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SECURITIES AND EXCHANGE COMMISSION

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FORM 10-Q

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For the quarterly period ended October 27, 2002 or

For the transition period from      to      .

0-21488

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CATALYST SEMICONDUCTOR, INC.

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(408) 542-1000

     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   o

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

     The number of shares outstanding of the Registrant’s Common Stock as of December 6, 2002 was 16,760,348.

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CATALYST SEMICONDUCTOR, INC.

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PART I
FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

CATALYST SEMICONDUCTOR, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)

See accompanying notes to the unaudited condensed consolidated financial statements.

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CATALYST SEMICONDUCTOR, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

See accompanying notes to the unaudited condensed consolidated financial statements.

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CATALYST SEMICONDUCTOR, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

See accompanying notes to the unaudited condensed consolidated financial statements.

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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, 2002 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. The statements have been prepared in accordance with the regulations of the Securities and Exchange Commission (SEC). 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, 2002. The results of operations for the three month period ended October 31, 2002 are not necessarily indicative of the results to be expected for the entire year ending April 30, 2003 or any other future period. Certain prior period balances have been reclassified to conform to the current period presentation.

     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 one year period from November 2000 through October 2001, the market for the Company’s products became more competitive as a result of the increased availability of products when demand was decreasing. During the two quarters from November 2001 through April 2002, unit volumes increased faster than prices declined, resulting in increased sales, margins and profitability. In the most recent quarter ended October 2002, the combined effects of decreased shipments with minimal change in prices resulted in revenues slightly decreased from the previous quarter. The Company could experience other such downward trends in product pricing or volume in the future which could further adversely affect its 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, respectively.

     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 October 31, 2002, the Company has not had any items of comprehensive income other than net income.

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

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

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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 the exercise of stock options.

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

     Options to purchase 1,245,000 shares of common stock at prices from $4.07 to $9.50 per share outstanding during the quarter ended October 31, 2002 and options to purchase 6,186,000 shares of common stock at prices from $0.11 to $9.50 per share outstanding during the quarter ended October 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 1,245,000 shares of common stock at prices from $4.07 to $9.50 per share outstanding during the six months ended October 31, 2002 and options to purchase 6,186,000 shares of common stock at prices from $0.11 to $9.50 per share outstanding during the six months ended October 31, 2001 were not included in the computation of diluted income (loss) per share because the inclusion of such options would have been antidilutive.

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Note 3 — Balance Sheet Components (in thousands):