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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                                    FORM 10-Q

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[X]    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934

               FOR THE QUARTERLY PERIOD ENDED JANUARY 27, 2002 OR

[ ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934

                 FOR THE TRANSITION PERIOD FROM _____ TO _____.

                                     0-21488
                            (Commission File Number)

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

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


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

              1250 BORREGAS AVENUE
              SUNNYVALE, CALIFORNIA                                      94089
(Address of Registrant's principal executive offices)                  (Zip Code)


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

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

       The number of shares outstanding of the Registrant's Common Stock as of
February 28, 2002 was 17,662,330.

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                          CATALYST SEMICONDUCTOR, INC.

                                TABLE OF CONTENTS



                                                                                                     PAGE
                                                                                                     ----
                                                                                                  
PART I.      FINANCIAL INFORMATION

Item 1.      Consolidated Financial Statements
             Unaudited Condensed Consolidated Balance Sheets
               at January 31, 2002 and April 30, 2001.............................................    3
             Unaudited Condensed Consolidated Statements of Operations for the three and nine
               month periods ended January 31, 2002 and 2001......................................    4
             Unaudited Condensed Consolidated Statements of Cash Flows for the nine
               month periods ended January 31, 2002 and 2001......................................    5
             Notes to Unaudited Condensed Consolidated Financial Statements.......................    6
Item 2.      Management's Discussion and Analysis of Financial Condition and
               Results of Operations..............................................................   10
Item 3.      Quantitative and Qualitative Disclosures About Market Risk...........................   23

PART II.     OTHER INFORMATION

Item 6.      Exhibits and Reports on Form 8-K.....................................................   24

SIGNATURES........................................................................................   25



                                       2


                         PART I -- FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS


                          CATALYST SEMICONDUCTOR, INC.
                 UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)



                                                                JANUARY 31,   APRIL 30,
                                                                   2002         2001
                                                                -----------   ---------
                                                                        
                         ASSETS

Current assets:
   Cash and cash equivalents ...............................      $29,019      $30,534
   Accounts receivable, net ................................        7,944       10,811
   Inventories, net ........................................        9,381        8,349
   Other assets ............................................          568          895
                                                                  -------      -------
        Total current assets ...............................       46,912       50,589

Property and equipment, net ................................        2,243        2,589
                                                                  -------      -------
        Total assets .......................................      $49,155      $53,178
                                                                  =======      =======

          LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Line of credit ..........................................      $    --      $ 2,025
   Accounts payable ........................................        4,035        3,970
   Accounts payable--related parties .......................          104          291
   Accrued expenses ........................................        5,128        5,749
   Deferred gross profit on shipments to distributors ......        1,544        1,972
   Lease obligations .......................................           --           58
                                                                  -------      -------
        Total liabilities ..................................       10,811       14,065

Stockholders' equity .......................................       38,344       39,113
                                                                  -------      -------
        Total liabilities and stockholders' equity .........      $49,155      $53,178
                                                                  =======      =======



         See accompanying notes to the unaudited condensed consolidated
                              financial statements.


                                       3


                          CATALYST SEMICONDUCTOR, INC.
            UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)



                                                THREE MONTHS ENDED           NINE MONTHS ENDED
                                             -------------------------   --------------------------
                                             JANUARY 31,   JANUARY 31,   JANUARY 31,    JANUARY 31,
                                                2002          2001          2002           2001
                                             -----------   -----------   -----------    -----------
                                                                            
Net revenues ...........................      $ 10,654      $ 23,579      $ 30,336       $ 80,854

Cost of revenues .......................         6,892        12,543        19,877         40,122
                                              --------      --------      --------       --------
Gross profit ...........................         3,762        11,036        10,459         40,732

Research and development ...............         1,140         1,182         3,190          3,323
Selling, general and administrative ....         2,584         2,766         8,251          9,796
                                              --------      --------      --------       --------
Income (loss) from operations ..........            38         7,088          (982)        27,613

Interest income, net ...................           126           293           589            484
                                              --------      --------      --------       --------
Income (loss) before income taxes ......           164         7,381          (393)        28,097

Income tax provision ...................            --           370            49          2,470
                                              --------      --------      --------       --------
Net income (loss) ......................      $    164      $  7,011      $   (442)      $ 25,627
                                              ========      ========      ========       ========

Net income (loss) per share:
   Basic ...............................      $   0.01      $   0.41      $  (0.02)      $   1.55
                                              ========      ========      ========       ========
   Diluted .............................      $   0.01      $   0.35      $  (0.02)      $   1.25
                                              ========      ========      ========       ========

Weighted average common shares:
   Basic ...............................        17,669        16,950        17,704         16,546
                                              ========      ========      ========       ========
   Diluted .............................        20,477        20,204        17,704         20,517
                                              ========      ========      ========       ========



         See accompanying notes to the unaudited condensed consolidated
                              financial statements.


                                       4


                          CATALYST SEMICONDUCTOR, INC.
            UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)



                                                                                              NINE MONTHS ENDED
                                                                                          --------------------------
                                                                                          JANUARY 31,    JANUARY 31,
                                                                                             2002           2001
                                                                                          -----------    -----------
                                                                                                   
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income (loss) ................................................................      $   (442)      $ 25,627
   Adjustments to reconcile net income (loss) to net cash provided by operating
     activities:
     Depreciation of property and equipment .........................................           767            765
     Provision for doubtful accounts receivable .....................................           200            214
     Provision for excess and obsolete inventory, net ...............................           (12)         1,084
     Changes in assets and liabilities:
        Accounts receivable .........................................................         2,667         (3,755)
        Inventories .................................................................        (1,020)        (5,460)
        Other assets ................................................................           327            346
        Accounts payable (including related parties) ................................          (122)         2,880
        Accrued expenses ............................................................          (596)         3,824
        Deferred gross profit on shipments to distributors ..........................          (428)         1,904
                                                                                           --------       --------
            Net cash provided by operating activities ...............................         1,341         27,429
                                                                                           --------       --------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Cash used for the acquisition of fixed assets ....................................          (421)        (1,260)
                                                                                           --------       --------
            Cash used in investing activities .......................................          (421)        (1,260)
                                                                                           --------       --------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Common stock issuances ...........................................................            65            407
   Cash used to repurchase common stock .............................................          (417)            --
   Payment of line of credit ........................................................        (2,025)            (3)
   Payment of long-term debt and capital lease obligations ..........................           (58)          (150)
                                                                                           --------       --------
            Net cash provided by (used in) financing activities .....................        (2,435)           254
                                                                                           --------       --------

Net increase (decrease) in cash and cash equivalents ................................        (1,515)        26,423
Cash and cash equivalents at beginning of the period ................................        30,534          6,205
                                                                                           --------       --------
Cash and cash equivalents at end of the period ......................................      $ 29,019       $ 32,628
                                                                                           ========       ========


SUPPLEMENTAL CASH FLOW DISCLOSURES:
   Interest paid ....................................................................      $     29       $    290
                                                                                           ========       ========

   Income taxes paid ................................................................      $     18       $    755
                                                                                           ========       ========

SUPPLEMENTAL NON-CASH INFORMATION:
   Deferred compensation on exercised stock options .................................      $     25       $    291
                                                                                           ========       ========



         See accompanying notes to the unaudited condensed consolidated
                              financial statements.


                                       5


                          CATALYST SEMICONDUCTOR, INC.
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - BASIS OF PRESENTATION:

       In the opinion of the management of Catalyst Semiconductor, Inc.
(Company), the unaudited condensed consolidated interim financial statements
included herein have been prepared on the same basis as the April 30, 2001
audited consolidated financial statements and include all adjustments,
consisting of only normal recurring adjustments, necessary to fairly state the
information set forth herein. The consolidated statements include the accounts
of the Company's wholly owned subsidiary, Nippon Catalyst KK, a sales
organization in Japan. Certain prior period balances have been reclassified to
conform to the current period presentation. The statements have been prepared in
accordance with the regulations of the Securities and Exchange Commission (SEC),
but omit certain information and footnote disclosures necessary to present the
statements in accordance with accounting principles generally accepted in the
United States of America. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended April 30, 2001. The results of operations
for the nine month period ended January 31, 2002 are not necessarily indicative
of the results to be expected for the entire year ending April 30, 2002 or any
other future period.

       The Company's business is highly cyclical and has been subject to
significant downturns at various times which have been characterized by reduced
product demand, production overcapacity and significant erosion of average
selling prices. Throughout fiscal 1998 and 1999, the market for certain FLASH
and EEPROM devices, which comprise the majority of Catalyst's business,
experienced an excess market supply relative to demand which resulted in a
significant downward trend in prices. During fiscal 2000, the semiconductor
market rebounded from a cyclical decline which had a favorable impact on the
Company's revenues and gross margins into fiscal 2001 through the quarter ended
October 2000. However, during the period from November 2000 through January
2002, the market for the Company's products has become more competitive as a
result of the increased availability of products when demand was decreasing. The
Company could experience other such downward trends in product pricing in the
future which could further adversely affect the Company's operating results.

       The Company's fiscal year and its first, second and third fiscal quarters
end on the Sunday closest to April 30, July 31, October 31 and January 31,
respectively. For purposes of financial statement presentation, the year end
date is expressed as April 30 and the quarter end dates are expressed as July
31, October 31 or January 31.

       Comprehensive income is defined as the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources. Through January 31, 2002, the Company has not had any
items of comprehensive income other than net income (loss).

NOTE 2 -- NET INCOME (LOSS) PER SHARE:

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


                                       6


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



                                                         THREE MONTHS ENDED           NINE MONTHS ENDED
                                                      -------------------------   -------------------------
                                                      JANUARY 31,   JANUARY 31,   JANUARY 31,   JANUARY 31,
                                                         2002          2001          2002          2001
                                                      -----------   -----------   -----------   -----------
                                                             (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                                                                    
Net income (loss) ................................      $   164      $ 7,011        $ (442)      $25,627
                                                        =======      =======        ======       =======
Shares calculation:
   Weighted average shares outstanding--basic ....       17,669       16,950        17,704        16,546

Effect of dilutive securities:
   Stock options .................................        2,808        3,254            --         3,971
                                                        -------      -------        ------       -------
Weighted average shares outstanding--diluted .....       20,477       20,204        17,704        20,517
                                                        =======      =======        ======       =======
Net income (loss) per share:
   Basic .........................................      $  0.01      $  0.41        $(0.02)      $  1.55
                                                        =======      =======        ======       =======
   Diluted .......................................      $  0.01      $  0.35        $(0.02)      $  1.25
                                                        =======      =======        ======       =======



       Options to purchase 1,722,000 shares of common stock at prices from $4.07
to $9.50 per share outstanding during the quarter ended January 31, 2002 and
options to purchase 1,216,999 shares of common stock at prices from $6.06 to
$9.50 per share outstanding during the quarter ended January 31, 2001 were not
included in the computation of diluted income (loss) per share because the
inclusion of such options would have been antidilutive.

       Options to purchase 6,021,000 shares of common stock at prices from $0.11
to $9.50 per share outstanding during the nine month period ended January 31,
2002 and options to purchase 152,500 shares of common stock at prices from $7.88
to $9.50 per share outstanding during the nine month period ended January 31,
2001 were not included in the computation of diluted income (loss) per share
because the inclusion of such options would have been antidilutive.

NOTE 3 - BALANCE SHEET COMPONENTS (IN THOUSANDS):



                                                              JANUARY 31,     APRIL 30,
                                                                 2002           2001
                                                              -----------     ---------
                                                                        
Accounts receivable:
   Accounts receivable ..................................      $  8,894       $ 11,561
   Less: Allowance for doubtful accounts ................          (950)          (750)
                                                               --------       --------
                                                               $  7,944       $ 10,811
                                                               ========       ========

Inventories:
   Work-in-process ......................................      $  6,197       $  6,113
   Finished goods .......................................         3,184          2,236
                                                               --------       --------
                                                               $  9,381       $  8,349
                                                               ========       ========

Property and equipment:
   Engineering and test equipment .......................      $  9,998       $  9,658
   Computer hardware and software .......................         3,649          3,597
   Furniture and office equipment .......................         1,373          1,344
                                                               --------       --------
                                                                 15,020         14,599
   Less: accumulated depreciation and amortization ......       (12,777)       (12,010)
                                                               --------       --------
                                                               $  2,243       $  2,589
                                                               ========       ========

Accrued expenses:
   Accrued income taxes .................................      $  2,065       $  2,083
   Accrued employee compensation ........................         1,553          1,612
   Other ................................................         1,510          2,054
                                                               --------       --------
                                                               $  5,128       $  5,749
                                                               ========       ========



                                       7


NOTE 4 - 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. As of April 30, 2001, under the terms of its borrowing agreement,
the Company was eligible to borrow approximately $3.0 million. Also, under the
terms of the borrowing agreement, the Company could borrow the lesser of $5.0
million or an amount determined by a formula applied to eligible accounts
receivable. Amounts borrowed under the borrowing agreement were secured by
accounts receivable and were subject to compliance with loan covenants. 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.

NOTE 5 - 1998 SPECIAL EQUITY INCENTIVE PLAN:

       In December 1998, the Company adopted an additional stock option plan
entitled the Special Equity Incentive Plan (Special Option Plan) for incentive
stock options and non-statutory stock options for certain directors, officers
and consultants of the Company. A total of 3.5 million shares of Common Stock
have been reserved for issuance under the Special Option Plan. Options granted
under the Special Option Plan are for periods not to exceed ten years. Options
generally vest over four year periods. During fiscal 1999, options totaling 3.0
million shares were granted 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 $517,000 of
compensation expense will be recognized over the four year vesting period of the
options, $28,000 of which was recognized during the three month period ended
January 31, 2002. An aggregate of $416,000 of such expense has been recognized
through January 31, 2002 and $101,000 remains to be recognized in future
periods.

NOTE 6 - CONTINGENCIES:

       On April 17, 2001, Xicor Corporation (Xicor) filed a complaint against
the Company in the United States District Court for the District of Delaware.
The complaint alleges that certain products that the Company has recently
introduced infringe on a patent that Xicor obtained in 1988 relating to the
design of a certain type of digital potentiometer. Xicor is seeking royalties on
past revenues in addition to enjoining the Company from any further sales of the
products in question. The Company does not agree with such allegations and
intends to vigorously defend itself against the suit. Since the products
included in the suit have only recently been introduced, revenues from those
products 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 relating to
their I2C bus technology. The Company has received a communication from Philips
suggesting that royalties may be due and owing on past sales of certain
products. The Company continues to investigate this claim.

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

NOTE 7 - 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, a Belgian holding company that owns 31.1% of the
outstanding shares of the Company as of February 28, 2002. Mr. Roland
Duchatelet, the Chairman and CEO of Elex NV, serves as a member of the Company's
Board of Directors. The wafers provided by Xfab supplement the same designs
fabricated at Oki Semiconductor in Japan, the Company's principal wafer fab
since 1985. Other than purchase 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, the purchase
order calls for monthly deliveries over a one year period at a set price for
each wafer delivered. 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 the nine months ended


                                       8


January 31, 2002, the Company's purchases from Xfab totaled $769,000. As of
January 31, 2002, the total amount owed Xfab was $36,000.

       The Company has had an informal arrangement since 1995 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. Officers of the Company, Messrs. Vanco, Voicu and Gay own
approximately 91%, 3% and 1%, respectively, of Lxi. During the month of January
2002, Essex employed the equivalent of approximately 14 full-time engineers to
perform the services on behalf of the Company. These services relate to key
development projects of the Company including development, design, layout and
test program development services. The hourly billing rate for these services
have been proposed by the management of Lxi and are reviewed and approved by all
members of the Catalyst Board of Directors except Mr. Vanco. The rates charged
are compared to the estimated cost of maintaining a similar workforce in
Sunnyvale, California and to the rates periodically quoted by other offshore
providers of comparable engineering services. The Company does not have any
contractual commitment to obtain these services from Lxi, nor does Lxi have any
obligation to provide these services to us. During the nine months ended January
31, 2002 the Company recorded $627,000 of engineering fees from Lxi for
engineering design services. As of January 31, 2002 the total amount owed to Lxi
was $68,000.


                                       9


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

FORWARD-LOOKING STATEMENTS

       This report contains certain forward-looking statements that are subject
to risks and uncertainties. For such statements, we desire to take advantage of
the "Safe Harbor" provisions of the Private Securities Litigation Reform Act of
1995 and of Section 21E of and Rule 3b-6 under the Securities Exchange Act of
1934. Such forward-looking statements include, without limitation, statements
regarding our expectations, intentions or future strategies and involve known
and unknown risks, uncertainties and other factors. All forward-looking
statements included in this report are based on information available to us on
the date of filing, and we assume no obligation to update such forward-looking
statements.

OVERVIEW

       Catalyst Semiconductor, Inc. (Catalyst, us, we, our), incorporated
October 8, 1985, 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 of our products increased,
contributing to increased gross margin percentages. During the second half of
fiscal 2001 and the first nine months of fiscal 2002, we experienced
cancellations of orders by our customers, increased supplies of competitive
products and decreasing revenues. Although cancellations have diminished from
the rate experienced in the last two quarters of fiscal 2001, the results for
the nine months ended January 31, 2002 reflect the continuing competitive
pressures on our revenues, gross margins and net profits. We could experience
increases in our manufacturing costs and further downward trends in product
pricing in the future which could adversely affect our operating results.

RESULTS OF OPERATIONS

       Revenues. Total revenues consist primarily of net product sales. A
substantial portion of net product sales has been 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, are 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 decreased 55% to $10.7 million for
the quarter ended January 31, 2002 from $23.6 million for the quarter ended
January 31, 2001. The decrease is primarily attributable to a decrease in the
average selling prices of our products and increased sales of our lower priced
products. In comparison to our previous fiscal quarter, total revenues increased
16% to $10.7 million for the quarter ended January 31, 2002 from $9.2 million
for the quarter ended October 31, 2001. The increase is primarily attributable
to an increase in the number of units shipped. For the nine months ended January
31, 2002, total revenues decreased 63% to $30.3 million from $80.9 million for
the nine months ended January 31, 2001. The decrease is primarily attributable
to a decrease in the number of units shipped and, to a lesser degree, to a
decrease in the average selling price of our products. For the nine months ended
January 31, 2002, approximately 17% of our net product shipments were from our
Flash memory product line, compared with 16% of net product shipments during
fiscal 2001. The balance of our net product shipments were comprised of our
EEPROM products. For the nine months ended January 31, 2002, approximately 65%
of our net product shipments were to international customers compared with 60%
of net product shipments during fiscal 2001. The increase in the percentage of
international shipments is primarily due to continued weakness in the domestic
markets for our products. All sales of our products are in US dollars,
minimizing the effects of currency fluctuations.


                                       10


       Gross Profit. Gross profit for the quarter ended January 31, 2002 was
$3.8 million, or 36% of revenues, compared to a gross profit of $11.0 million,
or 47% of revenues, for the quarter ended January 31, 2001, a decrease of 65%.
The decrease in gross profit percentage is primarily due to decreased selling
prices in the market for our products. In comparison to our previous fiscal
quarter, gross profits increased $1.1 million to $3.8 million, or 36% of
revenues, for the quarter ended January 31, 2002 from $2.7 million, or 29% of
revenues, for the quarter ended October 31, 2001. The increase is primarily
attributable to an increase in the number of units shipped. For the nine months
ended January 31, 2002, gross profits of $10.5 million, or 35% of revenues
decreased by 74% from $40.7 million or 50% of revenues for the nine months ended
January 31, 2001. The decrease is primarily attributable to deteriorating market
conditions for our products reflected by decreased average selling prices and
decreased unit shipments. During fiscal 2001, we paid $10.0 million to our
principal wafer supplier, Oki, to obtain increased wafer supplies. Such payments
were added to the cost of the inventory acquired during that period and were
included in the cost of sales as the inventory was sold. As of April 30, 2001,
our inventory valuation included a portion of such costs to be charged to cost
of sales as the relevant inventory was later sold. During the quarters ended
July 31 and October 31, 2001, we had a lower gross profit attributable to our
shipments of the more expensive wafers purchased under the Oki agreement. Our
remaining inventory of the more expensive products was charged to cost of sales
in the first half of this fiscal year and is no longer included in our inventory
valuation. It is our policy to fully reserve all inventory that is not expected
to be sold within a reasonable period of time following 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. Such
expenses not paid in U.S. dollars are not material to us and the majority are
paid within 30 days, minimizing the effects of currency fluctuations.

       Research and Development. Research and development (R&D) expenses consist
principally of salaries for engineering, technical and support personnel,
charges from outside providers of engineering services, including services
provided by the related party Lxi, depreciation of equipment, and the cost of
wafers used to evaluate new products and new versions of current products. R&D
expenses decreased by 8% to $1.1 million, or 10% of revenues, for the quarter
ended January 31, 2002, from $1.2 million, or 5% of revenues for the quarter
ended January 31, 2001. The decrease is primarily caused by lower personnel
related expenses. In comparison to our previous fiscal quarter, R&D expenses of
$1.1 million, or 10% of revenues, for the quarter ended January 31, 2002
increased $0.1 million from $1.0 million or 11% of revenues for the quarter
ended October 31, 2001. The increase is primarily caused by increased expenses
for personnel. For the nine months ended January 31, 2002, R&D expenses
decreased 3% to $3.2 million, or 11% of revenues, compared to $3.3 million, or
4% of revenues for the nine months ended January 31, 2001. This decrease is
primarily attributable to lower personnel related expenses.

       Selling, General and Administrative. Selling, general and administrative
(SG&A) expenses consist principally of salaries for sales, marketing and
administrative personnel, commissions and promotional activities. SG&A expenses
decreased by 7% to $2.6 million, or 24% of revenues, for the quarter ended
January 31, 2002, from $2.8 million, or 12% of revenues, for the quarter ended
January 31, 2001. The decrease from the previous year is primarily attributable
to decreased expenses for sales and administrative personnel and decreased
commission expenses to outside manufacturers' representatives. In comparison to
our previous fiscal quarter, SG&A expenses of $2.6 million for the quarter ended
January 31, 2002 decreased 10% from $2.9 million, or 32% of revenues for the
quarter ended October 31, 2001. The decrease in SG&A expenses from the previous
quarter is primarily attributable to a decrease in the provision for doubtful
accounts receivable. For the nine months ended January 31, 2002, SG&A expenses
decreased by 15% to $8.3 million, or 27% of revenues, from $9.8 million, or 12%
of revenues, for the nine months ended January 31, 2001. The decrease from the
previous year is primarily attributable to decreased commission expenses to
outside manufacturers' representatives and decreased expenses for sales and
administrative personnel.

       Net Interest Income/Expense. Net interest income was $126,000 for the
quarter ended January 31, 2002, compared to net interest income of $293,000 for
the quarter ended January 31, 2001. The decrease from a year ago is primarily
related to the lower interest rate earned on our decreased cash balance
compensated by decreased average outstanding borrowings. In comparison to our
previous fiscal quarter, net interest income was $126,000 for the quarter ended
January 31, 2002, compared to net interest income of $199,000 for the quarter
ended October 31, 2001. The decrease from the previous quarter is primarily
related to the decrease in the interest rate earned on our cash balance. For the
nine months ended January 31, 2002, our net interest income was $589,000, an
increase from $484,000 for the nine months ended January 31, 2001. The increase
from the previous year is primarily related to our increased cash balance and
decreased average outstanding borrowings.


                                       11


       Income Tax Provision. We recorded a provision for income taxes of zero
for the quarter ended January 31, 2002, compared to a provision of $370,000 or
5% of net income before taxes for the quarter ended January 31, 2001. The
decrease is due to the loss we incurred during the nine month period ended
January 31, 2002. We have recorded a provision of $49,000 for the nine months
ended January 31, 2002 compared to a provision of $2,470,000 or 9% of net income
before taxes for the nine months ended January 31, 2001. The decrease is due to
the loss we incurred during the nine month period ended January 31, 2002
compared to the net income of $25.6 million we earned for the nine month period
ended January 31, 2001.

CRITICAL ACCOUNTING POLICIES

       We believe that the following accounting policies are most important to
the portrayal of our financial condition and results and require management's
most difficult judgments:

       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. If actual market conditions are less
favorable than those projected by management, additional inventory write-downs
may be required. Additional inventory reserves are 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 any portion of our inventory, a reserve
is taken for the amount by which the cost of the inventory 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.

       We record estimated reductions to revenue for 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.

       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.

       We record a valuation allowance to reduce our deferred tax assets to the
amount that is more likely than not to be realized. We have considered estimated
future taxable income in assessing the need for the valuation allowance, in the
event we were to determine that we would be able to realize our deferred tax
assets in the future in excess of the net recorded amount, an adjustment to the
deferred tax asset would increase income in the period such determination was
made. Conversely, should we determine that we would not be able to realize all
or part of the net deferred tax asset in the future, an adjustment to the
deferred tax asset would be charged to income in the period such determination
was made.

LIQUIDITY AND CAPITAL RESOURCES

       Net cash provided by operations was $1.3 million for the nine months
ended January 31, 2002, which was due primarily to a net loss of $442,000,
adjusted for depreciation and amortization of $767,000, an addition to the
provision for doubtful accounts of $200,000, an increase in the provision for
excess and obsolete inventory of $12,000 and a decrease in accounts payable and
other liabilities of $718,000 related to decreased sales and manufacturing
activity, a decrease in gross accounts receivable of $2.7 million and an
increase in inventories of $1.0 million which were also related to the decreases
in our production and sales activity. For the nine month period ended January
31, 2001, net cash of $27.4 million was provided by operations, principally by
net income of $25.6 million, adjusted for depreciation and amortization of
$765,000, an addition to the provision for doubtful accounts of $214,000, a
provision for excess and obsolete inventory of $1.1 million plus $2.9 million
from the increase in accounts payable due to the increasing manufacturing
activity and $3.8 million from the increase in accrued expenses primarily due to
the provision for income taxes and $1.9 million from the increase in deferred
gross profit on shipments to distributors. Such increase was partially offset by
$3.8 million used by the increase in accounts receivable due to the increased
sales activity and $5.5 million used for the increase in inventory.


                                       12


       Our investing activities used $421,000 during the nine months ended
January 31, 2002 and were related primarily to the acquisition of equipment for
our manufacturing operations. Cash used in investing activities for the nine
months ended January 31, 2001 was $1.3 million which was primarily related to
the purchase of equipment for our manufacturing operations.

       Financing activities used $2.4 million during the nine months ended
January 31, 2002, consisting primarily of $2.0 million for the payoff of our
bank credit line and $417,000 for the repurchased shares of our common stock.
During the nine months ended January 31, 2001, the cash provided by financing
activities was $254,000 from the proceeds of stock option exercises.

       In September 2001 we announced our intent to implement a stock repurchase
program. As a result of this repurchase program, during the quarters ended
October 31, 2001 and January 31, 2002, we have repurchased 130,000 and 63,700
shares, respectively, of our common stock at a cost of $262,000 and $155,000,
respectively. Stock repurchased at fair market value on the date of each
transaction was accounted for at cost.

       On June 30, 2001, we paid off the $2.0 million balance due on the line of
credit with our bank and ended the agreement. As of January 31, 2002, we had
accounts payable to various creditors in the amount of approximately $4.1
million. This amount is comprised of approximately $3.6 million for wafers and
inventory processing and approximately $0.5 million for other goods and
services.

       We do not have any material contractual obligations or commercial
commitments to make future payments other than with respect to the facilities
lease for our principal business office in Sunnyvale. Further, we do not engage
in any off-balance sheet arrangements or transactions.

       In light of the current economic and competitive climate, we continue to
monitor our liquidity 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 capital 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 material 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, the Company began taking
delivery of wafers fabricated at X-fab Texas, Inc. (Xfab), a wholly owned
subsidiary of Elex NV, a Belgian holding company that owns 31.1% of the
outstanding shares of the Company as of February 28, 2002. Mr. Roland
Duchatelet, the Chairman and CEO of Elex NV, serves as a member of the Company's
Board of Directors. The wafers provided by Xfab supplement the same designs
fabricated at Oki Semiconductor in Japan, the Company's principal wafer fab
since 1985. Other than purchase 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, the purchase
order calls for monthly deliveries over a one year period at a set price for
each wafer delivered. 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 the nine months ended January
31, 2002, the Company's purchases from Xfab totaled $769,000. As of January 31,
2002, the total amount owed Xfab was $36,000.

       The Company has had an informal arrangement since 1995 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. Officers of the Company, Messrs. Vanco, Voicu and Gay own
approximately 91%, 3% and 1%, respectively, of Lxi. As of January 31, 2002,
Essex employed the equivalent of approximately 14 full-time engineers to perform
the services on behalf of the Company. These services relate to key development
projects of the Company including development, design, layout and test program
development services. The hourly billing rate for these services have been
proposed by the management of Lxi and are reviewed and approved by all members
of the Catalyst Board of Directors except Mr. Vanco. The rates charged are
compared to the estimated


                                       13


cost of maintaining a similar workforce in Sunnyvale, California and to the
rates periodically quoted by other offshore providers of comparable engineering
services. The Company does not have any contractual commitment to obtain these
services from Lxi, nor does Lxi have any obligation to provide these services to
us. During the nine months ended January 31, 2002 the Company recorded $627,000
of engineering fees from Lxi for engineering design services. As of January 31,
2002 the total amount owed to Lxi was $68,000.

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 market prices generally (such as
    the increases in supply of competitive products and significant declines in
    average selling prices experienced by us in the five quarters ended January
    31, 2002 and during the fiscal years April 30, 1999 and 1998),

-   the need to establish additional inventory reserves due to the expected
    selling prices falling below the amounts paid to purchase 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,

-   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 revenue will be derived
from a limited number of large orders, and we expect that the timing of receipt
and fulfillment of these orders will cause fluctuations which could be material
to our operating results, particularly on a quarterly basis.

       Our quarterly revenue and operating results are difficult to forecast due
to the previously described factors. We base our expense levels, in significant
part, on our expectations as to future revenue and our expenses are therefore
relatively fixed in the short term. If our expected revenue levels fall below
our forecasts, as has occurred during the most recent four fiscal quarters and
during fiscal years ended April 30, 1999 and 1998, net income is likely to be
disproportionately adversely affected because a proportionately smaller amount
of our expenses vary with our revenue.



                                       14


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 years 1997 and 1998 and again during 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 and throughout
calendar year 1999 and incurred substantial losses during that period. During
fiscal 2000, the semiconductor market rebounded from its cyclical decline which
had a favorable impact on both our revenues and our gross margins into fiscal
2001 through the quarter ended October 2000. During each of the fiscal quarters
ended January 2001, April 2001, July 2001 and October 2001, however, the market
for our products became more competitive as a result of increased availability
of products when demand was decreasing. Thus we anticipate continued price and
other competitive pressures to adversely affect our future operating results
similar to the adverse affects on our 1998 and 1999 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 year 1999 and the first ten months of
calendar year 2000 have declined significantly. During the latter half of the
fiscal year ended April 30, 2001 and in the first half of fiscal 2002, we
experienced decreases in orders from customers and found that lower selling
prices were necessary to remain competitive in the market. During the last two
months of calendar 2000 and the first ten months of calendar 2001, we
experienced decreases in the number of units sold and the unit selling prices,
which we believe to be indicative of a downturn in our industry. We expect that
trend to continue further into fiscal 2002. 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.

       As our business grows, we have become increasingly subject to the risks
arising from adverse changes in domestic and global economic conditions. Because
of the recent worldwide economic slowdown, and in the United States of America
in particular, many industries are delaying or reducing technology purchases.
The impact of this slowdown on us is difficult 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 revenue expectations for any
given quarter in fiscal 2002 or for the entire 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. 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


                                       15


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
Electric Industry, Co., Ltd. (Oki) in Japan has supplied wafers to us since 1987
and was our sole foundry source until the quarter ended April 30, 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 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 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.

       On September 6, 2000, we announced an agreement with Oki that resulted in
a significant increase in foundry capacity available to us for the one year
period that commenced in September 2000 in return for two payments totaling
$10.0 million. These payments were added to the cost of inventories purchased
during the ten month period ended March 2001 and were reflected in our cost of
sales as the associated inventory was sold. As of April 30, 2001, our inventory
valuation included a portion of such costs to be charged to cost of sales as the
relevant inventory is sold. During the quarters ended July 31 and October 31,
2001, we had a lower gross profit caused by our shipments of the more expensive
wafers purchased under the Oki agreement. The remaining inventory of the more
expensive products was included in our cost of sales in the quarter ended
October 31, 2001.

       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 31.1% stockholder of the Company as of February 28, 2002 and Mr.
Roland Duchatelet, 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 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 operational for us could take many months, or longer, and
be subject to other factors described below. 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.


                                       16


WE HAVE INCURRED SIGNIFICANT LOSSES OR EXPERIENCED SIGNIFICANT NEGATIVE CASH
FLOW FROM OPERATIONS DURING SEVERAL RECENT FISCAL YEARS.

       We have incurred significant losses or experienced significant negative
cash flow from operations during several recent fiscal years. Such negative cash
flow during fiscal 1999 and 1998 significantly reduced our available capital.
During fiscal 1999, we successfully took steps to address and/or resolve issues
relating to our poor cash flow position. During the nine months ended January
31, 2002, we incurred a loss of $442,000 and cash on hand decreased by $1.5
million. Although as of January 31, 2002, we had cash on hand of $29.0 million,
we may not continue to generate sufficient revenue and profits 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 and we continue to monitor expenses and to conserve our available
cash. Furthermore, to the extent we suffer any adverse effects to our revenues
or margins 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 seek additional equity or debt financing to address our working
capital needs and to provide funding for capital expenditures. 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. 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 particularly affecting the market prices for many high technology
companies and small capitalization companies, and these fluctuations have often
been unrelated to the operating performance of the specific companies. These
broad fluctuations may adversely affect the market price for 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,

-   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,


                                       17


-   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,
many 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 STMicroelectronics, Atmel, Microchip, Fairchild Semiconductor and Xicor,
all of which have substantially greater resources than us.

       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
its competitors on the bases of these or other competitive factors.

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
produce excess inventories of particular products, our operating results could
be adversely affected by charges that we could recognize due to significant
reductions in demand for our products and/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 due to the rapid decrease in demand for and the
selling prices of our products. 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 $4.7 million which were partially offset by
the release of $2.0 million of inventory reserves taken in previous periods
relating to products that were sold during fiscal 2001. For the nine months
ended January 2002, we reserved


                                       18


inventory of $0.3 million which was offset by the release of $0.3 million of
inventory reserves taken in previous periods relating to products that were sold
during the quarter.

       In addition, in fiscal 1998 and to some extent during fiscal 2001, our
ability to forecast future demand and selling prices diminished. It is our
policy to fully reserve all inventory that we do not expect to be sold in a
reasonable period of time from the balance sheet date, generally within the
ensuing twelve months. During most of our recent fiscal periods, as a result of
a 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
17% of our shipments during the nine months ended January 31, 2002 and
represented 16%, 18% and 25% of our shipments, respectively, in each of fiscal
years 2001, 2000 and 1999. 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,
Atmel, Fujitsu, Hitachi, Micron, Mitsubishi, STMicroelectronics, Sharp, Texas
Instruments and Toshiba) 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 anticipate continued price and other
competitive pressures, which adversely affected fiscal 1998 and 1999 operating
results, to adversely affect our future operating results.

WE RELY ON OUTSIDE PROVIDERS OF ENGINEERING SERVICES AND THE LOSS OF THESE
SERVICES MAY CAUSE A SIGNIFICANT INTERRUPTION IN OUR SUPPLY OF ENGINEERING
RESOURCES.

       To supplement our limited engineering staff dedicated to product research
and development activities, we utilize the services of various outside
semiconductor design services. The most significant is an informal arrangement
we have had in place since 1995 to obtain engineering services from Lxi
Corporation (Lxi) of which our officers Messrs. Vanco, Voicu and Gay own
approximately 91%, 3% and 1%, respectively. Lxi provides these services through
Essex com SRL (Essex), its wholly owned subsidiary in Romania. The aggregate
number of hours of engineering services provided to us varies by quarter. During
the month of January 2002, Essex employed the equivalent of approximately 14
full-time engineers to perform services relating to key development projects
including development, design, layout and test program development services.
Because we do not have a formal contractual arrangement with Lxi, Lxi is not
obligated to perform these services. There is no guarantee that Lxi will
continue to supply a sufficient number of engineers to fulfill our requirements
for outsourced engineering services and we may not be able to procure
engineering services from an additional source in a timely manner or at
comparable rates. Our business, financial condition and results of operations
could be materially adversely affected by the loss of Lxi as a supplier of
outsourced engineering services and, to a lesser extent, the loss of our other
providers of outsourced engineering services, our inability to obtain a
comparable new supplier of such services, or any other circumstances causing a
significant interruption in our supply of engineering resources. See also note 7
-- "Related Party Transactions" contained in Item 1 of this report on Form 10-Q
for additional information regarding our relationship with Lxi.

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 (shipping and receiving)
function to subcontractors who are primarily located in Thailand


                                       19


and The Philippines. This reliance on third parties subjects us to risks such as
reduced control over delivery schedules and quality, a potential lack of
adequate capacity during periods when demand is high and potential increases in
product costs due to factors outside our control such as capacity shortages.
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 the nine months ended January 31, 2002, international sales comprised
65% of our product sales. Additionally, for fiscal 2001, 2000 and 1999,
international sales accounted for approximately 60%, 61% and 45%, respectively,
of our product sales. The lower percentage in international sales in 1999 was
primarily attributable to the transition in Japan from Marubun Corporation, our
former distributor which resigned in fiscal 1998, to various smaller alternative
distributors that serve similar markets and our inability to compete with the
low selling prices in certain Far East markets. In fiscal 2000, we were able to
reenter certain Far East markets, contributing to the increased international
sales. 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 due to the increased sensitivity to pricing
    changes in certain markets, particularly the Far East,

-   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 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 purchases are in US dollars, minimizing any direct
currency fluctuation risk. In addition, our business 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.

A RELATIVELY SMALL NUMBER OF CUSTOMERS HAVE ACCOUNTED FOR A SIGNIFICANT PORTION
OF OUR NET REVENUE IN THE PAST AND THE LOSS OF ONE OR MORE OF OUR CURRENT
CUSTOMERS, ADDITIONAL VOLUME PRICING ARRANGEMENTS OR AN EARLY TERMINATION OR
DELAY IN SHIPMENTS CAN AFFECT OUR RESULTS ADVERSELY.

       A relatively small number of customers have accounted for a significant
portion of our net revenue in the past. For the nine months ended January 31,
2002, no single customer represented more than ten percent of our revenues. For
the fiscal year ended April 30, 2001, shipments to Future Electronics, Inc., a
worldwide distributor, represented 14% of our revenues. For the fiscal year
ended April 30, 2000, shipments to Memec (Asia Pacific) Ltd., a distributor in
Asia, Future Electronics, Inc. and Yosun Industrial Corp., a reseller located in
Taiwan, each represented more than 10% of our revenues (13%, 12% and 11%
respectively). During the fiscal year ended April 30, 1999, no customer
represented more than 10% of our product revenue.

       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


                                       20


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 revenue source 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 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 are striving to increase our supply of wafers
and communicate to our customers the scheduled delivery dates that we believe
that we can reasonably expect to meet, our customers may not accept the
alternative delivery date or may seek to cancel their outstanding orders. 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, Inc., a maker of nonvolatile memory products. We have
answered the Complaint denying the allegations. 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. Please see Note 6 --
"Contingencies" contained in Item 1 of this Report on Form 10-Q and "Item 3.
Legal Proceedings" in our Report on Form 10-K for the fiscal year ended April
30, 2001 as filed with the SEC on July 26, 2001 for additional information.

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 stock exchange for continued
listing. Our stock was traded on the Over-The-Counter Bulletin Board market
until September 6, 2000 when we were re-listed on the NASDAQ SmallCap Market.
The over-the-counter market was generally less visible to investors and
therefore we were unable to meet the liquidity requirements of some major
commercial, institutional and private investors thus limiting the market for our
securities. We submitted a request on October 16, 2000 that our securities be
listed on the National Market, but due to general market and other conditions,
our stock subsequently closed below the $5.00 price per share which is required
to qualify for National Market listing and NASDAQ closed the listing
application. We intend to 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.


                                       21


OUR BACKLOG MAY NOT RESULT IN FUTURE REVENUE, 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 revenue
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.

OUR OPERATIONS COULD BE HARMED BY EARTHQUAKES AND OTHER NATURAL DISASTERS.

       Our corporate headquarters are located in California near major
earthquake faults. Additionally, our principal wafer supplier, Oki, is located
in Japan which is also subject to the risk of business disruption by
earthquakes. Our operations could be harmed in the event of a major earthquake
or other natural disaster near our headquarters or other key areas of the world.

WE MAY NOT CARRY ADEQUATE INSURANCE COVERAGE TO PROTECT OUR BUSINESS FROM
CERTAIN TYPES OF LOSS.

       Although we carry general comprehensive liability insurance, directors
and officers liability insurance and other types of insurance coverages typical
for most publicly-traded companies, the insurance coverage we retain may not
cover the specific damages that we incur. For example, we do not carry
earthquake insurance coverage and our commercial coverage does not include
protection for lost profits. Consequently, our business may not be protected if
we incur losses of a type for which we do not retain coverage. Additionally,
disputes with our carriers regarding policy coverages might occur which could
mean that we would be unable to recover all of our damages in the event of a
loss. Such occurrences could negatively affect our business, financial condition
and results of operations.

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 us.

WE MAY NOT BE ABLE TO EXPAND OUR PROPRIETARY TECHNOLOGY IF WE DO NOT 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
future acquisition or investment candidates at reasonable prices or on
reasonable terms, or consummate future acquisitions or


                                       22


investments, each of which could slow our growth strategy. 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.

WE RELY ON A CONTINUOUS POWER SUPPLY TO CONDUCT OUR OPERATIONS, AND THE CURRENT
ENERGY CRISIS COULD DISRUPT OUR OPERATIONS AND INCREASE OUR EXPENSES.

       California has recently experienced an energy crisis that could disrupt
our operations and increase our expenses. In the event of an acute power
shortage, that is, when power reserves for the State of California fall below
1.5%, California has on some occasions implemented, and may in the future
continue to implement, rolling blackouts throughout the state, with or without
advance notice. If blackouts interrupt our power supply, we may be temporarily
unable to operate. Any such interruption in our ability to continue operations
could delay the development of our products. Future interruptions could damage
our reputation, harm our ability to promote our products and could result in
lost revenue, any of which could substantially harm our business and results of
operations. In addition, we do not carry sufficient business interruption
insurance to compensate us for losses that may occur and any losses or damages
incurred by us could have a material adverse effect on our business, financial
condition and results of operations.

       Furthermore, the deregulation of the energy industry instituted in 1996
by the California government and shortages in wholesale electricity supplies
have caused power prices to increase dramatically, and these prices will likely
continue to increase or the foreseeable future. If wholesale prices continue to
increase, our operating expenses will likely increase, as our headquarters and
most of our employees are based in California.

RECENTLY ISSUED ACCOUNTING STANDARDS.

       In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other
Intangible Assets". SFAS No. 141 requires that business combinations initiated
after June 30, 2001 be accounted for under the purchase method of accounting.
The use of the pooling-of-interest method of accounting is no longer allowed.
SFAS No. 142 requires that goodwill and other intangible assets will no longer
be amortized but shall be reviewed and tested annually for impairment. SFAS No.
142 will be effective for fiscal years beginning after December 15, 2001, and
early adoption is permitted for companies with a fiscal beginning after March
15, 2001. We expect that the adoption of SFAS Nos. 141 and 142 on May 1, 2002
will not have a material effect on our financial statements.

       In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment of Long-Lived Assets" which was effective January 1, 2002. SFAS No.
144 supersedes FASB Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and the
accounting and reporting provisions relating to the disposal of a segment of a
business of Accounting Principles Board Opinion No. 30. SFAS No. 144 retains
many of the fundamental provisions of SFAS No. 121 and expands the scope of
discontinued operations to include more disposal transactions. The adoption of
SFAS No. 144 did not have a material effect on our financial statements.


ITEM 3. QUANTITATIVE AND QUALITATIVE 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 cash
deposits. Our policy is to place these investments in instruments that meet high
credit quality standards. These securities are subject to interest rate risk,
and could decline in value if interest rates fluctuate. Due to the short
duration and conservative nature of 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 and costs
of manufacturing and marketing are transacted in US dollars. Accordingly, our
results of operations are not subject to foreign exchange rate fluctuations.
Gains and losses from such fluctuations have not been incurred by us to date.


                                       23


                          PART II -- OTHER INFORMATION


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

  (a) EXHIBITS:

       None.

  (b) REPORTS ON FORM 8-K:

       No reports on Form 8-K were filed by Catalyst during the three months
ended January 31, 2002.


                                       24


                          CATALYST SEMICONDUCTOR, INC.

                                   SIGNATURES

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


Date:  March 5, 2002                  By: /s/ Radu M. Vanco
                                          --------------------------------------
                                          Radu M. Vanco
                                          Chairman of the Board of Directors,
                                          President and Chief Executive Officer


Date:  March 5, 2002                  By: /s/ Thomas E. Gay III
                                          --------------------------------------
                                          Thomas E. Gay III
                                          Vice President of Finance and
                                          Administration and Chief Financial
                                          Officer


                                       25