899636--7/31/2006--CATALYST_SEMICONDUCTOR

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Risks related to our Business Our quarterly operating results may fluctuate due to many factors and are difficult to forecast, which may cause the trading price of our common stock to decline substantially. We may never realize a material portion of our net revenues from our analog/mixed-signal products, despite our expenditure of a disproportionate amount of our research and development and marketing resources on these products. We have in the past been unable and in the future we may be unable to obtain sufficient quantities of wafers from our current foundry suppliers to fulfill customer demand. We are now required to expense share-based payments to our employees, and our financial statements will have a significant material adverse charge. We depend on a small number of suppliers for our supply of wafers and we may be unable to meet customer demand due to our inability to obtain wafers. We may forecast incorrectly and produce excess or insufficient inventories of particular products, which may adversely affect our results of operations. We may be unable to fulfill all our customers orders according to the schedule originally requested due to the constraints in our wafer supply and processing time from die bank to finished goods, which could result in reduced revenues or higher expenses. We rely on distributors and resellers for a substantial portion of our net revenues and if our relationships with one or more of those distributors or resellers were to terminate, our operating results may be harmed. We face risks from failures in our manufacturing processes and the processes of our foundries and vendors. We rely on third party subcontractors to sort, assemble, test and ship our products to customers, which reduces our control over quality, delivery schedules and capacity. While we believe that we currently have adequate internal control over financial reporting, we are exposed to risks from recent legislation requiring companies to evaluate internal control over financial reporting and cannot be certain that our internal control over financial reporting will be effective or sufficient in the future. We expect to relocate our principal executive offices in August 2006, and the transition of our principal executive offices may cause delays that may harm our future operating results International sales comprise a significant portion of our product sales, which exposes us to foreign political and economic risks. We may face increased management costs and other risks due to the establishment of our product development group in Romania. 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 low-density flash memory products may become obsolete. Risks Related to Our Industry and Competition Competition in our markets may lead to reduced average selling prices of our products, reduced sales of our products or gross margins. The semiconductor industry is highly cyclical in nature, which may cause our operating results to fluctuate. If our products fail to keep pace with the rapid changes in the semiconductor industry, we could lose customers and revenues. Risks Related to Our Intellectual Property Our business may be harmed if we fail to protect our proprietary technology. Our ability to produce our products may suffer if someone claims we infringe on their intellectual property. We may be subject to damages resulting from claims that we have wrongfully used the alleged trade secrets of our employees former employers. We may not be able to expand our proprietary technology if we do not acquire rights to use key technologies, consummate potential acquisitions or investments or successfully integrate them with our business. Risks Related to Our Stock Our stock is subject to substantial price and volume fluctuations due to a number of factors, many of which are beyond our control, and those fluctuations may prevent our stockholders from reselling our common stock at a profit. Our charter documents, Delaware law and our stockholder rights plan contain provisions that may inhibit potential acquisition bids, which may adversely affect the market price of our common stock, discourage merger offers or prevent changes in our management. We may be the subject of securities class action litigation due to future stock price volatility.

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899636--7/31/2006--CATALYST_SEMICONDUCTOR_INC