<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended October 31, 1997 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______ to ______.
COMMISSION FILE NUMBER: 0-21488
CATALYST SEMICONDUCTOR, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 77-0083129
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1250 BORREGAS AVENUE,
SUNNYVALE, CALIFORNIA 94089
(Address, including zip code, of
Registrant's principal executive offices)
(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 November
2, 1997 was 8,378,058
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Page 1 of 13
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CATALYST SEMICONDUCTOR, INC.
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS
<S> <C>
Unaudited Condensed Consolidated Balance Sheets
at October 31, 1997 and April 30, 1997............................................................ Page 3
Unaudited Condensed Consolidated Statements of Operations for the three and six month
periods ended October 31, 1997 and 1996............................................................ Page 4
Unaudited Condensed Consolidated Statements of Cash Flows for the six
month period ended October 31, 1997 and 1996...................................................... Page 5
Notes to Unaudited Condensed Consolidated Financial Statements...................................... Pages 6-7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL Condition............... Pages 7-12
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................................................... Page 12
SIGNATURES.................................................................................................. Page 13
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CATALYST SEMICONDUCTOR, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
Oct. 31, April 30,
1997 1997
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ..................................... $ 1,385 $ 2,695
Restricted cash ............................................... 5,250 5,250
Accounts receivable, net ...................................... 7,772 7,074
Inventories ................................................... 10,900 12,732
Other assets .................................................. 1,209 895
------- -------
Total current assets ...................................... 26,516 28,646
Property and equipment, net ..................................... 4,150 3,907
------- -------
$30,666 $32,553
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank and other short-term debt ................................ $ 5,328 $ 3,449
Accounts payable .............................................. 10,555 10,942
Accrued expenses .............................................. 1,159 1,269
Deferred gross profit on shipments to distributors ............ 392 378
------ ------
Current portion of long-term debt and capital lease obligations 474 593
------ ------
Total current liabilities ................................. 17,908 16,631
Long-term debt and capital lease obligations .................... 549 1,885
Total liabilities ......................................... 18,457 18,516
Total stockholders' equity ...................................... 12,209 14,037
------- -------
$30,666 $32,553
======= =======
</TABLE>
See accompanying notes to the unaudited
condensed consolidated financial statements.
3
<PAGE> 4
CATALYST SEMICONDUCTOR, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------- -----------------------
Oct. 31, 1997 Oct. 31, 1996 Oct. 31, 1997 Oct. 31, 1996
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Net revenues ......................................... $ 10,175 $ 12,078 $ 19,723 $ 27,910
Cost of revenues ..................................... 9,021 10,138 16,194 21,259
-------- -------- -------- --------
Gross profit ......................................... 1,154 1,940 3,529 6,651
Research and development ............................. 1,048 1,717 2,228 2,990
Selling, general and administrative .................. 1,851 2,684 3,643 4,945
-------- -------- -------- --------
Income (loss) from operations ........................ (1,745) (2,461) (2,342) (1,284)
Interest income (expense), net ....................... (203) 5 (388) 33
-------- -------- -------- --------
Income (loss) before income taxes .................... (1,948) (2,456) (2,730) (1,251)
Income tax provision ................................. --- 32 --- 78
======== ======== ======== ========
Net income (loss) ................................... $ (1,948) $ (2,488) $ (2,730) $ (1,329)
======== ======== ======== ========
Net income (loss) per share .......................... $ (0.24) $ (0.31) $ (0.34) $ (0.17)
======== ======== ======== ========
Shares used in per share calculation ................. 8,204 7,909 8,106 7,883
======== ======== ======== ========
</TABLE>
See accompanying notes to the unaudited condensed
consolidated financial statements.
4
<PAGE> 5
CATALYST SEMICONDUCTOR, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
---------------------
Oct. 31, 1997 Oct. 31, 1996
------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .......................................................... $(2,730) $(1,329)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization ........................................... 968 867
Changes in assets and liabilities:
Accounts receivable .................................................... (698) 1,193
Inventories ............................................................ 1,832 126
Other assets ........................................................... (314) 285
Accounts payable ....................................................... (387) (2,826)
Accrued expenses ....................................................... (110) (106)
Deferred gross profit on shipments to distributors ..................... 14 (669)
------- -------
Net cash used in operating activities ................................ (1,425) (2,459)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Change in short-term investments ........................................... --- ---
Cash used for the acquisition of equipment ................................. (1,211) (1,892)
Proceeds from the disposal of equipment .................................... --- ---
Cash used in investing activities .................................... (1,211) (1,892)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock transactions, net ............................................. 902 456
Net proceeds from line of credit ........................................... 690 4,750
Proceeds from new long-term debt ........................................... --- 617
Payment of long-term debt and capital lease obligations .................... (266) (322)
------- -------
Cash provided by financing activities ................................ 1,326 5,501
------- -------
Net increase (decrease) in cash and cash equivalents ......................... (1,310) 1,150
Cash and cash equivalents at beginning of the period ......................... 2,695 2,966
------- -------
Cash and cash equivalents at end of the period ............................... $ 1,385 $ 4,116
======= =======
</TABLE>
See accompanying notes to the unaudited condensed
consolidated financial statements.
5
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CATALYST SEMICONDUCTOR, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
In the opinion of management, the unaudited condensed consolidated interim
financial statements included herein have been prepared on the same basis as the
April 30, 1997 audited consolidated financial statements and include all
adjustments, consisting of only normal recurring adjustments, necessary to
fairly state the information set forth herein. The statements have been prepared
in accordance with the regulations of the Securities and Exchange Commission,
but omit certain information and footnote disclosures necessary to present the
statements in accordance with generally accepted accounting principles. 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, 1997. The results of operations for the three and six month
periods ended October 31, 1997 are not necessarily indicative of the results to
be expected for the entire year.
The Company's fiscal year and its first, second and third fiscal quarters end
the Sunday closest to April 30, July 31, October 30 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.
NOTE 2 - NET INCOME (LOSS) PER SHARE
Net income (loss) per common and common equivalent share is computed using the
weighted-average number of common and dilutive common equivalent shares
outstanding during each period presented. Dilutive common equivalent shares
consist of common stock issuable upon the exercise of stock options (using the
treasury stock method). Common Stock equivalents were excluded from the net
income (loss) per share calculations for the three and six month periods ended
October 31, 1997 and 1996 as their effect was anti-dilutive.
NOTE 3 - CERTAIN BALANCE SHEET CAPTIONS (IN THOUSANDS):
<TABLE>
<CAPTION>
Oct. 31, April 30,
1997 1997
-------- --------
<S> <C> <C>
Inventories:
Work-in-process ............................... $ 7,784 $ 5,123
Finished goods ................................ 3,116 7,609
-------- --------
$ 10,900 $ 12,732
======== ========
Property and equipment:
Engineering and test equipment ................ $ 8,707 $ 9,392
Computer hardware and software ................ 3,508 3,364
Furniture and office equipment ................ 1,401 1,183
-------- --------
13,616 13,939
Less: accumulated depreciation and amortization (9,466) (10,032)
-------- --------
$ 4,150 $ 3,907
======== ========
</TABLE>
NOTE 4 - DEBT:
Under the terms of a bank revolving line of credit, the Company can borrow the
lesser of $13.5 million or an amount determined by a formula applied to eligible
accounts receivable, local inventory and backlog from certain foreign customers,
at a variable interest rate of prime plus 2.25%. In addition, the bank agreement
contains restrictive covenants with which the Company was in compliance as of
October 31, 1997.
On February 15, 1997, a vendor loaned $1.2 million to the Company in
settlement of billings for assembly and test services totaling the same. The
loan which bears interest at 18% is payable on May 15, 1998.
As of October 31, 1997, the Company owed approximately $0.5 million on
equipment loans. The loans which bear interest at 9.57% and 9.87% are payable in
fixed monthly installments through August, 2001.
6
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CATALYST SEMICONDUCTOR, INC.
NOTE 6 - RECENT ACCOUNTING PRONOUNCEMENT FAS 128:
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share". This statement is
effective for the Company's quarter ending April 30, 1998. The Statement
redefines earnings per share under generally accepted accounting principles.
Under the new standard, primary earnings per share is replaced by basic earnings
per share and fully diluted earnings per share is replaced by diluted earnings
per share. If the Company had adopted this Statement for the three and six
periods ended October 31, 1997 and for the comparable periods in the prior year,
the Company's earnings (loss) per share would have been as follows:
<TABLE>
<CAPTION>
Three Months Ended, Six Months Ended
------------------------------ ------------------------------
Oct. 31, 1997 Oct. 31, 1996 Oct. 31, 1997 Oct. 31,1996
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Basic earnings (loss) per share . $ (0.24) $ (0.31) $ (0.34) $ (0.17)
Diluted earnings (loss) per share $ (0.24) $ (0.31) $ (0.34) $ (0.17)
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following discussion should be read in conjunction with the accompanying
condensed consolidated financial statements and notes thereto included in this
report. In addition, the Company desires to take advantage of the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995.
Specifically, the Company wishes to alert readers that the factors set forth in
"Certain Factors that May Affect the Company's Future Results" as set forth
below in this Item 2, as well as other factors, in the past have affected and in
the future could affect the Company's actual results, and could cause the
Company's results for future quarters to differ materially from those expressed
in any forward looking statements made by or on behalf of the Company.
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. The
Company generally does not recognize revenues on such sales until the
distributor resells the Company's products. Total revenues decreased by 16% to
$10.2 million for the quarter ended October 31, 1997 from $12.1 million for the
quarter ended October 31, 1996. For the six months ended October 31, 1997, total
revenues decreased 29% to $19.7 million from $27.9 million for the six months
ended October 31, 1996. The decreases were primarily attributable to price
erosion caused by excess supply and other adverse industry-wide conditions. For
the six months ended October 31, 1997, approximately 48% of the Company's
revenues were derived from sales of its Flash memory devices primarily used in
personal computer and disk drive applications and approximately 70% of the
Company's revenues were derived from shipments to international customers.
Gross Profit. Gross profit decreased by 41% to $1.2 million, or 11% of
revenues, for the quarter ended October 31, 1997 from $1.9 million, or 16% of
revenues, for the quarter ended October 31, 1996. For the six months ended
October 31, 1997, gross profit decreased by 47% to $3.5 million, or 18% of
revenues, from $6.7 million, or 24% of revenues, for the six months ended
October 31, 1996. The decreases in absolute dollars were primarily attributable
to reduced revenues and a $1.0 million charge taken in the quarter ended October
31, 1997 against inventory to write down the value of certain inventories to
reflect current market pricing. The decreases as a percentage of revenues were
primarily attributable to that $1.0 million charge against inventory. Gross
margins were also adversely affected by excess supply of competitive products
and other adverse industry-wide conditions, lower than anticipated yields
achieved on the Company's 0.6 micron version of its Flash memory devices, rework
charges incurred to re-mark and re-test certain products in preparation of
shipping those products to customers of the Company, and expedite charges
incurred to ensure that delivery was made in time to meet customer schedules.
7
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CATALYST SEMICONDUCTOR, INC.
Research and Development. Research and development (R&D) expenses consist
principally of salaries for engineering, technical and support personnel,
depreciation of equipment, and the cost of wafers used to evaluate new products
and new versions of current products. R&D expenses decreased by 39% to $1.0
million, or 10% of revenues, for the quarter ended October 31, 1997 from $1.7
million, or 14% of revenues, for the quarter ended October 31, 1996. For the six
months ended October 31, 1997, R&D expenses decreased by 25% to $2.2 million, or
11% of revenues, from $3.0 million, or 11% of revenues, for the six months ended
October 31, 1996. The primary reason for the decreases in absolute dollars spent
was lower material costs for wafers being evaluated for new products and new
versions of current products.
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 31% to $1.9 million, or 18% of revenues, for the quarter ended
October 31, 1997 from $2.7 million, or 22% of revenues, for the quarter ended
October 31, 1996. For the six months ended October 31, 1997, SG&A expenses
decreased by 26% to $3.6 million, or 18% of revenues, from $4.9 million, or 18%
of revenues, for the six months ended October 31, 1996. The primary reason for
the decreases in absolute dollars spent was decreased personnel costs, due to
reductions in headcount including the Company's reduction in workforce in
November 1996.
Net Interest Income (Expense.) Net interest expense was $203,000 for the
quarter ended October 31, 1997 compared to net interest income of $5,000 for the
quarter ended October 31, 1996. Net interest expense was $388,000 for the six
months ended October 31, 1997 compared to net interest income of $33,000 for the
six months ended October 31, 1996. The changes were primarily attributable to
increased average outstanding borrowings.
Income Tax Provision. As a result of the Company's losses, the provision
for income taxes decreased to zero in fiscal 1998.
As of April 30, 1997 the Company had available net operating loss
carryforwards of approximately $21.0 million and credit carryforwards of
approximately $1.0 million for federal tax purposes, expiring from 2001 to 2008.
Availability of the net operating loss and general business credit carryforwards
may potentially be reduced in the event of substantial changes in equity
ownership.
LIQUIDITY AND CAPITAL RESOURCES
Total cash (including $5.3 million of restricted cash) decreased $1.3 million
to $6.6 million as of October 31, 1997 from $7.9 million as of April 30, 1997.
The decrease was primarily attributable to net cash used for the acquisition of
equipment and by operating activities. As of October 31, 1997, $5.3 million of
the total cash was pledged as security on letters of credit required by certain
of the Company's wafer foundries. Net cash used by operating activities totaled
$1.4 million for the six months ended October 31, 1997. This net use of cash was
primarily attributable to net operating losses and an increase in accounts
receivable, offset in part by a decrease in inventories.
Under the terms of a bank revolving line of credit, the Company can borrow the
lesser of $13.5 million or an amount determined by a formula applied to eligible
accounts receivable, local inventory and backlog from certain foreign customers,
at a variable interest rate of prime plus 2.25%. In addition, the bank agreement
contains restrictive covenants with which the Company was in compliance as of
October 31, 1997.
The Company is currently seeking additional equity or debt financing to
address its working capital needs and to provide funding for capital
expenditures. There can be no assurances, however, that financing will be
available on terms acceptable to the Company, if at all. If the Company is not
successful in raising additional capital, it believes that current cash
balances, cash generated from operations and borrowings available under the
Company's bank line of credit and from equipment financing, together with
reductions in operating expenses and capital expenditures will permit the
Company to fund operations through fiscal 1998. However, this could have a
material adverse affect on the operations and future operating results of the
Company.
8
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CATALYST SEMICONDUCTOR, INC.
CERTAIN FACTORS THAT MAY AFFECT THE COMPANY'S FUTURE RESULTS
The Company desires to take advantage of certain provisions of the Private
Securities Litigation Reform Act of 1995, enacted in December 1995 (the "Reform
Act") that provides a "safe harbor" for forward-looking statements made by or on
behalf of the Company. The Company hereby cautions shareholders, prospective
investors in the Company and other readers that the following important factors,
among others, in some cases have affected, and in the future could affect, the
Company's stock price or cause the Company's actual results for the fiscal
quarter ending January 31, 1998 for the fiscal year ending April 30, 1998, and
future fiscal quarters and years to differ materially from those expressed in
any forward-looking statements, oral or written, made by or on behalf of the
Company.
The Company's business and future operating results are subject to potential
fluctuations due to a number of factors including the following:
Future Capital Needs. The Company has had limited cash resources in recent
periods and operating activities have consumed significant amounts of cash.
However, the Company believes that substantial investments in research and
development and sales and marketing expenses are essential to revenue growth and
to maintain and enhance the Company's competitive position. There can be no
assurance that the Company will be able to generate sufficient cash from
operations or other sources to fund these investments. Moreover, there can be no
assurance that such expenditures will result in successful product introductions
or increased revenues. Although certain expenses can be managed or controlled on
a short term basis, a substantial portion of such expenses are essentially fixed
on a quarter to quarter basis. As a result, to the extent the Company suffers
adverse effects to its revenues or margins because of delays in new product
introductions, price competition or other competitive factors, the Company may
be unable to take actions in the short term to substantially reduce expenses.
Moreover, to the extent the Company undertakes actions to further reduce expense
levels and cash requirements, such actions could adversely affect the Company's
operations and future operating results. The Company is currently seeking
additional equity or debt financing to address its working capital needs and to
provide funding for capital expenditures. There can be no assurance that such
funding will be available at acceptable terms, if at all, in which case the
Company would need to reduce operating expenses and capital expenditures. Such
reductions would have a material adverse affect on the operations and future
operating results of the Company.
Fluctuations in Operating Results. The Company's operating results have
historically been and in future quarters may be adversely affected or otherwise
fluctuate due to factors such as timing of new product introductions and
announcements by the Company and its competitors, fluctuations in customer
demand for the Company's products (such as the increase in demand for the
Company's Flash memory devices targeted at personal computer and disk drive
applications), volatility in supply and demand affecting market prices generally
(such as the increases supply of competitive products and significant declines
in average selling prices experienced by the Company in fiscal 1997 and again in
fiscal 1998), increased expenses associated with new product introductions or
process changes, increased expenditures related to expanding the Company's sales
channels, gains or losses of significant customers, timing of significant orders
of the Company's products, fluctuations in manufacturing yields, changes in
product mix, wafer price increases due to foreign currency fluctuations and
general economic conditions.
Dependence on Independent Foreign Manufacturers; Manufacturing Risks. The
Company does not manufacture the semiconductor wafers used for its products. The
Company principally utilizes facilities of Oki Electric Industry Co., Ltd.
("OKI") in Japan, and is transitioning manufacturing of certain products to
United Microelectronics Corporation ("UMC") in Taiwan, to fabricate and test the
Company's wafers, and subcontractors in South East Asia to assemble and test
finished integrated circuits. To date, a majority of these wafers have been
manufactured by OKI. The manufacture of semiconductor products is highly complex
and sensitive to a wide variety of factors, and as is typical in the
semiconductor industry the Company's outside wafer foundries from time to time
have experienced lower than anticipated production yields. While the Company
believes it has an adequate wafer supply to meet its currently anticipated
needs, there can be no assurance that the Company will continue to receive
sufficient quantities of wafers at favorable prices on a timely basis, if at
all, or that the Company will be able to attain higher levels of wafer supply as
demand requires. Material disruptions in the supply of wafers as a result of
9
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CATALYST SEMICONDUCTOR, INC.
manufacturing yield or other manufacturing problems are not uncommon in the
semiconductor industry. The Company may also be subject to production transition
delays. There can be no assurance that the Company will not experience such
problems in the future. The loss of OKI as a supplier, the inability to complete
the transition to UMC on a timely basis, any prolonged inability to obtain
adequate yields or deliveries from OKI or other subcontractor manufacturers, or
any other circumstance that would require the Company to seek alternative
sources of supply, could delay shipments and have a material adverse effect on
the Company's business and operating results. Moreover, the inability to procure
supplies and services from these foreign subcontractor manufacturers on
commercially reasonable terms as a result of foreign currency exchange rate
fluctuations may have a material adverse effect on the Company's operating
results. The Company has a wafer purchase agreement with OKI that is based upon
the exchange rate between the US dollar and Japanese Yen. As a result, exchange
rate fluctuations may cause the Company's cost per die to fluctuate in the
future and gross profit could be adversely affected. In addition, the Company's
business is subject to other risks generally associated with doing business with
foreign subcontractors including, but not limited to, foreign government
regulations, political and financial unrest which may cause disruptions or
delays in shipments to the Company's customers or access to the Company's
inventories.
International Operations. For the six months ended October 31, 1997,
international sales accounted for 70% of the Company's product sales. In fiscal
1997, 1996 and 1995, international sales accounted for 65%, 60% and 61%,
respectively, of the Company's product sales. The Company expects that
international sales will continue to represent a significant portion of its
product sales in the future. The Company's international operations may be
adversely affected by fluctuations in exchange rates, imposition of government
controls, political and financial instability, trade restrictions, changes in
regulatory requirements, difficulties in staffing international operations and
longer payment cycles. There can be no assurance these or other factors related
to international operations will not have a material adverse affect on the
Company's business, financial condition and results of operations.
Inventory. The cyclical nature of the semiconductor industry periodically
results in shortages and oversupply of wafer fabrication capacity such as the
Company has experienced from time to time. Since the Company must order products
and build inventory substantially in advance of product shipments, there is a
risk that the Company will forecast incorrectly and produce excess or
insufficient inventories of particular products because demand for the Company's
products is volatile and customers place orders with short lead times. The
ability of the Company's customers to reschedule or cancel orders without
significant penalty could adversely affect the Company's liquidity, as the
Company may be unable to adjust its purchases from its wafer suppliers to match
such customer changes and cancellations. During the quarter ended October 31,
1997, the Company inventory decreased by $1.3 million to $10.9 million from
$12.2 million. There can be no assurance that the Company's inventory will be
reduced further by the fulfillment of customer orders or that in the future the
Company will not produce excess quantities of its products. To the extent the
Company produces excess inventories of particular products, the Company's
operating results could be adversely affected by charges that the Company could
recognize due to significant reductions in demand for its products, a decline in
the market value of inventory (such as the Company experienced in the current
quarter) or other related factors.
New Product Development and Technological Change. The markets for the
Company's products are characterized by rapidly changing technology and product
obsolescence, and the timely introduction of new products is a key factor in the
success of the Company's business. In particular, the Company's future success
will depend on its ability to develop and implement new design and process
technologies which enable the Company to achieve higher product densities and
thereby reduce product costs. For example, most of the Company's products are
currently designed and manufactured using a 0.8 micron CMOS EEPROM process or a
0.6 micron Flash memory process. There can be no assurance that the Company will
be able to select and develop new products and technologies and introduce them
to the market in a timely manner and with acceptable fabrication yields and
production costs. The Company is currently working on major transitions in
design and process technologies. These transitions are to change certain Flash
memory products manufactured on 0.6 micron processes at Oki to 0.5 micron
designs manufactured at UMC. Delays in developing new products, achieving volume
production of new products, successfully completing technology transitions with
acceptable yields and reliability or the lack of commercial acceptance of new
products introduced by the Company, could have a material adverse effect on the
Company's business, financial condition and results of operations.
10
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CATALYST SEMICONDUCTOR, INC.
Flash Memory Market. The market for Flash memory products has been
characterized by intense price competition, long production cycles, inconsistent
yields, competing technologies and intense overall competition. The Company's
fiscal 1997 and fiscal 1998 operating results were adversely affected by intense
price competition caused by increased supplies of products and other adverse
industry-wide conditions. Intel and other competitors (which include Advanced
Micro Devices, Atmel, Fujitsu, Hitachi, Micron, Mitsubishi, SGS-Thomson, Sharp,
Texas Instruments and Toshiba) are expected to further increase Flash memory
production. There can be no assurance that the Company will be able to sustain
the market acceptance for its Flash memory products. The Company anticipates
continued price and other competitive pressures, which adversely affected fiscal
1997 and fiscal 1998 operating results and could further adversely affect the
Company's future operating results.
Competition. The semiconductor industry is intensely competitive and has been
characterized by price erosion, rapid technological change and product
obsolescence. The Company competes with major domestic and international
semiconductor companies, many of whom have substantially greater financial,
technical, marketing, distribution and other resources than the Company. The
Company's future success will depend, in large part, upon its ability to attract
and retain highly qualified employees. The can be no assurance that the Company
will be able to compete successfully in the future.
The Company's more mature products, such as Serial and Parallel EEPROM
devices, compete on the basis of product performance, price and customer
service. The Company believes it competes successfully with respect to each of
these competitive attributes. Price competition is significant and expected to
continue. Principal competitors with respect to the Company's EEPROM products
currently include SGS-Thomson, National Semiconductor, Atmel and Xicor, as well
as the Company's strategic manufacturing partner Oki, all of which have
substantially greater resources than the Company.
The market for Flash memory products is relatively new and has been
characterized by long production cycles, irregular yields, competing
technologies and, particularly since the first quarter of fiscal 1997, intense
price competition. The Company believes it currently competes successfully with
respect to product performance, price and customer service on its Flash memory
products. In fact, the Company guarantees that all of its Flash memory products
will provide 100,000 cycle read/write cycle endurance. However, there can be no
assurance that the Company will be able to compete successfully in the future
against its competitors on the bases of these or other competitive factors.
Semiconductor Industry. The semiconductor industry is highly cyclical and has
been subject to significant economic downturns at various times, characterized
by diminished product demand, accelerated erosion of average selling prices and
production overcapacity. Accordingly, the Company may experience substantial
period to period fluctuations in future operating results due to general
semiconductor industry conditions, overall economic conditions or other factors.
For example, the Company experienced accelerated erosion of average selling
prices caused by adverse industry-wide conditions in fiscal 1997 and fiscal
1998.
Dependence on Proprietary Technology; Risk of Intellectual Property
Litigation. In the semiconductor industry companies place extensive reliance
upon their intellectual property and proprietary technology and it is typical
for companies to receive notices from time to time that allege infringement of
patents or other intellectual property rights of others. There can be no
assurance that the Company will not receive any such notification or that
proceedings alleging infringement of intellectual property rights will not be
commenced against the Company in the future. In such event, there can be no
assurances that the Company could obtain any required licenses of third party
intellectual property rights or could obtain such licenses on commercially
reasonable terms. Failure to obtain such a license in any event could require
the Company to cease production of its products until the Company develops a
non-infringing design or process. Moreover, the cost of litigation of any such
claim or damages resulting therefore could be substantial and could materially
and adversely affect the Company's business, financial condition and results of
operations.
11
<PAGE> 12
CATALYST SEMICONDUCTOR, INC.
Dependence upon Key Personnel. The Company's ability to operate successfully
will depend, to a large extent, upon the continued service of certain key
employees, and the continued ability to attract and retain additional highly
qualified personnel. Competition for such personnel, particularly for highly
skilled design, process and test engineers, is intense and there can be no
assurance that the Company can retain such personnel or that it can attract
other highly qualified personnel. The loss of or failure to attract and retain
any such highly qualified personnel could have a material adverse affect on the
Company's business, financial condition and results of operations.
Takeover Resistive Measures. The Company's Stockholder Rights Plan, which
provides stockholders with certain rights to acquire shares of Common Stock in
the event of a third party acquires more than 15% of the Company's stock, the
Board's ability to issue "blank check" Preferred Stock without stockholder
approval and the Company's staggered terms for its directors, could have the
effect of delaying or preventing a change in control of the Company.
Volatility of Stock Price. The Company's stock price has been and may continue
to be subject to significant volatility. Any shortfall in revenues or earnings
from levels expected or projected by securities analysts or others could have an
immediate and significant adverse effect on the trading price of the Company's
Common Stock in any given period. In addition, the stock market in general has
experienced extreme price and volume fluctuations particularly affecting the
market prices for many high technology companies and small capitalization
companies, and these fluctuations have often been unrelated to the operating
performance of the specific companies. These broad fluctuations may adversely
affect the market price for the Company's Common Stock.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
There were no reports on Form 8-K filed during the quarter ended
October 31, 1997.
12
<PAGE> 13
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: December 16, 1997 By: /s/ C. Michael Powell
----------------- -----------------------
C. Michael Powell
Chairman of the Board of Directors, President
and Chief Executive Officer
Date: December 16, 1997 By: /s/ Daryl E. Stemm
----------------- --------------------
Daryl E. Stemm
Vice President of Finance and Administration
and Chief Financial Officer
13
<PAGE> 14
Exhibit Index
Exhibit Description
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS AS OF OCTOBER 31 AND APRIL 30, 1997, STATEMENTS OF OPERATIONS AND
STATMENTS OF CASH FLOWS FOR THE THREE AND SIX MONTH PERIODS ENDED OCTOBER 31,
1997 AND 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS 6-MOS 6-MOS
<FISCAL-YEAR-END> MAR-30-1998 MAR-30-1997 MAR-30-1998 MAR-30-1997
<PERIOD-START> AUG-01-1997 AUG-01-1996 MAY-01-1997 MAY-01-1997
<PERIOD-END> OCT-31-1997 OCT-31-1996 OCT-31-1997 OCT-31-1996
<CASH> 1 1 1 1
<SECURITIES> 6,635 6,635 7,945 7,945
<RECEIVABLES> 7,907 7,907 7,199 7,199
<ALLOWANCES> 135 135 125 125
<INVENTORY> 10,900 10,900 12,732 12,732
<CURRENT-ASSETS> 26,516 26,516 28,646 28,646
<PP&E> 13,616 13,616 13,939 13,939
<DEPRECIATION> (9,466) (9,466) (10,032) (10,032)
<TOTAL-ASSETS> 30,666 30,666 32,553 32,553
<CURRENT-LIABILITIES> 17,908 17,908 16,631 16,631
<BONDS> 549 549 1,885 1,885
0 0 0 0
0 0 0 0
<COMMON> 42,729 42,729 41,829 41,829
<OTHER-SE> (30,519) (30,519) (27,792) (27,792)
<TOTAL-LIABILITY-AND-EQUITY> 30,666 30,666 32,553 32,553
<SALES> 10,175 12,078 19,723 27,910
<TOTAL-REVENUES> 10,175 12,078 19,723 27,910
<CGS> 9,021 10,138 16,194 21,259
<TOTAL-COSTS> 9,021 10,138 16,194 21,259
<OTHER-EXPENSES> 2,899 4,401 5,871 7,935
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 203 (5) 388 (33)
<INCOME-PRETAX> (1,948) (2,488) (2,730) (1,329)
<INCOME-TAX> 0 32 0 78
<INCOME-CONTINUING> (1,948) (2,488) (2,730) (1,329)
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> (1,948) (2,488) (2,730) (1,329)
<EPS-PRIMARY> (0.24) (0.31) (0.34) (0.17)
<EPS-DILUTED> (0.24) (0.31) (0.34) (0.17)
</TABLE>
