
(Xicor), a competitor in the nonvolatile and mixed signal
markets, served a complaint against the Company in the United
States District Court for the District of Delaware. The
complaint alleged that some of the Companys recently
announced digital potentiometer products infringed on a patent
that Xicor obtained in 1988. In June 2002, the Company entered
into a settlement agreement with Xicor according to which
Catalyst has received a license to manufacture the disputed
products in exchange for certain royalty payments based upon
sales of those products after July 22, 2002. The complaint
was dismissed on July 22, 2002. Through April 30,
2003, the royalties paid under this agreement have not been
material.

In 1989, the Company entered into a license
agreement with Philips Export B.V. and U.S. Philips Corporation
(Philips) to license technology pertinent to their I2C bus
technology. Catalyst paid royalties under this license through
1993, at which point the Company believed that the license
became fully paid-up and no further royalties were owing. In May
2001, the Company received a written communication from Philips
suggesting that royalties under this license were still owing on
certain products. In January 2003, Philips again stated that it
did not believe that the license was paid-up and that royalties
had continued to accrue. The Company does not believe that
Philips position is meritorious and that, even if a
current royalty obligation is demonstrated, it does not extend
retroactively back as far as Philips contends. Nonetheless, if

F-18



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##### Table of Contents



CATALYST SEMICONDUCTOR, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Philips position is ultimately demonstrated
to be correct, the Company may owe Philips an amount estimated
to range from zero to $2.9 million in back royalty payments
and an estimated amount ranging from zero to $1.5 million
in interest payments.

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

Catalyst applies the disclosure provisions of FIN
45 to its agreements that contain guarantee or indemnification
clauses. 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 Catalyst is a guarantor:



| |                            
| | ---------------------------
| | Indemnification Obligations

Catalyst 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
Catalyst, under which Catalyst 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 Catalyst is
conditioned on the other party making a claim pursuant to the
procedures specified in the particular contract, which
procedures typically allow Catalyst to challenge the other
partys claims. Further, Catalyst obligations under
these agreements may be limited in terms of time and/or amount,
and in some instances, Catalyst 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 Catalyst
obligations and the unique facts and circumstances involved in
each particular agreement. Historically, payments made by
Catalyst under these agreements did not have a material effect
on its business, financial condition or results of operations.
Catalyst 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

Catalyst estimates its product warranty costs
based on historical warranty claim experience and applies this
estimate to the revenues stream for products under warranty.
Included in Catalyst 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
goods sold. 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 actual claim experience
differs from estimates. Warranty costs were less than $100,000
for each of fiscal 2003, 2002 and 2001.

Note 10  Related Party
Transactions

During the fourth quarter of fiscal 2000, the
Company began taking delivery of wafers fabricated at X-Fab
Texas, Inc. (Xfab), a wholly owned subsidiary of Elex NV
(Elex), a Belgian holding company that owns 28% of the
outstanding shares of the Company as of June 24, 2003. The
wafers provided by Xfab supplement the same designs fabricated
at Oki Semiconductor in Japan, the Companys principal
wafer fab since 1985. The Company believes that the cost of such
wafers is no greater than comparable materials available from
alternative foundry services. During fiscal 2003, 2002 and 2001,
the Companys purchases from Xfab totaled $1.4 million
$1.2 million and $6.6 million, respectively. As of
April 30, 2003 and 2002, the total

F-19



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##### Table of Contents



CATALYST SEMICONDUCTOR, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

amount owed Xfab was $18,000 and $184,000,
respectively. Mr. Duchâtelet is the Chairman and CEO
of Elex and serves as a member of the Companys Board of
Directors. Elex initially became a related party through the
purchase of an aggregate of 5.5 million shares for
$2.5 million in two private placements in 1998. In April
2001, the Company repurchased 1.5 million shares from Elex
for $4.7 million. In three transactions on the open market
in November and December 2002, Elex purchased an aggregate of
607,200 shares for approximately $1.6 million.

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 the services on the Companys behalf. These
services relate 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. The Companys former
President and CEO, owned 91% of Lxi at the time of his departure
in fiscal 2003 and two officers of Catalyst owned approximately
4% of Lxi until their shares were sold to Lxi in February 2003.
During fiscal 2003, the Company recorded $605,000 of engineering
fees from Lxi for engineering design services provided to by
Essex. As of April 30, 2003 there was no amount owed to
Lxi. During fiscal 2003, 2002 and 2001 the Company recorded
$605,000, $852,000 and $714,000, respectively, of engineering
fees to Lxi for engineering design services provided to Catalyst
by Essex. As of April 30, 2003 and 2002, the total amount
owed to Essex and Lxi was $0 and $228,000, respectively. The
officers received no payments during fiscal 2003, 2002 and 2001
other than the sale of their interests in Lxi. One officer had
previously served as the Treasurer of Lxi prior to his joining
the Company. Such officer resigned such position immediately
prior to joining the Company. Such officer resigned as a
director of Lxi in January 2003.

One director, Lionel Allan, also served as a
consultant to the Company through his consulting company, Allan
Advisors, Inc (AAI). Under the terms of the consulting
agreement, the Company paid consulting fees of $8,333 per month
throughout fiscal 2003 and 2002. During each of the fiscal years
ended April 30, 2003, 2002 and 2001, the Company paid
$129,000, $100,000 and $100,000, respectively, to AAI under such
agreement. The consulting agreement was to expire on
August 14, 2003. The Company paid the $29,000 balance due
under the agreement in April 2003 and cancelled the agreement.

F-20



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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)
|2003                 |                                            |                |   |            |  |            |   |            |   |  |   |        |   |  |   |       
|                     | Allowance for doubtful accounts receivable |                | $ | 950        |  |            | $ |           |   |  | $ | (725   | ) |  | $ | 225    | 
|                     | Valuation reserve for deferred tax assets  |                |   | 10,624     |  |            |   | (1,914     | ) |  |   | (64    | ) |  |   | 8,646  | 
|2002                 |                                            |                |   |            |  |            |   |            |   |  |   |        |   |  |   |       
|                     | Allowance for doubtful accounts receivable |                |   | 750        |  |            |   | 200        |   |  |   |       |   |  |   | 950    | 
|                     | Valuation reserve for deferred tax assets  |                |   | 5,878      |  |            |   | 4,746      |   |  |   |       |   |  |   | 10,624 | 
|2001                 |                                            |                |   |            |  |            |   |            |   |  |   |        |   |  |   |       
|                     | Allowance for doubtful accounts receivable |                |   | 286        |  |            |   | 464        |   |  |   |       |   |  |   | 750    | 
|                     | Valuation reserve for deferred tax assets  |                |   | 14,535     |  |            |   |           |   |  |   | (8,657 | ) |  |   | 5,878  | 

F-21



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##### Table of Contents






INDEX TO EXHIBITS

|        |            |             |  |                                                                                                                                                                                                                                                                                                                                                                                                          
|------- | ---------- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |            |            
|No.     |            | Description
|        |            |            
|        | 3.2(8)     |             |  | Restated Certificate of Incorporation of
    Registrant.                                                                                                                                                                                                                                                                                                                                                 
|        | 3.4(7)     |             |  | Bylaws of Registrant                                                                                                                                                                                                                                                                                                                                                                                     
|        | 4.1(3)     |             |  | Preferred Shares Rights Agreement, dated as of
    December 3, 1996, between Catalyst Semiconductor, Inc. and
    First National Bank of Boston, including the Certificate of
    Designation of Rights, Preferences and Privileges of
    Series A Participating Preferred Stock, the Form of Rights
    Certificate and the Summary of Rights attached thereto as
    Exhibits A, B and C respectively.
|        | 4.2(15)    |             |  | Amendment No. 1 to Preferred Shares Rights
    Agreement dated as of May 22, 1998 between Registrant and
    BankBoston, N. A., as rights agent.                                                                                                                                                                                                                                                         
|        | 4.3(15)    |             |  | Amendment No. 2 to Preferred Shares Rights
    Agreement dated as of September 14, 1998 between Registrant
    and BankBoston, N. A., as rights agent.                                                                                                                                                                                                                                                   
|        | 4.4(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.                                                                                                                                                                                                                                        
|        | 4.5(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.                                                                                                                                                                                                                                             
|        | 4.6(16)    |             |  | 2003 Stock Incentive Plan.                                                                                                                                                                                                                                                                                                                                                                               
|        | 4.7(16)    |             |  | 2003 Director Stock Option Plan.                                                                                                                                                                                                                                                                                                                                                                         
|        | 10.12(1)   |             |  | Distributor Agreement dated February 1990 between
    Arrow Electronics, Inc. and Registrant.                                                                                                                                                                                                                                                                                                            
|        | 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.                                                                                                                                                                                                                                                                                              
|        | 10.51(4)   |             |  | Commercial Security Agreement dated April 1,
    1998 between Registrant and Oki Electric Industry Co., Ltd.                                                                                                                                                                                                                                                                                             
|        | 10.52(4)   |             |  | Wafer Purchase Agreement dated March 23,
    1998 between Registrant and Trio-Tech International PTE LTD with
    Variation Agreement dated April 16, 1998 between Registrant
    and Trio-Tech.                                                                                                                                                                                                         
|        | 10.59(4)*  |             |  | Severance Agreement dated June 1, 1998
    between Thomas E. Gay III and Registrant.                                                                                                                                                                                                                                                                                                                     
|        | 10.61(4)   |             |  | Common Stock Purchase Agreement dated as of
    May 26, 1998 between Registrant and Elex N.V. (Elex) with
    Standstill Agreement dated as of May 26, 1998 between
    Registrant and Elex.                                                                                                                                                                                                             
|        | 10.63(5)*  |             |  | Agreement dated August 14, 1995 between
    Registrant and Lionel M. Allan (Amendment).                                                                                                                                                                                                                                                                                                                  
|        | 10.64(6)   |             |  | Common Stock Purchase Agreement dated as of
    September 14, 1998 between Registrant and Elex NV with
    Standstill Agreement dated as of September 14, 1998 between
    Registrant and Elex, NV                                                                                                                                                                                                       
|        | 10.67(9)*  |             |  | Modification dated January 1, 1999 of
    Consulting Agreement dated August 14, 1995 between the
    Company and Allan Advisors, Inc.                                                                                                                                                                                                                                                                    
|        | 10.69(12)  |             |  | 1998 Special Equity Incentive Plan                                                                                                                                                                                                                                                                                                                                                                       
|        | 10.71(10)* |             |  | Severance Agreement dated May 11, 1999
    between Irv Kovalik and Registrant.                                                                                                                                                                                                                                                                                                                           
|        | 10.72(11)* |             |  | Severance Agreement dated May 11, 1999
    between Frank Reynolds and Registrant.                                                                                                                                                                                                                                                                                                                        
|        | 10.75(13)* |             |  | Extension of Consulting Agreement dated
    June 7, 2001 between Allan Advisors, Inc. and Registrant.                                                                                                                                                                                                                                                                                                    
|        | 10.76(13)* |             |  | Severance Agreement dated September 21, 1999
    between Barry Wiley and Registrant.                                                                                                                                                                                                                                                                                                                     
|        | 10.78(15)* |             |  | Severance Agreement dated November 8, 2001
    between Sorin Georgescu and Registrant.                                                                                                                                                                                                                                                                                                                   
|        | 10.79(15)* |             |  | Extension to Severance Agreement dated as of
    February 27, 2002 between Thomas E. Gay and Registrant.                                                                                                                                                                                                                                                                                                 
|        | 10.80(15)* |             |  | Extension to Severance Agreement dated as of
    February 27, 2002 between Irv Kovalik and Registrant.                                                                                                                                                                                                                                                                                                   



---



##### Table of Contents



|        |            |             |  |                                                                                                                                                                                        
|------- | ---------- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |            |            
|No.     |            | Description
|        |            |            
|        | 10.81(15)* |             |  | Extension to Severance Agreement dated as of
    February 27, 2002 between Barry Wiley and Registrant.                                                                                 
|        | 10.82(15)* |             |  | Extension to Severance Agreement dated as of
    February 27, 2002 between Frank Reynolds and Registrant.                                                                              
|        | 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*     |             |  | Employment Agreement dated May 23, 2003
    between Gelu Voicu and Registrant.                                                                                                         
|        | 21.1       |             |  | List of Subsidiaries of Registrant.                                                                                                                                                    
|        | 23.1       |             |  | Consent of Independent Accountants.                                                                                                                                                    
|        | 99.1       |             |  | 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
    Commission on May 11, 1993 (File No. 33-60132), as
    amended.
|
| | (2) | Incorporated by reference to Registrants
    Form 10-K filed for the year ended April 30, 1996.                                                                   
|
| | (3) | Incorporated by reference to Exhibit 1 to
    Registrants Form 8-A filed on January 22, 1997.                                                                     
|
| | (4) | Incorporated by reference to Registrants
    Form 10-K filed for the year ended May 3, 1998.                                                                      
|
| | (5) | Incorporated by reference to Registrants
    Form 10-K/A (Am. No. 1) filed for the year ended
    May 3, 1998.                                                    
|
| | (6) | Incorporated by reference to Registrants
    Form 10-Q filed for the quarter ended August 2, 1998.                                                                
|
| | (7) | Incorporated by reference to Registrants
    Form 10-Q/A (Am. No. 1) filed for the quarter ended
    November 1, 1998.                                            
|
| | (8) | Incorporated by reference to an Appendix to
    Registrants Definitive Proxy Statement filed
    December 18, 1998.                                               
|
| | (9) | Incorporated by reference to Registrants
    Form 10-Q filed for the quarter ended January 21, 1999.                                                              



|     |                                                                                                                                                                               
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Incorporated by reference to Registrants
    Form 10-K filed for the year ended May 2, 1999.                                                                                 
|    
|(11) | Incorporated by reference to Registrants
    Form 10-K filed for the year ended April 30, 2000.                                                                              
|    
|(12) | Incorporated by reference to an Appendix to
    Registrants Definitive Proxy Statement previously filed
    July 27, 2000.                                                   
|    
|(13) | Incorporated by reference to Registrants
    Form 10-K filed for the year ended April 30, 2001.                                                                              
|    
|(14) | Incorporated by reference to Registrants
    Form 8-K filed April 30, 2002.                                                                                                  
|    
|(15) | Incorporated by reference to Registrants
    Form 10-K filed for the year ended April 30, 2002.                                                                              
|    
|(16) | Incorporated by reference to Registrants to
    Registrants Registration Statement on Form S-8 filed
    with the Commission on December 24, 2002 (File
    No. 333-102201).



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