SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                               -------------------
                                    FORM 10-K

 (MARK ONE)

[ x ] Annual report  pursuant to section 13 or 15(d) of the securities  exchange
act of 1934 For the fiscal year ended APRIL 3, 1999, 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:  0-22594

                       ALLIANCE SEMICONDUCTOR CORPORATION
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                DELAWARE                                     77-0057842
    (STATE OR OTHER JURISDICTION OF              (I.R.S. EMPLOYER IDENTIFICATION
     INCORPORATION OR ORGANIZATION)                           NUMBER)

                             3099 NORTH FIRST STREET

                         SAN JOSE, CALIFORNIA 95134-2006

                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

      Registrant's telephone number, including area code is (408) 383-4900

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

        Securities registered pursuant to Section 12(b) of the Act: NONE
           Securities registered pursuant to Section 12(g) of the Act:

          TITLE OF EACH CLASS                     NAME OF EACH EXCHANGE ON WHICH
     Common Stock, par value $0.01                           REGISTERED
                                                               NASDAQ

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  Exchange  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 ____

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ____

Indicate  by check mark  whether  the  registrant  has filed all  documents  and
reports  required  to be filed under  Section 12, 13 or 15(d) of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by the court.
Yes   X   No ____

As of June 18, 1999, there were 41,608,582  shares of Registrant's  Common Stock
outstanding.   The   aggregate   market  value  of  the  voting  stock  held  by
non-affiliates  of the registrant on June 18, 1999, based upon the closing price
of  the  Common  Stock  on  the  NASDAQ  National  Market  for  such  date,  was
approximately $383,631,000.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of Registrant's  definitive Proxy Statement for its 1999 Annual Meeting
of  Stockholders  ("Proxy  Statement") to be filed pursuant to Regulation 14A of
the Securities  and Exchange  Commission  under the  Securities  Exchange Act of
1934, as amended, which is anticipated to be filed within 120 days after the end
of Registrant's  fiscal year ended April 3, 1999, are  incorporated by reference
into Part III hereof.

                               - 1 -                    Exhibit Index on page 32
<PAGE>

================================================================================
PART I

FORWARD LOOKING STATEMENTS

When  used  in this  report,  the  words  "expects,"  anticipates,"  "believes,"
"estimates"  and similar  expressions  are intended to identify  forward-looking
statements  within the meaning of Section 27A of the  Securities Act of 1933, as
amended,  and Section 21E of the  Securities  Exchange Act of 1934,  as amended.
Such forward-looking statements,  which include statements concerning the timing
of new product  introductions;  the  functionality  and availability of products
under   development;    trends   in   the   personal    computer,    networking,
telecommunications and instrumentation markets, in particular as they may affect
demand for or pricing of the Company's products;  the percentage of export sales
and sales to strategic customers; the percentage of revenue by product line; and
the availability and cost of products from the Company's suppliers;  are subject
to risks and  uncertainties.  These risks and  uncertainties  include  those set
forth in Item 1 of Part I hereof (entitled  "Business") and in Item 7 of Part II
hereof (entitled "Factors That May Affect Future Results") and elsewhere in this
Report. These risks and uncertainties,  or the occurrence of other events, could
cause  actual  results  to  differ   materially  from  those  projected  in  the
forward-looking  statements.  These forward-looking  statements speak only as of
the date of this Report.  The Company  expressly  disclaims  any  obligation  or
undertaking to release publicly any updates or revisions to any  forward-looking
statements contained herein to reflect any change in the Company's  expectations
with  regard  thereto  or  to  reflect  any  change  in  events,  conditions  or
circumstances on which any such forward-looking  statement is based, in whole or
in part.

ITEM 1
BUSINESS

OVERVIEW

Alliance Semiconductor Corporation was incorporated in California on February 4,
1985 and  reincorporated  in Delaware on October  26,  1993.  Unless the context
indicates  otherwise,  the terms  "Alliance" and the "Company" refer to Alliance
Semiconductor Corporation,  a Delaware corporation,  and its direct and indirect
subsidiaries.  The Company designs, develops and markets high performance memory
and memory  intensive  logic  products  to the  personal  computer,  networking,
telecommunications  and  instrumentation  industries.  Market trends such as the
proliferation of high-end  personal  computers and workstations and an increased
emphasis  on  high-throughput  applications,   including  networking,  graphics,
multimedia and telecommunications  products, have created opportunities for high
performance memory products.  The Company addresses these opportunities with its
families of static random access  memories  ("SRAMs") and dynamic  random access
memories  ("DRAMs"),  characterized  by high storage  capacity  (density),  fast
access times and low power  consumption.  Additionally,  the Company  produces a
family of single power supply flash memory products,  for  applications  such as
personal  computer  BIOS  storage and cellular  phones.  The Company is actively
pursuing a variety of  opportunities  to leverage its competencies in memory and
memory-intensive logic design to create a range of embedded-memory products that
combine  logic and memory on a single chip.  The Company has recently  announced
its intention to enter the networking semiconductor market.

The  semiconductor   industry  is  highly  cyclical  and  has  been  subject  to
significant   downturns  at  various  times  that  have  been  characterized  by
diminished product demand,  production overcapacity,  and accelerated erosion of
selling  prices.  During  much of fiscal  1999 the  market  for  certain  of the
Company's DRAM devices  continued to experience excess supply relative to demand
which  resulted  in a  significant  downward  trend in average  selling  prices.
Pricing pressure also resulted in significant declines in average selling prices
during fiscal 1999 for many of the Company's SRAM,  flash and graphics  products
(the Company  exited the  graphics  products  market at the  beginning of fiscal
1999).  Although  the  Company  is unable to  predict  future  trends in average
selling  prices,   historically  the  semiconductor   industry  has  experienced
significant annual declines in average selling prices.

The average  selling  price that the Company is able to command for its products
is highly dependent on industry-wide  production  capacity and demand,  and as a
consequence  the Company could  experience (as it did throughout  much of fiscal
1998 and continuing  into fiscal 1999) rapid erosion in product pricing which is
not within the control of the  Company and which could have an adverse  material
effect on the Company's operating results.

                                      -2-
<PAGE>

Throughout  this report,  the Company  often has  indicated  its fiscal years as
ending on March 31,  whereas  the  Company's  fiscal  year ends on the  Saturday
nearest the end of March.  The fiscal year ended  March 31,  1999  contained  53
weeks.  The fiscal years ended March 31, 1998 and March 31, 1997 each  contained
52 weeks.

INDUSTRY BACKGROUND

Traditionally,  the  markets  for SRAMs and DRAMs have been  dominated  by large
manufacturing  companies,  such as Toshiba, NEC, Hitachi,  Texas Instruments and
Samsung.  The  majority  of the memory  products  from these  manufacturers  has
consisted of commodity products,  which have relatively predictable,  multi-year
product  life  cycles and thus  require  more focus on  process  technology  and
production cost and less on design. In recent years,  certain  technology trends
dramatically  increased  the  performance  requirements  for  SRAMs  and  DRAMs,
creating  new  design   challenges   and  market   opportunities   for  emerging
semiconductor  companies.  The proliferation of more powerful personal computers
and workstations in recent years and the increasing  emphasis on high-throughput
networking,  graphics,  multimedia and telecommunications  products have created
mass market opportunities for high speed SRAMs and high speed DRAMs.

The  emergence  of  graphical  user  interface  ("GUI")  environments  (such  as
Microsoft(R)  Windows(R)) and multimedia applications for personal computers has
placed an additional burden on  microprocessors  to manipulate  windows,  icons,
video and other complex graphical objects.  This burden on  microprocessors  and
the  resulting  decrease  in the speed  with  which  software  applications  are
executed  have created a need for a companion  processor  (a "GUI  accelerator")
that  off-loads  from  the main  processor  the  management  of GUI  tasks.  GUI
acceleration has become a fundamental  requirement for high performance personal
computers.  The  emergence of  multimedia  applications  has driven the need for
higher  performance  multimedia  user  interface  accelerators  that can provide
acceleration of 2D/3D graphics and video.  Both GUI and MMUI  (multi-media  user
interface) accelerators require fast DRAMs or SGRAMs (synchronous graphic random
access  memories) to store screen content that is used frequently to refresh the
display.  SRAMs  and DRAMs are forms of  "volatile"  memory,  meaning  that such
devices retain their memory only when connected to a power supply.  In contrast,
flash memory is a form of "non-volatile"  memory,  which retains its memory even
when the power supply is turned off.  The demand for flash memory has  increased
in recent  years.  In addition to being a preferred  method of storing the basic
input/output  system ("BIOS") for computers,  a variety of applications make use
of flash memory (for  instance,  cellular  phone  handsets  often allow users to
"store"  frequently-dialed numbers in flash memory; such memory is retained when
the handset power is turned off).

Embedded-memory applications are growing rapidly, as manufacturers of items from
cell phones to toasters are  introducing  "smart"  machines that use  integrated
circuits to improve performance. Embedding memory and logic on a single chip may
produce significant advantages in size and speed.

TECHNOLOGY

The Company has focused on using  innovative  design  techniques to develop high
performance  SRAMs  and  DRAMs  that can be  manufactured  using a  simple  CMOS
manufacturing process. The Company combines both SRAM and DRAM design approaches
in  creating  its  SRAM and DRAM  products,  and  believes  that  merging  these
techniques  enables  it to  design  SRAMs  that  feature  some  of  the  density
attributes  of  DRAMs  and to  design  DRAMs  that  feature  some  of the  speed
attributes of SRAMs.  Since its inception in 1985,  the Company has  accumulated
substantial experience in designing SRAM and DRAM products.

The Company  believes  that the die sizes (the  physical  sizes of its complete,
unpackaged,  memory  circuits) of many of its products are smaller than those of
competing  products,  providing  the Company with a key  competitive  advantage.
Because  yields  increase  significantly  as die  size  decreases,  the  Company
believes that its small die sizes have been a major contributor to its generally
high manufacturing  yields.  Small die sizes also generally result in additional
benefits, such as lower die cost, increased speed, greater reliability and lower
power consumption.

In  addition  to having  small die sizes,  many of the  Company's  products  are
designed to be manufactured  using a CMOS process with fewer steps than required
for  competitive  memory  products.  The Company's  competitors

                                      -3-
<PAGE>

often require a greater  number of mask steps and/or more complex  manufacturing
processes  to achieve  similar  performance  of such  products.  Because  yields
typically  decline as  manufacturing  complexity and the number of process steps
increase,  the  simpler  manufacturing  process  utilized  by  the  Company  has
contributed  to its  generally  high  manufacturing  yields.  The  Company  also
believes that a simpler manufacturing process leads to faster time to market and
shorter manufacturing cycle times.

The  Company's  development  strategy  is to  leverage  its  proprietary  design
modules,  which have been created using its design philosophies.  These modules,
which are scaleable in size,  can be used by the Company as building  blocks for
new products, resulting in shorter design cycles. The Company believes that this
design  strategy  also  enables it to maximize the  performance,  yield and cost
advantages  of its basic  designs  and  sustain  them  over  time in  successive
generations of higher performance and higher density products.

PRODUCTS

HIGH SPEED CMOS SRAMS

Sales of the Company's  SRAM products  accounted  for  substantially  all of the
Company's net revenues from April 1, 1992 through the early part of fiscal 1997.
During fiscal 1999, 1998 and 1997, SRAM products, contributed approximately 58%,
27% and 41%  respectively of the Company's net revenues.  The Company  currently
offers SRAM products in several different packages and speed grades ranging from
64-Kbit  densities  with 8ns access times to 4-Mbit  densities  with 15ns access
times. Currently,  the Company's volume SRAM products are manufactured using 0.5
to 0.3 micron  technology,  with  development  for a  transition  to 0.25 micron
technology underway.

HIGH SPEED CMOS DRAMS

During  fiscal  1998,  the Company  commenced  volume  production  of 4-Mbit and
16-Mbit  DRAM  products  in  256Kbit  x  16  and  1Mbit  x  16   configurations,
respectively.  Sales of the  Company's  family of DRAM  products  experienced  a
decline during fiscal 1999, contributing  approximately 40% of the fiscal year's
net  revenues,  as compared to  approximately  66% and 47% of the  Company's net
revenues in fiscal 1998 and1997, respectively.

MMUI ACCELERATORS

During  fiscal  1998,  the Company  further  expanded  its  offering of graphics
accelerator products, and introduced an embedded DRAM 2D/3D graphics controller.
Sales  of  MMUI  accelerator  products  accounted  for  approximately  1% of the
Company's net revenues during fiscal 1999 as compared to approximately 7% of the
Company's net revenues in fiscal 1998.  In July,  1998,  the Company  determined
that it should exit the graphics accelerator business, and announced a workforce
reduction of approximately 45 full-time positions,  including  substantially all
of the Company's graphics personnel.

HIGH SPEED CMOS FLASH MEMORIES

During  fiscal 1998,  the Company  extended  its  offering of 5 volt-only  flash
memory  products  (which  use a  single,  5 volt,  power  supply  for  read  and
programming  functions)  and now offers 5 volt-only  products in densities up to
8-Mbit,  with access times as fast as 55ns. To date, the Company has not derived
significant revenue from flash memory products.

NETWORK HARDWARE ACCELERATORS

The Company has  announced  that it expects to introduce the first product of an
Internet Protocol Routing Processor ("IPRP") family that leverages the Company's
logic and embedded memory technology,  to enable hardware accelerated wire speed
routing of IP packets, in multi-ported  Gigabit and Terabit routers.  These IPRP
devices  should become  integral  components in mission  critical and multimedia
enhanced high-end routers, which are being deployed to build the next generation
Internet  infrastructure.  The  Company  achieved  working  silicon of the first
product of IPRP family during the quarter ended April 3, 1999.

                                      -4-
<PAGE>

PRODUCT DEVELOPMENT

Timely development and introduction of new products are essential to maintaining
the Company's  competitive  position.  The Company currently develops all of its
products  in-house and had on staff 60  development  personnel (30 in the United
States  and  30  in  India)  as  of  April  4,   1999.   The   Company   uses  a
workstation-based  computer-aided design environment to design and prototype new
products. The Company's design process uses network computing, high-level design
methodologies,  simulators, circuit synthesizers and other related tools. During
fiscal 1999, fiscal 1998 and fiscal 1997, the Company spent  approximately $14.1
million,  $15.3 million, and $15.0 million respectively,  on product development
activities.  The  Company  plans to continue  to invest  substantial  amounts in
development to design additional products.

The markets for the Company's products are characterized by rapid  technological
change,  evolving  industry  standards and product  obsolescence.  The Company's
future  success  will  be  highly  dependent  upon  the  timely  completion  and
introduction of new products at competitive  performance  levels. The success of
new  products  depends on a variety of  factors,  including  product  selection,
successful and timely completion of product  development,  the Company's ability
to secure  sufficient  foundry  capacity  for  volume  manufacturing  of wafers,
achievement of acceptable wafer  fabrication  yields (the proportion of good die
on a silicon  wafer) by the  Company's  independent  foundries and the Company's
ability to offer products at competitive prices.  There can be no assurance that
the Company  will be able to identify  new product  opportunities  successfully,
develop  and bring to market such new  products  in a timely and cost  effective
manner,  or  that  the  Company  will  be able  to  respond  effectively  to new
technological  changes or new product announcements by others. There also can be
no  assurance  that the Company can secure  adequate  foundry  capacity  for the
production of such products, or obtain acceptable manufacturing yields necessary
to enable the Company to offer  products at  competitive  prices.  Additionally,
there can be no  assurance  that the  Company's  products  will gain or maintain
market  acceptance.  Such inabilities  could materially and adversely affect the
Company's operating results.

The markets for SRAMs, DRAMs, and flash memory products are volatile and subject
to rapid  technological  and price  change.  Any inventory of products for those
markets may be subject to obsolescence and price erosion, which could materially
and adversely affect the Company's  operating  results.  During fiscal 1999, the
Company  incurred  pre-tax charges of  approximately  $20 million,  primarily to
adjust the  valuation of the Company's  inventory to reflect  declines in market
value.

CUSTOMERS

The Company's primary  customers are major domestic and international  suppliers
and manufacturers of personal computers and personal computer  peripheral system
boards  including IBM, Pony & Goldenway and EDO Micro.  The market for DRAMs and
SRAMs used in personal  computers is  characterized  by price volatility and has
experienced significant  fluctuations and downturns in product demand. Moreover,
with respect to SRAMs,  the Company  derived less than 10% of its net revenue in
fiscal 1999 from the sale of SRAMs for  personal  computer  cache  applications.
Intel has introduced the Pentium II card containing a  microprocessor  and cache
memory  (SRAM) on the card,  and the Company has not to date been  selected as a
supplier  of SRAM  memory  to Intel  for the  Pentium  II card.  There can be no
assurance  that the Company  will be selected by Intel to supply SRAM memory for
the Pentium II card in the future.  If Intel  continues to assemble cache memory
onto the Pentium II card (or  successors  thereto)  prior to sale to  customers,
then failure by the Company to be chosen to supply SRAM to Intel for the Pentium
II card (or  successors  thereto)  would likely  materially  limit the Company's
sales of SRAMs to the personal computer market.

While the Company's strategy is to increase its penetration into the networking,
telecommunications and instrumentation markets with its existing SRAM, DRAM, and
Flash Memory products and to develop new products  complementary to its existing
products,  the Company may not be  successful  in  executing  such  strategy.  A
decline  in demand in the  personal  computer  industry  or lack of  success  in
developing new markets or new products  could have a material  adverse effect on
the Company's operating results.

Because a large  percentage  of the worldwide  supply of personal  computers and
personal  computer system boards is manufactured by suppliers located in Asia, a
substantial  percentage  of the  Company's  net  revenues are derived from Asian
companies.  During the fiscal years ended March 31, 1999, 1998 and 1997 sales to
customers in Asia

                                      -5-
<PAGE>

accounted  for  approximately  32%,  30%, and 28% of the Company's net revenues,
respectively.  Continued weakness of the Asian economies -- a risk heightened by
the recent  financial and currency  crisis in many Asian countries -- may have a
material adverse impact on the Company.

The  Company  is  also  selling  SRAMs  to  networking,  telecommunications  and
instrumentation  customers  including 3Com, Lucent Technologies Inc., IBM, Sony,
Newbridge  Networks and Bay  Networks.  The Company  believes  that if its sales
penetration into these markets  increases,  its customer base will diversify not
only by product application but also  geographically.  There can be no assurance
that such  sales  penetration  into these  markets  will in fact  increase.  The
Company also,  as a result of an  antidumping  proceeding  commenced in February
1997,  must  pay a cash  deposit  equal to  50.15%  of the  value  of any  SRAMs
manufactured  (wafer  fabrication) in Taiwan, in order to import such goods into
the U.S.  Although the Company may be refunded such deposits (see Item 3 - Legal
Proceedings, below), the deposit requirement, and the potential that all entries
of  Taiwan-fabricated  SRAMs during the period October 1, 1997 through March 31,
1999 will be  liquidated  at the bond rate or deposit rate in effect at the time
of entry, may materially  adversely affect the Company's  ability to sell Taiwan
manufactured  (wafer  fabrication)  SRAMs  in the  United  States.  The  Company
manufactures  (wafer fabrication) SRAMs in Singapore (and has manufactured SRAMs
in Japan as  well),  and may be able to  support  its U.S.  customers  with such
products,  which  are  not  subject  to  antidumping  duties.  There  can  be no
assurance, however, that the Company will be able to do so.

Sales to the  Company's  customers  are  typically  made  pursuant  to  specific
purchase  orders,  which may be canceled  by the  customer  without  enforceable
penalties. For the fiscal year ended March 31, 1999, two customers accounted for
approximately  15% and 13% of the Company's  net  revenues.  For the fiscal year
ended March 31,  1998,  one  customer  accounted  for  approximately  18% of the
Company's  net  revenues.  For the fiscal year ended March 31, 1997, no customer
accounted for 10% or more of the Company's net revenues.  See Note 1 of Notes to
Consolidated Financial Statements.

SALES AND MARKETING

The Company  markets and  distributes  its products in North  America  through a
direct  sales  organization  supported  by  manufacturers'  representatives  and
distributors.   The   Company   uses   manufacturers'   representatives   and/or
distributors to make sales in Europe, Asia and the rest of the world.

The Company uses  manufacturers'  representatives  and  distributors who are not
subject to minimum purchase  requirements and who can discontinue  marketing the
Company's products at any time. Many of the Company's distributors are permitted
to return to the Company a portion of the products  purchased by them.  The loss
of one or more  manufacturers'  representatives  or  distributors  could  have a
material adverse effect on the Company's operating results. The Company believes
that its relations  with its  manufacturers'  representatives  and  distributors
generally are good.

The Company believes that customer  service and technical  support are important
competitive  factors  in  selling  to  major  customers.  The  Company  provides
technical support to its customers  worldwide.  Distributors and  manufacturers'
representatives   supplement  the  Company's  efforts  by  providing  additional
customer  service at a local  level.  The Company  also works  closely  with its
customers in  qualification of its products and providing the needed quality and
reliability data. The Company believes that close contact with its customers not
only improves the customers' level of satisfaction  but also provides  important
insights into future market directions.

International revenues accounted for 50%, 41%, and 36% of net revenues in fiscal
1999, fiscal 1998 and fiscal 1997,  respectively.  The majority of the Company's
international revenues in fiscal years 1996 through 1999 were derived from Asian
manufacturers of personal computers and personal computer system boards, because
a large  percentage  of the  worldwide  supply  of these  products  has been and
continues to be manufactured  by suppliers  located in Asia. The Company expects
that international sales will continue to represent a significant portion of net
revenues.  In addition,  the Company's products are manufactured,  assembled and
tested by independent  third parties  primarily located in Asia, and the Company
has in the past  and  intends  in the  future  to make  investments  in  certain
foundries  in  Asia  in  order  to  secure  production  capacity.   Due  to  its
international  sales and  independent  third party  manufacturing,  assembly and
testing  operations,  the Company is subject to the risks of conducting business
internationally.   These  risks   include   unexpected   changes  in  regulatory
requirements,  delay resulting from

                                      -6-
<PAGE>

difficulty in obtaining export licenses of certain technology, tariffs and other
barriers  and  restrictions,  and the  burdens  of  complying  with a variety of
foreign  laws.  The  Company is also  subject to general  geopolitical  risks in
connection  with its  international  operations,  such as political and economic
instability  and changes in  diplomatic  and trade  relationships.  In addition,
because the Company's  international  sales  generally are  denominated  in U.S.
dollars,  fluctuations  in the U.S.  dollar  could  increase  the price in local
currencies of the Company's  products in foreign  markets and make the Company's
products   relatively  more  expensive  than  competitors'   products  that  are
denominated in local  currencies.  The recent  financial and economic  crisis in
Asia may have  heightened  all of the foregoing  risks (for  instance,  the U.S.
dollar was significantly stronger at the end of fiscal 1998 vis-a-vis many Asian
currencies  than at the beginning of fiscal 1998).  Although the Company to date
has not experienced any material adverse effect on its operations as a result of
such regulatory,  geopolitical and other factors, there can be no assurance that
such factors will not adversely impact the Company's operations in the future or
require the Company to modify its current business practices.

MANUFACTURING

The Company  subcontracts  its  manufacturing  to independent  foundries,  which
allows the Company to avoid the  significant  capital  investment  required  for
wafer fabrication facilities.  The Company, however, has entered into agreements
providing for the investment of significant  sums for the formation of companies
to build and operate manufacturing  facilities or to obtain guaranteed capacity,
as described  below.  As a result,  the Company focuses its resources on product
design and  development,  quality  assurance,  marketing and sales, and customer
support.  The Company designs its products using proprietary circuit modules and
standard fabrication processes in order to operate within the process parameters
of its contract manufacturers.

The Company's major foundries are United Microelectronics Corporation ("UMC") in
Taiwan, United Semiconductor Corporation ("USC") in Taiwan, United Silicon, Inc.
("USIC") in Taiwan, Chartered Semiconductor  Manufacturing Ltd. ("Chartered") in
Singapore  and Rohm Co.,  Ltd.  ("Rohm") in Japan.  The Company has entered into
foundry  production  agreements  with all of its major  foundries.  Although the
Company   believes  it  currently  has  adequate   capacity  to  address  market
requirements, there can be no assurance that in the future the Company's current
foundries,  together with any  additional  sources,  would be willing or able to
satisfy all of the Company's  requirements  on a timely  basis.  The Company has
encountered  delays in the qualification  process and production  ramp-up in the
past, and  qualification  of or production  ramp-up at any additional  foundries
could take  longer  than  anticipated.  The  Company  has  entered  into  equity
arrangements in order to obtain an adequate supply of wafers,  especially wafers
manufactured using advanced process  technologies.  The Company will continue to
consider  various  possible  transactions,  including  but not limited to equity
investments  in  independent  wafer  manufacturers  in exchange  for  guaranteed
production;  the  formation  with  others of new  companies  to own and  operate
foundries;  the usage of "take or pay"  contracts  that  commit  the  Company to
purchase specified quantities of wafers over extended periods; and the licensing
of certain of the Company's  designs,  in order to obtain an adequate  supply of
wafers using advanced process technologies.  There can be no assurance, however,
that the Company would be able to consummate  any such  transaction  in a timely
manner, or at all, or on terms commercially acceptable to the Company.

In  February  1995,  the  Company  agreed to purchase  shares of  Chartered  for
approximately  US$10 million and entered into a  manufacturing  agreement  under
which  Chartered  will provide a minimum  number of wafers from its 8-inch wafer
fabrication  facility  known as "Fab2." In April  1995,  the  Company  agreed to
purchase additional shares in Chartered, bringing the total agreed investment in
Chartered to  approximately  US$51.6 million and Chartered  agreed to provide an
increased  minimum  number of wafers to be provided by Chartered  from Fab2. The
Company has paid all  installments  to  Chartered.  Currently,  the Company owns
approximately  2.14% of the  outstanding  shares of  Chartered.  Chartered  is a
private  company based in Singapore  that is  controlled by entities  affiliated
with the Singapore government. The Company does not own a material percentage of
the  equity  of  Chartered.   Chartered  has  also   received   investments   of
approximately  US$10  million to US$20  million  from a number of United  States
companies,  including  Actel  Corporation,   Brooktree  Corporation,  LSI  Logic
Corporation  and Rockwell  International  Corporation,  in return for guaranteed
minimum  numbers of wafers from Fab2.  Chartered  also announced in January 1998
that it had entered into an agreement with Lucent  Technologies Inc. to create a
foundry  venture,  Silicon  Manufacturing  Partners Pte.  Ltd., and announced in
April 1997 that it had entered into an  agreement  with  Hewlett-Packard  Co. to
create a foundry venture, Chartered Silicon Partners Pte. Ltd.

                                      -7-
<PAGE>

In July 1995, the Company entered into an agreement with UMC and S3 Incorporated
("S3") to form a separate  Taiwanese  company,  USC, for the purpose of building
and  managing an 8-inch  semiconductor  manufacturing  facility  in Taiwan.  The
facility  is in full  production  utilizing  advanced  sub-micron  semiconductor
manufacturing  processes.  Alliance's initial  contribution of approximately $70
million was paid in three  installments  between  September  1995 and July 1997,
representing an initial equity ownership of approximately  19.0%. In April 1998,
the Company sold 3.5% of the  outstanding  shares of USC, for gross  proceeds of
approximately $32 million and the right to receive  contingent  payment of up to
approximately 665 million New Taiwan Dollars  (approximately US $20.4 million at
the exchange rate prevailing on June 7, 1999,  which rate is subject to material
change).  As a result of that sale, the Company owned approximately 15.5% of the
outstanding  shares of USC. In October 1998, USC issued 46 million shares to the
Company  by way of  dividend  distribution  as well as  distributions  to  other
entities.  As a result of these  distributions,  the Company owned approximately
15.1% of the outstanding  shares. In April 1999, USC issued 46 million shares to
the Company by way of dividend  distribution as well as  distributions  to other
entities.  As a result of these  distributions,  the Company owned approximately
14.8% of the outstanding shares. To the extent USC experiences  operating income
or losses,  and the  Company  maintains  its  current  ownership  percentage  of
outstanding  shares, the Company will recognize its proportionate  share of such
income or  losses.  Throughout  fiscal  1999,  the  Company  reported  income of
approximately  $10.9 million  related to its share of USC's income.  The Company
believes  that a number of  manufacturers  are  expanding  or planning to expand
their  fabrication  capacity  over the next several  years,  which could lead to
overcapacity in the market and resulting  decreases in costs of finished wafers.
If the wafers  produced by USC cannot be produced at competitive  prices,  or if
there is not  sufficient  demand of USC's wafers,  USC could  sustain  operating
losses.  There can be no assurance  that such  operating  losses will not have a
material adverse effect on the Company's results of operations.

In October  1995,  the  Company  entered  into an  agreement  with UMC and other
parties to form a separate Taiwanese company,  United Silicon Inc. ("USIC"), for
the  purpose of building  and  managing  an 8-inch  semiconductor  manufacturing
facility in Taiwan.  The  facility has  commenced  volume  production  utilizing
advanced sub-micron semiconductor  manufacturing processes. The contributions of
the  Company  and  other  parties  shall be in the form of  equity  investments,
representing an initial  ownership  interest of  approximately 5% for each US$30
million  invested.  The Company had  originally  committed to an  investment  of
approximately US$60 million or 10% ownership interest but subsequently requested
that its level of  participation  be reduced by 50%.  The first  installment  of
approximately  50% of the revised  investment,  or US$13.7 million,  was made in
January  1996.  The Company had but did not  exercise the option to pay a second
installment of approximately 25% of the revised  investment  payable in December
1997. The Company made a third installment  payment of approximately 106 million
NTD, or approximately US$3.1 million in July, 1998. Currently,  the Company owns
approximately  3.21% of the  outstanding  shares  of USIC  and has the  right to
purchase approximately 3.7% of the manufacturing capacity of the facility.

In June 1999,  UMC  announced  plans to merge four  semiconductor  wafer foundry
units, USC, USIC, United Integrated  Circuit  Corporation and UTEK Semiconductor
Corporation,  into UMC, a  publicly-traded  company in Taiwan.  According to the
proposed terms of the merger,  Alliance will receive 247.7 million shares of UMC
stock for its 247.7 million shares or 14.76% ownership of USC and  approximately
35.6 million  shares of UMC stock for its 48.1 million  shares or 3.2% ownership
of USIC.  UMC has indicated that they expect to have  approximately  8.8 billion
shares  outstanding  as of the closing date of the merger.  Based on June 14th's
closing  price for UMC shares of NTD 67.50,  and the then  current  U.S.  dollar
exchange  rate  of  32.36,   the  estimated   value  of  these   investments  is
approximately  $589  million.  At  March  31,  1999  the book  value  for  these
investments was approximately  $94 million  excluding  deferred tax liabilities,
and cumulative translation adjustments that relate to the investment in USC. The
merger is subject to  shareholders  and  government  approval and is expected to
close before the end of 1999.  The UMC shares  received by Alliance are expected
to be subject to a  six-month  "lock-up"  or no trade  period  before the shares
become freely tradable in Taiwan.

There can be no assurance that the Company's  current  foundries,  together with
any additional sources,  will be able or willing to satisfy all of the Company's
requirements  on  a  timely  basis.  The  Company  has  encountered   delays  in
qualification and production  ramp-up in the past, and the production ramp-up at
any additional  foundries could take longer than anticipated.  In the event that
the  Company's  foundries  are  unable or  unwilling  to satisfy  the  Company's
requirements  in a timely  manner,  the  Company's  operating  results  could be
materially adversely affected. In addition, UMC, USC and USIC all are located in
the  Science-Based  Industrial  Park in  Hsin  Chu  City,

                                      -8-
<PAGE>

Taiwan.  The  Company  currently  expects  these three  foundries  to supply the
substantial  portion of the  Company's  products in fiscal 2000.  Disruption  of
operations at the Company's foundries for any reason,  including work stoppages,
fire, earthquakes or other natural disasters, could cause delays in shipments of
the  Company's  products,  and  could  have a  material  adverse  effect  on the
Company's  results  of  operations.  In or about  October  1997,  a fire  caused
extensive damage to United Integrated Circuits  Corporation  ("UICC"), a foundry
joint venture  between UMC and various  companies.  UICC is located next to USIC
and near USC and UMC in the Hsin-Chu Science-Based Industrial Park. (The Company
has  products  manufactured  at UMC and USC,  and owns equity  stakes in USC and
USIC.) UICC suffered an additional fire in January 1998, and since October 1996,
there  have  been at  least  two  other  fires  at  semiconductor  manufacturing
facilities  in the  Hsin-Chu  Science-Based  Industrial  Park.  There  can be no
assurance that fires or other disasters will not have a material  adverse effect
on UMC, USC or USIC in the future. In addition,  as a result of the rapid growth
of the  semiconductor  industry based in the Hsin-Chu  Science-Based  Industrial
Park, severe constraints have been placed on the water and electricity supply in
that region.  Any shortages of water or electricity  could adversely  affect the
Company's foundries' ability to supply the Company's products,  which could have
a material adverse effect on the Company's results of operations.

The Company is using  multiple  sources for certain of its  products,  which may
require the Company's customers to perform separate product qualifications.  The
Company  has not,  however,  developed  alternate  sources of supply for certain
other  products,  and its  newly  introduced  products  are  typically  produced
initially by a single  foundry until  alternate  sources can be  qualified.  The
requirement  that  a  customer  perform  separate  product  qualifications  or a
customer's  inability to obtain a sufficient supply of products from the Company
may cause that customer to satisfy its product  requirements  from the Company's
competitors, which would adversely affect the Company's results of operations.

The Company purchases products from UMC, USC, USIC,  Chartered and Rohm pursuant
to various  agreements.  The Company believes that its relationship with each of
these foundries is good. However,  UMC and Rohm manufacture products in the same
facilities used to manufacture the Company's  products,  which products are sold
in competition with the Company's products.

Reliance on these foundries  involves  several risks,  including  constraints or
delays in timely  delivery  of the  Company's  products,  reduced  control  over
delivery  schedules,  quality  assurance,  costs and loss of  production  due to
seismic  activity,  weather  conditions and other factors.  Although the Company
continuously  evaluates sources of supply and may seek to add additional foundry
capacity,  there  can be no  assurance  that  such  additional  capacity  can be
obtained at acceptable  prices, if at all. The occurrence of any supply or other
problem  resulting from these risks could have a material  adverse effect on the
Company's  operating results.  There can be no assurance that problems affecting
manufacturing yields of the Company's products will not occur in the future such
as occurred during late in fiscal 1996.

The Company  uses  domestic  and  offshore  subcontractors  for die assembly and
testing.  In the  assembly  process,  the  silicon  wafers  are  separated  into
individual  dies that are then  assembled into packages and tested in accordance
with  procedures  developed by the  Company.  Following  assembly,  the packaged
devices are further  tested and  inspected  pursuant  to the  Company's  quality
assurance program before shipment to customers. While the timeliness,  yield and
quality of product deliveries from the Company's  suppliers of assembly and test
services have been  acceptable to date,  there can be no assurance that problems
will not occur in the future.  Any significant  disruption in adequate  supplies
from these  subcontractors,  or any other  circumstance  that would  require the
Company to qualify  alternative  sources of supply,  could  delay  shipment  and
result in the loss of  customers,  limitations  or  reductions  in the Company's
revenue,  and other adverse effects on the Company's operating results.  Most of
the Company's wafer foundries,  assembly and testing  facilities comply with the
requirements of ISO 9000.

There is an ongoing risk that the  suppliers of wafer  fabrication,  wafer sort,
assembly and test  services to the Company may increase the price charged to the
Company for the services they provide,  to the point that the Company may not be
able to profitably have its products produced by such suppliers.  The occurrence
of such price  increases  could have a material  adverse effect on the Company's
operating results.

The Company also is subject to the risks of shortages  and increases in the cost
of raw materials used in the manufacture or assembly of the Company's  products.
Shortages of raw  materials or  disruptions  in the provision of

                                      -9-
<PAGE>

services by the Company's assembly or testing houses or other circumstances that
would  require the Company to seek  alternative  sources of supply,  assembly or
testing could lead to constraints or delays in timely  delivery of the Company's
products.  Such  constraints  or delays  may  result  in the loss of  customers,
limitations or reductions in the Company's  revenue or other adverse  effects on
the Company's operating results. The Company's reliance on outside foundries and
independent assembly and testing houses involves several other risks,  including
reduced  control  over  delivery   schedules,   quality   assurance  and  costs.
Interruptions in supply at the Company's foundries or assembly or testing houses
may cause delays in delivery of the Company's  products.  The  occurrence of any
supply or other problem  resulting from the risks  described  above could have a
material adverse effect on the Company's operating results.

COMPETITION

The  semiconductor  industry is intensely  competitive and is  characterized  by
price erosion,  rapid technological change,  product obsolescence and heightened
international  competition in many markets.  Many of the Company's customers may
be purchasing products from both the Company and the Company's competitors.  The
Company's  principal  competitors  include  Cypress  Semiconductor  Corporation;
Integrated Device Technology,  Inc.; Integrated Silicon Solutions,  Inc.; Micron
Technology,  Inc.; AMD; NEC; Samsung; Toshiba; and other U.S., Japanese, Korean,
and Taiwanese manufacturers.  Certain of the Company's competitors and potential
competitors  have  substantially   greater  financial,   technical,   marketing,
distribution  and other  resources,  broader  product lines and  longer-standing
relationships  with customers than the Company.  Due to the downturn in the SRAM
and DRAM markets,  companies that have broader product lines and longer-standing
customer  relationships  may be in a  stronger  competitive  position  than  the
Company.  In addition,  as the Company enters new markets,  the Company may face
additional  competition.   Markets  for  most  of  the  Company's  products  are
characterized by intense price competition. The Company's future success will be
highly dependent upon the successful  development and timely introduction of new
products that meet the needs of the market at a competitive  price. There can be
no  assurance  that the  Company  will be able to  develop  or  market  any such
products  successfully.  The  Company  believes  that  its  ability  to  compete
successfully  depends on a number of  factors  both  within  and  outside of its
control,  including price, product quality,  performance,  success in developing
new products, adequate foundry capacity and sources of raw materials, efficiency
of production, timing of new product introductions by competitors, protection of
Company  products by effective  utilization  of  intellectual  property laws and
general  market and  economic  conditions.  There can be no  assurance  that the
Company will be able to compete successfully in the future.

LICENSES, PATENTS AND MASKWORK PROTECTION

The  Company  seeks to  protect  its  proprietary  technology  by filing  patent
applications in the United States and  registering its circuit designs  pursuant
to the  Semiconductor  Chip  Protection Act of 1984. The Company holds 44 United
States patents  covering certain aspects of its product designs or manufacturing
technology,  which patents expire between 2009 and 2010. The Company also has 31
pending United States patent applications,  7 of which have been allowed and are
expected  to be issued as  patents.  No  assurance  can be given that the claims
allowed on any patents held by the Company will be sufficiently broad to protect
the  Company's  technology.  In  addition,  no  assurance  can be given that any
patents  issued  to  the  Company  will  not  be   challenged,   invalidated  or
circumvented  or that the rights  granted  thereunder  will provide  competitive
advantages  to the  Company.  The loss of  patent  protection  on the  Company's
technology or the  circumvention of its patent  protection by competitors  could
have a material adverse effect on the Company's ability to compete  successfully
in its products business.  There can be no assurance that any existing or future
patent  applications by the Company will result in issued patents with the scope
of the  claims  sought by the  Company,  or at all,  that any  current or future
issued or licensed  patents,  trade secrets or know-how  will afford  sufficient
protection against competitors with similar  technologies or processes,  or that
any patents issued will not be infringed upon or designed  around by others.  In
addition,  there can be no assurance that others will not independently  develop
proprietary  technologies  and processes which are the same as or  substantially
equivalent  or  superior  to  those of the  Company.  Further,  there  can be no
assurance  that the Company has not or will not infringe prior or future patents
owned by  others,  that the  Company  will not need to  acquire  licenses  under
patents  belonging to others for technology  potentially  useful or necessary to
the Company,  or that such licenses will be available to the Company, if at all,
on terms acceptable to the Company.

Copyrights  and maskwork  protection are also key elements in the conduct of the
Company's  business.  The Company also relies on trade  secrets and  proprietary
know-how  which it seeks  to  protect  by  confidentiality

                                      -10-
<PAGE>

agreements with its employees and consultants and with third parties.  There can
be no assurance  that these  agreements  will not be breached,  that the Company
will have  adequate  remedies  for any  breach,  or that its trade  secrets  and
proprietary  know-how  will  not  otherwise  become  known  or be  independently
discovered by others.

The  semiconductor  industry is  characterized by frequent claims and litigation
regarding patent and other  intellectual  property rights.  The Company has from
time to time  received,  and believes that it likely will receive in the future,
notices  alleging  that  the  Company's  products,  or  the  processes  used  to
manufacture the Company's products, infringe the intellectual property rights of
third parties.  The ultimate conclusion with respect to any alleged infringement
must  be  determined  by a  court  or  administrative  agency  in the  event  of
litigation,  and there can be no assurance that a court or administrative agency
would  determine  that the  Company's  products do not  infringe  the patents in
question.  Patent  litigation  is inherently  uncertain  and the Company  cannot
predict the result of any such  litigation or the level of damages that could be
imposed  if it  were  determined  that  certain  of the  Company's  products  or
processes  infringe any of the patents in question.  The Company currently is in
litigation with Advanced Micro Devices,  Inc. ("AMD")  concerning  claims by AMD
that the Company's flash memory devices  infringe two AMD patents.  See Item 3 -
Legal Proceedings, below.

There can be no  assurance  that other  third  parties  will not  assert  claims
against the Company with respect to existing or future  products or that, in the
case  of the  existing  or  potential  allegations  described  above  or any new
dispute,  licenses to  disputed  third-party  technology  will be  available  on
reasonable  commercial terms, if at all. In the event of litigation to determine
the  validity  of any  third-party  claims (or claims  against  the  Company for
indemnification  related to such third-party  claims),  including the claims and
potential  claims  referred  to in the  preceding  paragraph,  such  litigation,
whether or not  determined in favor of the Company,  could result in significant
expense to the  Company and divert the efforts of the  Company's  technical  and
management  personnel from other  matters.  In the event of an adverse ruling in
such litigation, the Company might be required to cease the manufacture, use and
sale of infringing  products,  discontinue the use of certain processes,  expend
significant resources to develop non-infringing technology or obtain licenses to
the infringing technology. In addition,  depending upon the number of infringing
products  and the extent of sales of such  products,  the Company  could  suffer
significant  monetary  damages.  In the event of a successful  claim against the
Company and the Company's failure to develop or license a substitute technology,
the  Company's  operating  results could be materially  adversely  affected.  In
addition, the laws of certain territories in which the Company's products are or
may be developed, manufactured or sold, including Asia, Europe or Latin America,
may not protect the Company's  products and intellectual  property rights to the
same extent as the laws of the United States.

BACKLOG

Sales of the Company's  products are made pursuant to standard  purchase orders.
Purchase  orders are subject to changes in  quantities  of products and delivery
schedules  in order to reflect  changes in the  customers'  requirements  and to
price  renegotiations.  In  addition,  orders  typically  may be canceled at the
discretion of the buyer without enforceable penalty. The Company's business,  in
line with that of much of the semiconductor  industry, is characterized by short
lead time  orders and quick  delivery  schedules.  Also,  the  Company's  actual
shipments  depend on the  manufacturing  capacity  of the  Company's  foundries.
Finally, capacity constraints or unexpected manufacturing delays may prevent the
Company from meeting the demand for certain of its products,  therefore  backlog
is not necessarily indicative of future sales.

EMPLOYEES

As of April 4, 1999, the Company had 149 full-time  employees,  consisting of 60
in research and  development,  10 in marketing,  11 in sales,  30 in finance and
administration  and  38 in  operations.  Of  the  60  research  and  development
employees (30 in the US and 30 in India), 26 have advanced degrees. In 1997, the
Company  opened a design center in India.  The Company  believes that its future
success will depend,  in part,  on its ability to continue to attract and retain
qualified technical and management personnel, particularly highly-skilled design
engineers involved in new product development,  for whom competition is intense.
The Company's  employees are not represented by any collective  bargaining unit,
and the Company has never experienced a work stoppage. The Company believes that
its employee relations are good.

                                      -11-

<PAGE>

The Company has recently  experienced  and may continue to experience  growth in
the  number  of its  employees  and the  scope of its  operating  and  financial
systems,  resulting in increased  responsibilities for the Company's management.
To manage  future  growth  effectively,  the  Company  will need to  continue to
implement  and improve its  operational,  financial and  management  information
systems and to hire,  train,  motivate and manage its  employees.  During fiscal
1997, the Company initiated the conversion of its business  information  systems
to Oracle with the full  conversion  completed  in March  1999.  There can be no
assurance that the Company will be able effectively to manage future growth, and
the  failure  to do so could  have a material  adverse  effect on the  Company's
operating results.

The Company will depend to a large extent on the continued  contributions of its
founders,  N. Damodar Reddy,  Chairman of the Board, Chief Executive Officer and
President of the Company,  and his brother C.N. Reddy,  Executive Vice President
and Chief  Operating  Officer of the  Company  (collectively  referred to as the
"Reddys"),  as well as other  officers  and key design  personnel,  many of whom
would be difficult to replace. During fiscal 1999 and subsequently,  a number of
officers  and  design  personnel  left  the  Company  to  pursue  various  other
opportunities.  The future  success of the Company will depend on its ability to
attract and retain qualified  technical and management  personnel,  particularly
highly-skilled  design engineers involved in new product  development,  for whom
competition is intense. The loss of either of the Reddys or key design personnel
could delay  product  development  cycles or otherwise  have a material  adverse
effect on the Company's business. The Company is not insured against the loss of
any of its key employees,  nor can the Company assure the successful recruitment
of new and replacement personnel.

ITEM 2
FACILITIES

The Company's executive offices and its principal  marketing,  sales and product
development  operations  are located in a 41,400 square foot leased  facility in
San Jose,  California under a lease which expires in September 1999. A lease was
signed in June 1999 for a new 56,600 square foot corporate  headquarters located
in Santa  Clara,  California,  which  expires in June 2006.  The  Company has an
option to extend the lease for a term of five  years.  The  Company  also leases
office  space  in  Hsin  Chu,  Taiwan  to  manage  the  logistics  of the  wafer
fabrication,  assembly  and testing of the  Company's  products  in Taiwan.  The
Company leases an engineering  office in Bangalore,  India,  and has purchased a
parcel of land in an office park under  development  in  Hyderabad,  India,  for
product development.  Additionally, the Company leases sales offices in Reading,
Massachusetts; Heathrow, Florida; Taipei, Taiwan; and Japan.

ITEM 3
LEGAL PROCEEDINGS

In March 1996, a putative class action lawsuit was filed against the Company and
certain of its officers and directors  and others in the United States  District
Court for the Northern  District of California,  alleging  violations of Section
10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5
promulgated  thereunder.  The complaint alleged that the Company, N.D. Reddy and
C.N.  Reddy also had  liability  under  Section  20(a) of the Exchange  Act. The
complaint,  brought by an individual who claimed to have purchased 100 shares of
the Company's common stock on November 2, 1995, was putatively brought on behalf
of a class of persons who purchased the Company's  common stock between July 11,
1995 and December 29, 1995. In April 1997,  the Court  dismissed the  complaint,
with  leave to file an  amended  complaint.  In June  1997,  plaintiff  filed an
amended  complaint against the Company and certain of its officers and directors
alleging  violations  of Sections  10(b) and 20(a) of the Exchange  Act. In July
1997,  The Company moved to dismiss the amended  complaint.  In March 1998,  the
court ruled in defendants' favor as to all claims but one, and dismissed all but
one claim with prejudice. In April 1998, defendants requested reconsideration of
the  ruling  as to the one  claim  not  dismissed.  In June  1998,  the  parties
stipulated to dismiss the remaining  claim without  prejudice,  on the condition
that in the event the dismissal  with  prejudice of the other claims is affirmed
in its entirety,  such remaining claim shall be deemed dismissed with prejudice.
In June 1998,  the court entered  judgment  dismissing  the case pursuant to the
parties'  stipulation.  The Company  intends to  continue  to defend  vigorously
against  any  claims  asserted  against  it,  and  believes  it has  meritorious
defenses. Due to the inherent uncertainty of litigation, the Company is not able
to  reasonably  estimate the potential  losses,  if any, that may be incurred in
relation to this litigation.

                                      -12-
<PAGE>

In December 1996, Alliance Semiconductor  International  Corporation ("ASIC"), a
wholly-owned  subsidiary  of the Company  was served  with a complaint  filed in
Federal Court  alleging that ASIC has infringed two patents owned by AMD related
to flash memory devices,  and seeking  injunctive  relief and damages.  In March
1997, the Company was added as a defendant. In April 1996, the Court allowed AMD
to expand  its  claims to  include  several  new flash  products  which had been
recently  announced by the  Company.  A trial date has been set by the Court for
January 2000.  Each  defendant has denied the  allegations  of the complaint and
asserted a counterclaim  for declaration that each of the AMD patents is invalid
and not infringed by such defendant. The Company believes that the resolution of
this matter will not have a material  adverse effect on the financial  condition
of the Company.

In July 1998, the Company learned that a default judgment may be entered against
the Company in Canada, in the amount of approximately  US$170 million, in a case
filed in 1985 captioned  Prabhakara  Chowdary Balla and TritTek Research Ltd. v.
Fitch Research  Corporation,  et al., British Columbia Supreme Court No. 85-2805
(Victoria Registry).  The Company,  which had previously not participated in the
case,  believes  that it never was properly  served with process in this action,
and that the Canadian court lacks  jurisdiction over the Company in this matter.
In  addition to  jurisdictional  and  procedural  arguments,  the  Company  also
believes it may have grounds to argue that the claims against the Company should
be deemed discharged by the Company's  bankruptcy in 1991. In February 1999, the
court set aside the default  judgment  against the Company.  In April 1999,  the
plaintiffs were granted leave by the Court to appeal this judgment.

In February 1997, Micron Technology, Inc. filed an antidumping petition with the
United  States   International   Trade  Commission  ("ITC")  and  United  States
Department of Commerce  ("DOC"),  alleging  that static  random access  memories
("SRAMs") fabricated in Taiwan were being sold in the United States at less than
fair value,  and that the United States industry  producing SRAMs was materially
injured  or  threatened  with  material  injury by reason  of  imports  of SRAMs
fabricated in Taiwan. After a final affirmative DOC determination of dumping and
a final affirmative ITC determination of injury,  DOC issued an antidumping duty
order in April 1998.  Under that order,  the  Company's  imports into the United
States on or after approximately April 16,1998 of SRAMs fabricated in Taiwan are
subject to a cash deposit in the amount of 50.15% (the "Antidumping  Margin") of
the entered  value of such SRAMs.  (The  Company  posted a bond in the amount of
59.06%  (the  preliminary  margin)  with  respect  to its  importation,  between
approximately  October 1997 and April 1998,  of SRAMs  fabricated in Taiwan.) In
May 1998,  the Company and others filed an appeal in the United  States Court of
International  Trade (the "CIT"),  challenging the determination by the ITC that
imports of  Taiwan-fabricated  SRAMs were  causing  material  injury to the U.S.
industry.  The  decision  of the CIT can be  further  appealed  to the  Court of
Appeals for the Federal Circuit. The Company cannot predict either the timing or
the  eventual  results of the appeal.  Until a final  judgment is entered in the
appeal,  no final duties will be assessed on the Company's entries of SRAMs from
Taiwan covered by the DOC  antidumping  duty order. If the appeal is successful,
the antidumping order will be terminated and cash deposits will be refunded with
interest.   If  the   appeal  is   unsuccessful,   the   Company's   entries  of
Taiwan-fabricated  SRAMs from  October 1, 1997  through  March 31,  1999 will be
liquidated  at the deposit  rate in effect at the time of entry.  On  subsequent
entries of  Taiwan-fabricated  SRAMs,  the  Company  will  continue to make cash
deposits  in the  amount of 50.15% of the  entered  value.  In April  2000,  the
Company  will  have  an  opportunity  to  request  a  review  of  its  sales  of
Taiwan-fabricated  SRAMs from April 1, 1999 through  March 31, 2000 (the "Review
Period").  If it does so,  the amount of  antidumping  duties,  if any,  owed on
imports from April 1999 through  March 2000 will remain  undetermined  until the
conclusion of the review in early 2001. If the DOC found, based upon analysis of
the Company's  sales during the Review Period,  that  antidumping  duties either
should not be imposed or should be imposed at a lower rate than the  Antidumping
Margin,  the difference  between the cash deposits made by the Company,  and the
deposits  that would have been made had the lower rate (or no rate,  as the case
may be) been in effect, would be returned to the Company, plus interest.  If, on
the other hand, the DOC found that higher margins were appropriate,  the Company
would have to pay  difference  between the cash deposits paid by the Company and
the  deposits  that would have been made had the higher  rate been in effect.  A
material portion of the SRAMs designed and sold by the Company are fabricated in
Taiwan,  and the cash deposit  requirement  and  possibility  of  assessment  of
antidumping  duties could materially  adversely affect the Company's  ability to
sell  Taiwan-fabricated  SRAMs in the United States and have a material  adverse
effect on the Company's operating results and financial condition.

In October 1998, Micron Technology,  Inc. filed an antidumping petition with the
DOC  and the  ITC,  alleging  that  dynamic  random  access  memories  ("DRAMs")
fabricated  in Taiwan  are  being  sold in the  United  States at less

                                      -13-
<PAGE>

than  fair  value,  and that  the  United  States  industry  producing  DRAMs is
materially  injured or threatened  with material  injury by reason of imports of
DRAMs fabricated in Taiwan.  The petition  requests the United States government
to  impose  antidumping  duties  on  imports  into the  United  States  of DRAMs
fabricated in Taiwan.  A material  portion of the DRAMs designed and sold by the
Company are fabricated in Taiwan. The Company received  preliminary producer and
importer   questionnaires   from  the  ITC,  and  submitted  responses  to  such
questionnaires  in  November  1998.  In  December  1998,  the ITC  preliminarily
determined  that  there  is a  reasonable  indication  that the  imports  of the
products  under  investigation  are injuring  the United  States  industry.  The
Company   received  a  questionnaire   from  the  DOC,  and  responded  to  such
questionnaire in accordance with the established  deadline. In January 1999, the
DOC  decided  to limit  the  number of  respondents  investigated  and  notified
Alliance  that it  would  not be  separately  investigated.  In May 1999 the DOC
issued  a  preliminary   affirmative   determination  of  dumping.   Under  that
determination,  the Company's imports into the United States on or after May 28,
1999 of DRAMs fabricated in Taiwan are subject to an antidumping duty deposit in
the amount of 16.65% (the preliminary "all others" rate) of the entered value of
such DRAMs, an antidumping margin calculated by weight-averaging the antidumping
margins of individually investigated respondent companies. The Company will post
a bond to cover  deposits on such  entries.  The DOC is  currently  scheduled to
complete  its  investigation  by late 1999.  If the DOC final  determination  of
dumping and the ITC final determination of injury are affirmative,  the DOC will
issue an antidumping duty order.  Under any such order, the Company's imports of
Taiwan-fabricated DRAMs into the United States on or after the date the order is
published  will be  subject  to a cash  deposit  in the amount of the final "all
others"  rate of the  entered  value of such  DRAMs.  If either  agency's  final
determination is negative, the investigation will be terminated,  the suspension
of liquidation  lifted,  and the bond released.  If an antidumping duty order is
issued, in late 2000 the Company will have an opportunity to request a review of
its  sales of  Taiwan-fabricated  DRAMs  from  approximately  May  1999  through
November 2000 (the "Review  Period").  If the Company makes such a request,  the
amount of antidumping  duties,  if any, owed on entries during the Review Period
will remain  undetermined until the conclusion of the review in late 2001, which
would determine a  Company-specific  antidumping duty margin.  If the DOC found,
based upon  analysis  of the  Company's  sales  during the Review  Period,  that
antidumping  duties either should not be imposed or should be imposed at a lower
rate than the final "all others" rate determined in the original  investigation,
the difference  between the cash deposits made by the Company,  and the deposits
that would  have been made had the lower  rate (or no rate,  as the case may be)
been in effect,  would be returned to the  Company,  with  interest.  If, on the
other hand, the DOC found a higher Company-specific rate, the Company would have
to pay the  difference  between  the cash  deposits  paid by the Company and the
deposits  that  would have been made had the  higher  rate been in effect,  with
interest.  (In either case, the Company also would be responsible to antidumping
duties in the amount of the revised  margin with respect to its imports  covered
by the bond.) A material  portion of the DRAMs  designed and sold by the Company
are fabricated in Taiwan,  and the cash deposit  requirement  and possibility of
assessment of antidumping duties could materially adversely affect the Company's
ability to sell Taiwan-fabricated DRAMs in the United States and have a material
adverse effect on the Company's operating results and financial condition.

ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

EXECUTIVE OFFICERS OF THE REGISTRANT

Information  concerning executive officers of the Company as of the date of this
report is set forth below:

<TABLE>
<CAPTION>
Name                Age     Position
------------------  -----   ----------------------------------------------
<S>                  <C>    <C>
N. Damodar Reddy     60     Chairman, President and Chief Executive
                            Officer

C.N. Reddy           43     Executive Vice President, Chief Operating
                            Officer, Director and Secretary

David Eichler        50     Vice President, Finance and Administration
                            and Chief Financial Officer

Bradley A. Perkins   42     Vice President and General Counsel

Sunit Saxena         40     Vice President, Product/Test Engineering
                            and Operations

Ritu Shrivastava     48     Vice President, Technology Development
----------
</TABLE>

N.  Damodar  Reddy  is the  co-founder  of the  Company  and has  served  as the
Company's  Chairman of the Board, Chief Executive Officer and President from its
inception  in  February  1985.  Mr.  Reddy also  served as the

                                      -14-
<PAGE>

Company's  Chief  Financial  Officer  from June 1998 until  January  1999 . From
September  1983 to  February  1985,  Mr.  Reddy  served as  President  and Chief
Executive  Officer of Modular  Semiconductor,  Inc.,  and from 1980 to 1983,  he
served as manager of Advanced CMOS Technology  Development at Synertek,  Inc., a
subsidiary  of  Honeywell,  Inc.  Prior to that time,  Mr.  Reddy  held  various
research and  development  and  management  positions at Four Phase  Systems,  a
subsidiary of Motorola, Inc., Fairchild Semiconductor and RCA Technology Center.
He holds an M.S.  degree in  Electrical  Engineering  from  North  Dakota  State
University and an M.B.A.  from Santa Clara  University.  N. Damodar Reddy is the
brother of C.N. Reddy.

C.N.  Reddy is the  co-founder  of the Company  and has served as the  Company's
Secretary  and  director  since its  inception  in February  1985.  Beginning in
February  1985,  Mr. Reddy served as the Company's Vice President - Engineering.
In May 1993, he was appointed Senior Vice-President - Engineering and Operations
of the Company.  In December 1997, he was appointed Executive Vice President and
Chief  Operating  Officer.  From 1984 to 1985,  he served as  Director of Memory
Products of Modular Semiconductor, Inc., and from 1983 to 1984, Mr. Reddy served
as a SRAM product line manager for Cypress Semiconductor Corporation.  From 1980
to 1983, Mr. Reddy served as a DRAM development  manager for Texas  Instruments,
Inc.  and,  before that, he was a design  engineer  with National  Semiconductor
Corporation  for two  years.  Mr.  Reddy  holds  an M.S.  degree  in  Electrical
Engineering from Utah State University.  C.N. Reddy is named inventor of over 15
patents  related  to SRAM and DRAM  designs.  C.N.  Reddy is the  brother  of N.
Damodar Reddy.

David  Eichler  joined the  Company  in January  1999,  and was  appointed  Vice
President  Finance and  Administration  and Chief  Financial  Officer.  Prior to
joining the Company, Mr. Eichler was Vice President Finance and Chief Accounting
Officer for Adobe Systems Incorporated in 1998. From 1994 to 1998, he was Senior
Vice President Finance & Administration  and Chief Financial Officer for Hyundai
Electronics  America. He has also held senior financial  management positions at
Syntex Corporation, Oki Semiconductor and Tandem Computers Incorporated.

Bradley A. Perkins  joined the Company in January 1999,  and was appointed  Vice
President and General  Counsel.  Prior to joining the Company,  Mr.  Perkins was
Vice  President,  General  Counsel  and  Secretary  at Mission  West  Properties
(formerly  Berg & Berg  Developers),  from  January 1998 to January  1999.  From
November 1991 to January 1998,  Mr. Perkins was with Valence  Technology,  Inc.,
where he was Vice President,  General Counsel and Secretary. From August 1988 to
November  1991,  Mr.  Perkins was  Assistant  General  Counsel and  Intellectual
Property Counsel with VLSI Technology, Inc.

Sunit Saxena joined the Company in January 1995 and was appointed Vice President
- Product/Test  Engineering  and Operations in January 1998. Mr. Saxena had been
appointed Vice President - Product  Engineering in August 1995. Prior to joining
the Company, Mr. Saxena held positions at Altera as Director of Product and Test
Engineering  and at  Advanced  Micro  Devices,  Inc.  where his career  included
management of Product/Test  Engineering  for CMOS and Bipolar Network  products,
the 2900  series  Microprocessor  family,  DRAMs,  and process  development  and
management  of EPROM and EEPROM.  Mr.  Saxena has an M.S.  degree in Solid State
Device Physics from the Indian  Institute of Technology in New Delhi,  India and
an M.S. degree in Computer Engineering from Syracuse University.

Ritu  Shrivastava  joined the Company in November  1993,  and was appointed Vice
President  -  Technology   Development  in  August  1995.  Mr.  Shrivastava  was
designated as an executive officer of the Company in July 1997. Prior to joining
the Company,  Dr.  Shrivastava worked at Cypress  Semiconductor  Corporation for
more than 10 years in  various  technology  management  positions,  the last one
being Director of Technology  Development.  Prior to that time, Dr.  Shrivastava
was with Mostek Corporation for 3 years,  responsible for CMOS development.  Dr.
Shrivastava  served on the  Electrical  Engineering  faculty at Louisiana  State
University  where he also  received his Ph.D..  Dr.  Shrivastava  completed  his
Masters and  Bachelor's  degrees in Electrical  Communication  Engineering  from
Indian Institute of Science, Bangalore, India and a Bachelor's degree in Physics
from Jabalpur  University,  India.  Dr.  Shrivastava is named inventor in over 9
patents related to various technologies, and is a Senior Member of IEEE.

                                      -15-
<PAGE>
================================================================================
PART II

ITEM 5
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The  Company's  Common Stock is listed on the Nasdaq  National  Market under the
symbol ALSC. The Company  completed its initial  public  offering on December 1,
1993. The following table sets forth,  for the periods  indicated,  the high and
low closing sale prices on NASDAQ for the Company's Common Stock.

<TABLE>
<CAPTION>

 Fiscal Year      High           Low
               ------------  ------------
<S>                <C>          <C>
1998
  1st Quarter      $9.38        $6.44
  2nd Quarter      15.75         7.63
  3rd Quarter      11.06         4.00
  4th Quarter       7.75         5.00
1999

  1st Quarter       9.62         2.56
  2nd Quarter       3.66         2.09
  3rd Quarter       5.12         1.94
  4th Quarter       5.56         2.50
2000
  1st Quarter       9.22         2.63
(through June
   18, 1999)
----------
</TABLE>

As of June 18,  1999,  there  were  approximately  196  holders of record of the
Company's Common Stock.

The Company has never  declared or paid any cash dividends on its capital stock.
The Company currently intends to retain future earnings, if any, for development
of its business and, therefore,  does not anticipate that it will declare or pay
cash dividends on its capital stock in the foreseeable future.

                                      -16-
<PAGE>


ITEM 6
SELECTED CONSOLIDATED FINANCIAL DATA

The following table summarizes selected  consolidated  financial information for
each of the five fiscal years ended March 31st and should be read in conjunction
with the consolidated financial statements and notes relating thereto.

<TABLE>
<CAPTION>
                                                 Year Ended March 31,

                                --------------------------------------------------------
                                  1999        1998       1997        1996       1995
                                ----------  ---------  ---------   ---------  ----------
                                         (in thousands, except per share data)

Consolidated Statement of Operations Data:

<S>                             <C>         <C>        <C>         <C>        <C>
Net revenues                    $47,783     $118,400   $82,572     $201,098   $119,327
Cost of revenues                 60,231     117,400    84,630       158,159     65,035
                                ----------  ---------  ---------   ---------  ----------
  Gross profit (loss)           (12,448)     1,000     (2,058)      42,939     54,292
Operating expenses:
  Research and development       14,099     15,254     15,012       14,664      8,374
  Selling, general and           12,652     18,666     10,344       17,202      9,600
administrative
                                ----------  ---------  ---------   ---------  ----------
Income (loss) from operations   (39,199)    (32,920)   (27,414)     11,073     36,318
Other income, net                14,697        287      1,753        6,498      2,035
                                ----------  ---------  ---------   ---------  ----------
Income (loss)before income      (24,502)    (32,633)   (25,661)     17,571     38,353
taxes
Provision for income taxes        8,397     (11,421)    (8,990)      6,852     14,462
                                ----------  ---------  ---------   ---------  ----------
Income  (loss) before equity in (32,899)    (21,212)   (16,671)     10,719     23,891
income of USC
Equity in income of USC           10,856      15,475         -           -          -
                                ----------  ---------  ---------   ---------  ----------
Net income (loss)               $(22,043)   $(5,737)   $(16,671)   $10,719    $23,891
                                ==========  =========  =========   =========  ==========
Net income (loss) per share:
    Basic                         $(0.53)    $(0.15)     $(0.43)      $0.28      $0.78
                                ==========  =========  =========   =========  ==========
    Diluted                       $(0.53)    $(0.15)     $(0.43)      $0.26      $0.69
                                ==========  =========  =========   =========  ==========
Weighted average number of common shares:
    Basic                        41,378     39,493     38,653       37,900     30,612
                                ==========  =========  =========   =========  ==========
    Diluted                      41,378     39,493     38,653       40,633     34,559
                                ==========  =========  =========   =========  ==========
</TABLE>
<TABLE>
<CAPTION>
                                                       March 31,
                                --------------------------------------------------------
                                  1999        1998       1997        1996       1995
                                ----------  ---------  ---------   ---------  ----------
                                                    (in thousands)
Consolidated Balance Sheet
Data:
<S>                              <C>         <C>        <C>        <C>        <C>
Working capital                  $22,102     $39,879    $78,000    $106,171   $86,845
Total assets                     193,557     243,668    232,486     263,238   126,866
Stockholders' equity             163,570     189,111    204,594     219,381   107,803
----------
</TABLE>

                                      -17-
<PAGE>


<TABLE>
<CAPTION>

                                      Fiscal Year 1999                             Fiscal Year 1998
                            -----------------------------------------  ------------------------------------------
                               4th       3rd        2nd        1st        4th       3rd        2nd         1st
                               Qtr.      Qtr.       Qtr.       Qtr.       Qtr.      Qtr.       Qtr.        Qtr.
                            --------  ---------  ---------  ---------  --------  ---------  ----------  ---------
Operating Summary:                                  (in thousands, except per share data)
<S>                        <C>       <C>        <C>        <C>        <C>       <C>        <C>         <C>
Net revenues                $13,879   $13,282    $10,472    $10,150    $28,295   $24,768    $28,998     $36,339
Cost of revenues              8,332    10,864     13,544     27,491     29,756    26,336     31,693      29,615
                            --------  ---------  ---------  ---------  --------  ---------  ----------  ---------
  Gross profit (loss)         5,547     2,418     (3,072)   (17,341)    (1,461)   (1,568)    (2,695)      6,724
Operating expenses:
  Research and development    3,087     3,285      3,511      4,216      4,313     3,276      3,558       4,107
  Selling, general and        2,981     2,863      2,797      4,011      4,851     4,875      4,885       4,055
    administrative
                            --------  ---------  ---------  ---------  --------  ---------  ----------  ---------
Loss from operations          (521)    (3,730)    (9,380)   (25,568)   (10,625)   (9,719)   (11,138)     (1,438)
Other income (expense), net   (476)      (387)      (180)    15,740       (127)      171         54         189
                            --------  ---------  ---------  ---------  --------  ---------  ----------  ---------
Loss before income taxes      (997)    (4,117)    (9,560)    (9,828)   (10,752)   (9,548)   (11,084)     (1,249)
Provision (benefit) for          -          -          -      8,397     (3,763)   (3,342)    (3,879)       (437)
income taxes
                            --------  ---------  ---------  ---------  --------  ---------  ----------  ---------
Loss before equity in         (997)    (4,117)    (9,560)   (18,225)    (6,989)   (6,206)    (7,205)       (812)
income of USC
Equity in income of USC      1,555      2,064      3,691      3,546      7,068     3,833      2,654       1,920
                            --------  ---------  ---------  ---------  --------  ---------  ----------  ---------
Net income (loss)             $558    $(2,053)   $(5,869)  $(14,679)       $79   $(2,373)   $(4,551)     $1,108
                            ========  =========  =========  =========  ========  =========  ==========  =========
Net income (loss)
  per share:
    Basic                     $0.01    $(0.05)    $(0.14)    $(0.36)     $0.00     $(0.06)   $(0.12)      $0.03
                            ========  =========  =========  =========  ========  =========  ==========  =========
    Diluted                   $0.01    $(0.05)    $(0.14)    $(0.36)     $0.00     $(0.06)   $(0.12)      $0.03
                            ========  =========  =========  =========  ========  =========  ==========  =========
Weighted average number
  of common shares:
    Basic                    41,573    41,512     41,456     40,963     40,361     39,439    39,175      38,999
                            ========  =========  =========  =========  ========  =========  ==========  =========
    Diluted                  41,840    41,512     41,456     40,963     40,985     39,439    39,175      41,042
                            ========  =========  =========  =========  ========  =========  ==========  =========
----------
</TABLE>


During fiscal years 1999 and 1998, the Company  experienced a  deterioration  in
the  average  selling  price and a slowing  in  demand  for DRAM,  SRAM and MMUI
products.  As a result of these factors, the Company recorded pre-tax charges in
the  first,  second  and third  quarters  of fiscal  1999 of  approximately  $20
million;  and pre-tax charges in the second, third and fourth quarters of fiscal
1998 of  approximately  $15  million.  This was  primarily  to reflect a further
decline in market value of certain inventory and to provide additional  reserves
for obsolete and excess  inventory.  The Company is unable to predict when or if
such decline in prices will  stabilize.  A continued  decline in average selling
prices for its products could result in additional  material inventory valuation
adjustments and corresponding charges to operations.

During the first  quarter of fiscal 1999,  the Company also recorded a valuation
allowance  of $8 million  with  respect  to the  Company's  previously  recorded
deferred tax asset.

                                      -18-
<PAGE>

ITEM 7
MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION  AND RESULTS OF
OPERATIONS

OVERVIEW

The Company was founded in February 1985 to focus on the design and  development
of high performance  semiconductor  memory  products.  In March 1991 the Company
filed a voluntary  petition  for relief  under  Chapter 11 of the United  States
Bankruptcy  Code (the  "Reorganization").  All of the Company's  obligations set
forth in the Plan of Reorganization, as modified, were satisfied, and, in August
1994, the Company received a final decree from the Bankruptcy Court.

Since 1991,  the Company's  business  strategy has been to be a supplier of high
performance memory products and memory intensive logic products,  operating on a
fabless  basis by  utilizing  independent  manufacturing  facilities  and,  more
recently,  joint venture  facilities as well. Due to favorable market acceptance
of SRAM products introduced by the Company, annual revenues grew rapidly through
fiscal 1996. In addition,  from September  1992 through  September  1995,  gross
profit  increased  primarily due to  reductions  in average unit product  costs,
higher average selling prices, a shift to higher margin products and an increase
in manufacturing  capacity to address the increased demand for SRAM products. As
a result,  operating income also experienced substantial growth during that same
period.  From October  1995 through the first half of fiscal 1999,  gross profit
decreased  primarily due to a decline in average  selling  prices and to pre-tax
inventory related charges.  The Company recorded pre-tax charges in fiscal 1999,
1998  and  1997 of  approximately  $20  million,  $15  million  and $17  million
respectively,  primarily to adjust the valuation of the  Company's  inventory to
reflect declines in market value for certain of the Company's products.

From April 1, 1992 through the early part of fiscal 1997,  substantially  all of
the Company's net revenues were derived from the sale of SRAM  products.  During
fiscal 1999, DRAM products accounted for approximately 40% of net revenues, SRAM
products  accounted for  approximately 58% of net revenues and graphics products
accounted  for  approximately  2% of net  revenues.  The Company had  introduced
4-Mbit DRAM in 1-Mbitx4  configuration  in fiscal 1997.  During fiscal 1998, the
Company commenced volume production in 0.45 micron geometry,  of 4-Mbit DRAMs in
a 256-Kbitx16  configuration and of 16-Mbit DRAMs in a 1-Mbitx16  configuration.
The Company  enhanced its SRAM product line with the  introduction of Industrial
Temperature SRAMs and in April 1998 introduced its  Intelliwatt(TM)  1-Mbit SRAM
products.  The Company continued  development and sales of graphics  accelerator
products,  and  developed  its first  embedded  product,  which  combines  2D/3D
graphics  controller  with 2 megabytes  of embedded  memory.  In July 1998,  the
Company  decided  to exit the  mainstream  graphics  accelerator  business,  and
announced  a  workforce  reduction  of  approximately  45  full-time  positions,
including  substantially all of the Company's  graphics  personnel.  The Company
also put into volume  production a 4-Mbit flash product and  introduced a 8-Mbit
flash  design.  During  fiscal  1999,  the Company  introduced  16-Mbit  DRAM in
4-Mbitx4 configuration.

The market for memory products used in personal  computers is  characterized  by
price  volatility  and has  experienced  significant  fluctuations  and cyclical
downturns in product demand, such as the severe price erosion of DRAMs in fiscal
1999, 1998 and 1997. While the Company's strategy is to increase its penetration
into the networking,  telecommunications,  instrumentation  and consumer markets
with its  existing  SRAM,  DRAM and flash  products  and to develop  and sell in
volume  quantities  new products  complementary  to its existing  products,  the
Company may not be successful in executing such strategy. A decline in demand in
the personal  computer  industry or lack of success in developing new markets or
new products  could have a material  adverse  effect on the Company's  operating
results.

                                      -19-
<PAGE>


RESULTS OF OPERATIONS

The  percentage  of net  revenues  represented  by  certain  line  items  in the
Company's consolidated statements of operations for the years indicated, are set
forth in the table below.

<TABLE>
<CAPTION>

                            Percentage of Net Revenues for
                                 Year Ended March 31,
                          ------------------------------------
                            1999         1998         1997
                          ----------   ----------  -----------
<S>                          <C>         <C>         <C>
Net revenues                 100.0%      100.0%      100.0%
Cost of revenues             126.1        99.2       102.5
                          ----------   ----------  -----------
  Gross profit (loss)        (26.1)        0.8        (2.5)
Operating expenses:
  Research and                29.5        12.9        18.2
development
  Selling,   general  and     26.5        15.7        12.5
administrative
                          ----------   ----------  -----------
Loss from operations         (82.1)      (27.8)      (33.2)
Other income, net             30.8         0.2         2.1
                          ----------   ----------  -----------
Loss before income taxes     (51.3)      (27.6)      (31.1)
Provision  (benefit)  for     17.7        (9.7)      (10.9)
income taxes
                          ----------   ----------  -----------
Loss before equity in        (69.0)%     (17.9)%     (20.2)%
Income of USC
                          ==========   ==========  ===========
----------
</TABLE>


NET REVENUES

The Company's net revenues declined to $47.8 million in fiscal 1999, from $118.4
million in fiscal 1998,  a decrease of  approximately  60%.  Revenues for fiscal
year 1999  included  approximately  $8 million  related to the MMUI  accelerator
product  line  discontinued  during  the second  quarter.  The  decrease  in net
revenues in fiscal 1999 was due to a combination of lower average selling prices
and the  drop in the  unit  shipments  of the  Company's  SRAM,  DRAM  and  MMUI
products.

Revenues from the Company's DRAM product family contributed approximately 40% of
the  Company's  net revenues in fiscal  1999.  During  fiscal 1999,  the average
selling prices for the Company's DRAMs declined  significantly.  The DRAM market
is  characterized by volatile supply and demand  conditions,  adverse effects of
Asia's financial problems,  more OEMs switching to build-to-order  processes and
rapid technology  changes to higher density  products.  The Company is unable to
predict when or if such price declines will  stabilize.  A continued  decline in
average selling prices of DRAMs due to competitive conditions, including overall
supply and demand in the  market,  could have a material  adverse  effect on the
Company's operating results.

Revenue from the Company's SRAM product family contributed  approximately 58% of
the  Company's  revenues in fiscal  1999.  In general,  SRAM prices  continued a
steady decline throughout fiscal 1999.

Sales of the Company's MMUI product line did not contribute  significant revenue
during  fiscal 1999 and prior years.  The MMUI  graphics  and video  accelerator
market is characterized by a large and growing number of competitors providing a
steady stream of new products with enhanced features.  In July 1998, the Company
decided to exit the mainstream graphics  accelerator  business,  and announced a
workforce   reduction  of  approximately  45  full-time   positions,   including
substantially all of the Company's graphics personnel.

The  Company's  flash memory  products did not  contribute  significant  revenue
during fiscal 1999 and prior years.

The Company  continues to focus its efforts in selling to non-PC segments of the
market, such as telecommunications,  networking,  datacom and consumer. Sales to
non-PC customers  accounted for 64% of Q4 fiscal 1999 revenues versus 25% during
the same quarter of fiscal 1998.

Two customers  accounted for  approximately  15% and 13% of net revenues  during
fiscal 1999. One customer  accounted for 18% of net revenues during fiscal 1998.
During  fiscal  1997,  no customer  accounted  for 10% or more of net  revenues.
During fiscal years 1997-1999, the Company experienced significant deterioration
in the  average  selling  prices  for its SRAM and DRAM  products.  The  Company
believes  that the  decrease  in average  selling  prices was due to a number of
factors, including increased supply of SRAMs and DRAMs from foreign and domestic
competitors and weakening unit demand for such products.

                                      -20-
<PAGE>

Generally,  the markets for the Company's products are characterized by volatile
supply and demand conditions,  numerous competitors, rapid technological change,
and product  obsolescence.  These  conditions which could require the Company to
make significant shifts in its product mix in a relatively short period of time.
These changes involve  several risks,  including,  among others,  constraints or
delays in timely deliveries of products from the Company's suppliers; lower than
anticipated  wafer  manufacturing  yields;  lower than expected  throughput from
assembly  and test  suppliers;  and less than  anticipated  demand  and  selling
prices.  The occurrence of any problems  resulting from these risks could have a
material adverse effect on the Company's operating results.

GROSS PROFIT (LOSS)

The Company's gross profit for fiscal 1999 was approximately  $(12.4) million or
approximately  (26%) of net revenues compared to a gross profit of approximately
$1 million or  approximately  0.8% of net revenues for the same period in fiscal
1998.  The decrease in gross  profits  primarily  resulted  from the $20 million
pre-tax inventory charges recorded  principally during the first two quarters of
fiscal 1999 in  recognition of lower average  selling  prices  together with the
decline in the unit shipments and lower average selling prices for the Company's
DRAM, SRAM, and MMUI products due to competitive market conditions.

The  Company's  gross  profit for fiscal  1998 was  approximately  $1 million or
approximately  0.8% of net revenues  compared to gross  profit of  approximately
$(2.1)  million or  approximately  (2.5%) of net  revenues in fiscal  1997.  The
increase in gross profit in fiscal 1998 resulted  primarily  from increased unit
demand for DRAM  products,  lower cost of production for DRAM and SRAM products,
and  introduction to volume  production of newer,  higher density SRAM products.
These  increases  slightly  more than offset  pre-tax  charges in fiscal 1998 of
approximately  $15  million  (compared  with  pre-tax  charges in fiscal 1997 of
approximately  $17  million)  primarily  to adjust  the  value of the  Company's
inventory to reflect declines in market value.

The Company is unable to predict  when or if  declines  in the  average  selling
prices of the Company's  products will stabilize.  A continued decline in any of
such average selling prices could result in a material  decline of the Company's
gross  profits  unless the Company is able to reduce its cost per unit to offset
such declines. There can be no assurance that the Company will be able to reduce
its cost per unit at a level to offset a decline in average selling  prices.  In
fiscal  year 1999,  1998 and 1997,  the  Company  recorded a material  valuation
adjustments with respect to its inventory, primarily to reflect a decline in the
market value of such inventory.

The Company is subject to a number of factors that may have an adverse impact on
gross  profits,  including  the  availability  and  cost of  products  from  the
Company's suppliers; increased competition and related decreases in unit average
selling  prices;  changes  in the mix of  product  sold;  and the  timing of new
product introductions and volume shipments. In addition, the Company may seek to
add  additional  foundry  suppliers  and transfer  existing and newly  developed
products  to  more  advanced  manufacturing   processes.   The  commencement  of
manufacturing  at a new foundry is often  characterized  by lower  yields as the
manufacturing   process  is  refined.   There  can  be  no  assurance  that  the
commencement of such  manufacturing  will not have a material  adverse effect on
the Company's gross profits in future periods.

RESEARCH AND DEVELOPMENT

Research and development  expenses consist  principally of salaries and benefits
for  engineering  design,  contracted  development  efforts,  facilities  costs,
equipment and software  depreciation and  amortization,  wafer masks and tooling
costs, test wafers and other expense items.

Research  and  development   expenses  were   approximately   $14.1  million  or
approximately  29.5% of net revenues for fiscal 1999,  and  approximately  $15.3
million  or   approximately   12.9%  of  net  revenues  for  fiscal  1998,   and
approximately  $15.0 million or  approximately  18.2% of net revenues for fiscal
1997. The 8% decrease in spending  between fiscal 1999 and 1998 was due to lower
engineering  headcount  and  personnel  related  costs as well as lower mask and
tooling charges due to the  discontinuance of the MMUI accelerator  product line
in July 1998.

During  fiscal  1998,  the  Company's  development  efforts  focused on advanced
process and design  technology  involving  SRAMs,  DRAMs,  flash memory and MMUI
accelerator products.

                                      -21-
<PAGE>

The Company  believes that investments in research and development are necessary
to  remain  competitive  in  the  marketplace  and  accordingly,   research  and
development expenses may increase in absolute dollars and may also increase as a
percentage of net revenue in future periods.

SELLING, GENERAL AND ADMINISTRATIVE

Selling,  general and  administrative  expenses  generally  include salaries and
benefits, sales commissions, marketing costs, travel, equipment depreciation and
software  amortization,  facilities costs, bad debt expense as well as insurance
and  legal  costs for the  Company's  sales,  marketing,  customer  support  and
administrative personnel.

Selling,  general and administrative  expenses in fiscal 1999 were approximately
$12.7 million or approximately  26.5% of net revenues  compared to approximately
$18.7  million or  approximately  15.7% of net  revenues  for fiscal  1998.  The
decrease in spending in fiscal 1999 compared to fiscal 1998 was due  principally
to lower outside sales  commissions  which was a result of a 60% decrease in net
revenues,  which was partially  offset by higher legal fees  associated with the
SRAM anti-dumping proceeding.

In fiscal 1998 Selling,  general and administrative  expenses were approximately
$18.7 million or 15.7% of net revenues  compared to approximately  $10.3 million
or approximately 12.5% of net revenues for fiscal 1997. The increase in absolute
dollars and as a percentage of net revenues in fiscal 1998 was  principally  the
result of higher  sales  commissions  associated  with the 43%  increase  in net
revenues and legal fees associated with the SRAM anti-dumping proceeding.

Selling,  general and administrative  expenses may increase in absolute dollars,
and may fluctuate as a percentage of net revenues.

OTHER INCOME, NET

Other  Income,  Net  represents  interest  income  from short term  investments,
interest expense on short and long term obligations and gain on the sale of long
term investments.

Other Income, Net was approximately $14.7 million for fiscal 1999, approximately
$0.3  million for fiscal  1998 and  approximately  $1.8  million for fiscal 1997
(constituting approximately 30.8%, 0.2% and 2.1% of the respective fiscal year's
net  revenues).  The net  increase  in  Other  Income,  Net for  fiscal  1999 is
primarily  the  result  of a $15.8  million  net gain on the sale of 35  million
shares of USC,  which was  partially  offset by a $1.9 million  reduction in the
carrying value of the Company's investment in Maverick Networks.

PROVISION FOR INCOME TAXES

During the first quarter of fiscal 1999 the Company wrote off deferred  taxes of
$8.4 million due to net operating losses.  The Company's  effective tax rate was
(35)% for fiscal year 1999 and 35% for fiscal years 1998 and 1997. The effective
tax rate for fiscal  years 1998 and 1997  represented  tax  benefits  accrued at
applicable statutory rates.

EQUITY IN INCOME OF USC

As discussed in the section below entitled  "Liquidity  and Capital  Resources",
the Company  entered  into an  agreement  with other  parties to form a separate
Taiwanese company, USC. This investment is accounted for under the equity method
of accounting  with a ninety-day lag in reporting the Company's share of results
for the entity.  Equity in income of USC reflects the company's  share of income
earned by USC for the previous quarter. In fiscal 1999, the Company reported its
share in the income of USC in the amount of $10.9 million,  as compared to $15.5
million  reported in fiscal 1998. The 30% decrease in income is primarily due to
lower net income and a  decrease  in the  Company's  ownership  percentage  from
approximately 18% to 15%.

The Company's share of USC's income in fiscal 1997 was not a material amount and
was therefore not recorded.

                                      -22-
<PAGE>

IMPACT OF YEAR 2000 ISSUES

The Company uses a number of computer  software  programs and operating  systems
and  intelligent  hardware  devices  in  its  internal   operations,   including
information  technology (IT) and non-IT systems used in the design,  manufacture
and marketing of Company  products.  These items are  considered to be year 2000
"objects" and to the extent that these objects are unable to correctly recognize
and  process  date  dependent  information  beyond the year 1999,  some level of
modification or replacement is necessary.  Most computer  programs were designed
to perform data  computations on the last two digits of the numerical value of a
year. When a computation  referencing the year 2000 is performed,  these systems
may  interpret  "00"  as  the  year  1900  and  could  either  stop   processing
date-related  computations  or  could  process  them  incorrectly.  Computations
referencing  the year 2000 might be invoked at any time, but are likely to begin
occurring in the year 1999.

The  Company  is  currently   conducting  a  company-wide  year  2000  readiness
assessment and has recently completed  implementing a new management information
system which the Company  believes is year 2000  compliant.  During fiscal years
1999 and 1998, the Company spent  approximately  $2.6 million in connection with
implementing the new information  systems.  The Company does not anticipate that
it will incur material  expenditures  for the resolution of any year 2000 issues
relating to its IT or non-IT systems.

The Company  could  possibly be materially  adversely  impacted by the year 2000
issues  faced  by  major  distributors,  suppliers,  subcontractors,  customers,
vendors,  and financial service  organizations with which the Company interacts.
The  Company  is in the  process  of  determining  the  impact of the  Company's
operations as a result of the year 2000 readiness of these third parties. In the
event 2000 issues  relating to key customers and suppliers are not  successfully
resolved,  based on information available to us at present, the Company believes
that the most reasonably likely worse case scenario is a temporary disruption in
infrastructure  service,  which could adversely  impact  supplier  deliveries or
customer  shipments.  If  severe  disruptions  occur in these  areas and are not
corrected in a timely manner, a revenue or profit shortfall may result in fiscal
year 2000. The Company is in the process of assessing year 2000 readiness of its
major  suppliers  and vendors and is in the process of  developing a contingency
plan,  which it expects to complete by September 1999, at which time the Company
will be able to  evaluate  its most  reasonable  likely  worst  case  year  2000
scenarios.

Year 2000  compliance  issues could have a  significant  impact on the Company's
operations  and its  financial  results if the new  information  systems are not
completely  implemented in a timely manner;  unforeseen needs or problems arise;
or,  if  the  systems   operated  by  the   Company's   customers,   vendors  or
subcontractors  are not year 2000  compliant.  The  dates on which  the  Company
believes its year 2000  readiness  will be completed  are based on the Company's
management's best estimates,  which were derived utilizing numerous  assumptions
of future events,  including the continued  availability  of certain  resources,
third-party  modification  plans and  other  factors.  However,  there can be no
guarantee  that these  estimates  will be achieved,  or that there will not be a
delay in, or increased costs  associated with, the  implementation  of year 2000
compliant  solutions.  Specific factors that might cause differences between the
estimates and actual results  include,  but are not limited to, the availability
and cost of personnel  trained in these areas, the ability to locate and correct
all relevant computer code, timely responses to and corrections by third-parties
and suppliers,  the ability to implement  interfaces between the new systems and
the systems not being replaced,  and similar  uncertainties.  Due to the general
uncertainty  inherent  in the year  2000  problem,  resulting  in part  from the
uncertainty of the year 2000 readiness of third-parties and the  interconnection
of global  businesses,  the  Company  cannot  ensure  its  ability to timely and
cost-effectively  resolve problems  associated with the year 2000 issue that may
affect its operations and business, or expose it to third-party liability.

FACTORS THAT MAY AFFECT FUTURE RESULTS

The Company's quarterly and annual operating results have historically been, and
will  continue  to be,  subject to  quarterly  and other  fluctuations  due to a
variety of factors, including:  general economic conditions;  changes in pricing
policies by the Company,  its  competitors  or its  suppliers;  anticipated  and
unanticipated  decreases  in  unit  average  selling  prices  of  the  Company's
products;  fluctuations  in  manufacturing  yields,  availability  and  cost  of
products from the Company's suppliers;  the timing of new product  announcements
and  introductions  by the  Company  or its  competitors;  changes in the mix of
products sold; the cyclical nature of the  semiconductor  industry;  the gain or
loss of  significant  customers;  increased  research and  development  expenses
associated with new

                                      -23-
<PAGE>

product  introductions;  market  acceptance  of new or enhanced  versions of the
Company's  products;  seasonal  customer  demand;  and the timing of significant
orders.   Operating  results  could  also  be  adversely  affected  by  economic
conditions  generally or in various geographic areas, other conditions affecting
the timing of customer orders and capital spending, a downturn in the market for
personal  computers,  or  order  cancellations  or  rescheduling.  Additionally,
because the  Company is  continuing  to  increase  its  operating  expenses  for
personnel  and new product  development  to be able to support  increased  sales
levels,  the  Company's  operating  results will be  adversely  affected if such
increased sales levels are not achieved.

The markets for the Company's products are characterized by rapid  technological
change, evolving industry standards,  product obsolescence and significant price
competition  and,  as a result,  are  subject to  decreases  in average  selling
prices.  The Company has experienced  significant  deterioration  in the average
selling  prices  for its SRAM and DRAM  products  during  the past 3 years.  The
Company is unable to predict when or if such  decline in prices will  stabilize.
Historically,  average  selling prices for  semiconductor  memory  products have
declined and the Company expects that average selling prices will decline in the
future. Accordingly, the Company's ability to maintain or increase revenues will
be highly  dependent  on its ability to increase  unit sales  volume of existing
products and to successfully develop, introduce and sell new products. Declining
average  selling prices will also adversely  affect the Company's  gross margins
unless  the  Company  is able to  significantly  reduce  its cost per unit in an
amount to  offset  the  declines  in  average  selling  prices.  There can be no
assurance  that the  Company  will be able to  increase  unit  sales  volumes of
existing  products,  develop,  introduce and sell new products or  significantly
reduce  its cost per  unit.  There  also can be no  assurance  that  even if the
Company were to increase  unit sales volumes and  sufficiently  reduce its costs
per unit,  the Company  would be able to maintain or increase  revenues or gross
margins.

The Company  usually  ships more product in the third month of each quarter than
in either of the first two months of the  quarter,  with  shipments in the third
month  higher  at the end of the  month.  This  pattern,  which is common in the
semiconductor industry, is likely to continue. The concentration of sales in the
last  month  of the  quarter  may  cause  the  Company's  quarterly  results  of
operations  to be more  difficult  to predict.  Moreover,  a  disruption  in the
Company's  production  or shipping  near the end of a quarter  could  materially
reduce the  Company's  net sales for that  quarter.  The  Company's  reliance on
outside  foundries  and  independent  assembly  and testing  houses  reduces the
Company's ability to control, among other things, delivery schedules.

The  cyclical  nature of the  semiconductor  industry  periodically  results  in
shortages of advanced process wafer fabrication capacity such as the Company has
experienced from time to time. The Company's ability to maintain adequate levels
of inventory is primarily dependent upon the Company obtaining sufficient supply
of products to meet future demand,  and any inability of the Company to maintain
adequate inventory levels may adversely affect its relations with its customers.
In addition,  the Company must order products and build inventory  substantially
in advance of products  shipments,  and there is a risk that because  demand for
the  Company's  products is volatile and subject to rapid  technology  and price
change, the Company will forecast incorrectly and produce excess or insufficient
inventories of particular  products.  This inventory risk is heightened  because
certain of the Company's key customers  place orders with short lead times.  The
Company's  customers' ability 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  independent  foundries  to match such
customer changes and cancellations.  The Company has in the past produced excess
quantities of certain  products,  which has had a material adverse effect on the
Company's  operating results.  There can be no assurance that the Company in the
future will not produce excess quantities of any of its products.  To the extent
the Company produces excess or insufficient  inventories of particular products,
the Company's operating results could be adversely affected,  as was the case in
fiscal 1999,  fiscal 1998 and fiscal  1997,  when the Company  recorded  pre-tax
charges  totaling  approximately  $20  million,  $15  million  and $17  million,
respectively,  primarily  to  reflect  a  decline  in  market  value of  certain
inventory.

The Company  currently  relies on  independent  and joint  venture  foundries to
manufacture all of the Company's products.  Reliance on these foundries involves
several  risks,  including  constraints  or  delays in  timely  delivery  of the
Company's products,  reduced control over delivery schedules,  quality assurance
and costs and loss of production due to seismic activity, weather conditions and
other  factors.  In or about  October  1997, a fire caused  extensive  damage to
United Integrated Circuits Corporation ("UICC"), a foundry joint venture between
UMC and various companies.  UICC is located next to USIC and near USC and UMC in
the  Hsin-Chu   Science-Based   Industrial   Park.  (The  Company  has  products
manufactured  at UMC and USC,  and owns  equity  stakes in USC and

                                      -24-
<PAGE>

USIC.) UICC suffered an additional fire in January 1998, and since October 1996,
there  have  been at  least  two  other  fires  at  semiconductor  manufacturing
facilities  in the  Hsin-Chu  Science-Based  Industrial  Park.  There  can be no
assurance that fires or other disasters will not have a material  adverse affect
on UMC, USC or USIC in the future. In addition,  as a result of the rapid growth
of the  semiconductor  industry based in the Hsin-Chu  Science-Based  Industrial
Park, severe constraints have been placed on the water and electricity supply in
that region.  Any shortages of water or electricity  could adversely  affect the
Company's foundries' ability to supply the Company's products,  which could have
a material  adverse  effect on the Company's  results of operations or financial
condition. Although the Company continuously evaluates sources of supply and may
seek to add  additional  foundry  capacity,  there can be no assurance that such
additional  capacity  can be  obtained  at  acceptable  prices,  if at all.  The
occurrence of any supply or other problem  resulting from these risks could have
a material adverse effect on the Company's  operating  results,  as was the case
during the third  quarter of fiscal  1996,  during  which  period  manufacturing
yields of one of the Company's  products were materially  adversely  affected by
manufacturing  problems at one of the Company's foundry suppliers.  There can be
no assurance that other problems affecting manufacturing yields of the Company's
products will not occur in the future.

There is an ongoing risk that the  suppliers of wafer  fabrication,  wafer sort,
assembly and test  services to the Company may increase the price charged to the
Company for the services they provide,  to the point that the Company may not be
able to profitably have its products produced at such suppliers.  The occurrence
of such price  increases  could have a material  adverse affect on the Company's
operating results.

The Company conducts a significant  portion of its business  internationally and
is  subject  to a number of risks  resulting  from such  operations.  Such risks
include  political and economic  instability and changes in diplomatic and trade
relationships,  foreign currency fluctuations,  unexpected changes in regulatory
requirements,  delays resulting from difficulty in obtaining export licenses for
certain technology, tariffs and other barriers and restrictions, and the burdens
of complying with a variety of foreign laws.  Because the Company  conducts most
of its  manufacturing  operations in Asia, and receives a significant  amount of
its net revenue from sales to Asian customers, the foregoing risks heightened in
light of the recent financial and economic crisis in Asia.  Current or potential
customers of the Company in Asia, for instance,  may become  unwilling or unable
to purchase the Company's  products,  and the Company's Asian competitors may be
able to become more  price-competitive  relative to the Company due to declining
values of their national currencies. There can be no assurance that such factors
will not  adversely  impact  the  Company's  operating  results in the future or
require the Company to modify its current business practices.

Additionally,  other  factors  may  materially  adversely  affect the  Company's
operating  results.  The Company relies on domestic and offshore  subcontractors
for die assembly and testing of products,  and is subject to risks of disruption
in adequate supply of such services and quality problems with such services. The
Company is subject to the risks of shortages of goods or services and  increases
in the  cost  of raw  materials  used  in the  manufacture  or  assembly  of the
Company's  products.  The Company  faces  intense  competition,  and many of its
principal  competitors  and potential  competitors  have  substantially  greater
financial,  technical,  marketing,  distribution  and other  resources,  broader
product lines and  longer-standing  relationships  with  customers than does the
Company,  any  of  which  factors  may  place  such  competitors  and  potential
competitors in a stronger  competitive  position than the Company. The Company's
corporate headquarters are located near major earthquake faults, and the Company
is subject to the risk of damage or disruption in the event of seismic activity.
There can be no assurance that any of the foregoing  factors will not materially
adversely affect the Company's operating results.

In 1999,  the Company  adopted SFAS No. 130,  "Reporting  Comprehensive  Income.
"Comprehensive  income is defined as the change in equity of a company  during a
period  from  transactions  and  other  events  and   circumstances,   excluding
transactions resulting from investments by owners and distributions to owners.

In 1999,  the Company  adopted SFAS No. 131,  "Disclosures  about Segments of an
Enterprise  and  Related   Information."   SFAS  No.  131  supersedes  SFAS  No.
14,"Financial Reporting for Segments of a Business Enterprise," and replaces the
"industry  segment"  approach with the  "management"  approach.  The  management
approach  designates  the internal  organization  that is used by management for
making  operating  decisions  and  assessing  performance  as  the  source  of a
company's  reportable  segments.  SFAS No. 131 also requires  disclosures  about
products and services,  geographic  areas, and major customers.  The adoption of
SFAS No. 131 did not affect  results of operations or financial  position or the
segments we reported in 1998 and 1999.

                                      -25-
<PAGE>

In  June  1998,  the  Financial  Accounting  Standards  Board  issued  SFAS  No.
133,"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
requires  that  an  entity   recognize  all  derivatives  as  either  assets  or
liabilities in the statement of financial position and measure those instruments
at fair value.  It further  provides  criteria for derivative  instruments to be
designated as fair value, cash flow and foreign currency hedges, and establishes
respective  accounting  standards for reporting changes in the fair value of the
instruments.  The statement is effective for all fiscal quarters of fiscal years
beginning  after  June 15,  2000.  Upon  adoption  of SFAS No.  133,  we will be
required to adjust hedging  instruments to fair value in the balance sheet,  and
recognize the offsetting  gain or loss as transition  adjustments to be reported
in net income or other comprehensive income, as appropriate,  and presented in a
manner similar to the cumulative effect of a change in accounting principle.  We
believe the adoption of this statement will not have a significant effect on our
results of operations.

Current pending litigation,  administrative proceedings and claims are set forth
in Item 3 Legal  Proceedings  and in Item 1 -  Licenses,  Patents  and  Maskwork
Protection,  above.  The  Company  intends to  vigorously  defend  itself in the
litigation and claims and,  subject to the inherent  uncertainties of litigation
and  based  upon  discovery  completed  to date,  management  believes  that the
resolution  of these  matters  will not have a  material  adverse  effect on the
Company's  financial  position.  However,  should  the  outcome  of any of these
actions be  unfavorable,  the  Company  may be required to pay damages and other
expenses,  or may be enjoined from  manufacturing or selling any products deemed
to  infringe  the  intellectual  property  rights of others,  which could have a
material  adverse  effect  on the  Company's  financial  position  or  operating
results.  Moreover,  the  semiconductor  industry is  characterized  by frequent
claims and litigation  regarding patent and other intellectual  property rights.
The Company has from time to time received,  and believes that it likely will in
the  future  receive,  notices  alleging  that the  Company's  products,  or the
processes used to manufacture the Company's products,  infringe the intellectual
property rights of third parties, and the Company is subject to the risk that it
may become party to litigation  involving such claims (the Company  currently is
involved in patent  litigation).  In the event of  litigation  to determine  the
validity of any third-party claims (such as the current patent  litigation),  or
claims  against  the  Company for  indemnification  related to such  third-party
claims,  such  litigation,  whether or not  determined  in favor of the Company,
could result in significant expense to the Company and divert the efforts of the
Company's technical and management personnel from other matters. In the event of
an adverse ruling in such litigation, the Company might be required to cease the
manufacture, use and sale of infringing products, discontinue the use of certain
processes,  expend significant resources to develop non-infringing technology or
obtain licenses to the infringing  technology.  In addition,  depending upon the
number of  infringing  products  and the extent of sales of such  products,  the
Company could suffer significant  monetary damages. In the event of a successful
claim  against  the Company  and the  Company's  failure to develop or license a
substitute  technology,  the  Company's  operating  results  could be materially
adversely affected.

The Company also, as a result of an antidumping proceeding commenced in February
1997,  must pay a cash deposit equal to 50.15% of the entered value of any SRAMs
manufactured  (wafer  fabrication) in Taiwan, in order to import such goods into
the U.S.  Although the Company may be refunded  such deposits in the future (see
Item 3 - Legal Proceedings,  above), the deposit requirement,  and the potential
that all entries of  Taiwan-fabricated  SRAMs from October 1, 1997 through March
31, 1999 will be  liquidated  at the bond rate or deposit  rate in effect at the
time of entry, may materially  adversely affect the Company's ability to sell in
the United States SRAMs manufactured  (wafer fabrication) in Taiwan. The Company
manufactures  (wafer fabrication) SRAMs in Singapore (and has manufactured SRAMs
in Japan as  well),  and may be able to  support  its U.S.  customers  with such
products,  which  are  not  subject  to  antidumping  duties.  There  can  be no
assurance, however, that the Company will be able to do so.

In October 1998, Micron Technology,  Inc. filed an antidumping petition with the
DOC  and the  ITC,  alleging  that  dynamic  random  access  memories  ("DRAMs")
fabricated  in Taiwan  are  being  sold in the  United  States at less than fair
value, and that the United States industry producing DRAMs is materially injured
or threatened with material  injury by reason of imports of DRAMs  fabricated in
Taiwan. The petition requests the United States government to impose antidumping
duties on  imports  into the United  States of DRAMs  fabricated  in  Taiwan.  A
material portion of the DRAMs designed and sold by the Company are fabricated in
Taiwan. The Company received  preliminary  producer and importer  questionnaires
from the ITC, and submitted  responses to such  questionnaires in November 1998.
In December 1998, the ITC  preliminarily  determined  that there is a reasonable
indication that the imports of the products under investigation are injuring the
United States industry.  The

                                      -26-
<PAGE>

Company   received  a  questionnaire   from  the  DOC,  and  responded  to  such
questionnaire in accordance with the established  deadline. In January 1999, the
DOC  decided  to limit  the  number of  respondents  investigated  and  notified
Alliance  that it  would  not be  separately  investigated.  In May 1999 the DOC
issued  a  preliminary   affirmative   determination  of  dumping.   Under  that
determination,  the  Company's  imports  into  the  United  States  on or  after
approximately  May 28,  1999 of DRAMs  fabricated  in Taiwan  are  subject to an
antidumping  duty deposit in the amount of 16.65% (the  preliminary "all others"
rate) of the entered value of such DRAMs,  an antidumping  margin  calculated by
weight-averaging the antidumping margins of individually investigated respondent
companies.  The Company will post a bond to cover deposits on such entries.  The
DOC is currently  scheduled to complete its  investigation  by late 1999. If the
DOC final determination of dumping and the ITC final determination of injury are
affirmative, the DOC will issue an antidumping duty order. Under any such order,
the Company's  imports of  Taiwan-fabricated  DRAMs into the United States on or
after the date the order is  published  will be subject to a cash deposit in the
amount of the final "all  others"  rate of the entered  value of such DRAMs.  If
either  agency's final  determination  is negative,  the  investigation  will be
terminated,  the suspension of liquidation lifted, and the bond released.  If an
antidumping  order is issued,  in late 2000 the Company will have an opportunity
to request a review of its sales of  Taiwan-fabricated  DRAMs from approximately
May 1999 through November 2000 (the "Review Period").  If the Company makes such
a request,  the amount of antidumping duties, if any, owed on entries during the
Review  Period will remain  undetermined  until the  conclusion of the review in
late 2001, which would determine a company-specific  antidumping duty margin. If
the DOC found,  based upon  analysis of the  Company's  sales  during the Review
Period,  that  antidumping  duties  either  should  not be  imposed or should be
imposed at a lower  rate than the final  "all  others"  rate  determined  in the
original  investigation,  the  difference  between the cash deposits made by the
Company,  and the  deposits  that would have been made had the lower rate (or no
rate, as the case may be) been in effect, would be returned to the Company, with
interest. If, on the other hand, the DOC found a higher Company-specific margin,
the Company would have to pay the  difference  between the cash deposits paid by
the Company and the deposits  that would have been made had the higher rate been
in effect,  with interest.  A material portion of the DRAMs designed and sold by
the Company are  fabricated  in Taiwan,  and the cash  deposit  requirement  and
possibility  of  assessment of  antidumping  duties could  materially  adversely
affect  the  Company's  ability  to sell  Taiwan-fabricated  DRAMs in the United
States and have a material adverse effect on the Company's operating results and
financial condition.

The Company has made and will  continue to make  investments  in emerging,  high
technology companies such as Maverick Networks and others. There is no guarantee
that these  companies  will be  successful  or that the Company will recover its
investments.

As a result of the foregoing  factors,  as well as other  factors  affecting the
Company's  operating results,  past performance should not be considered to be a
reliable indicator of future performance and investors should not use historical
trends to anticipate  results or trends in future  periods.  In addition,  stock
prices for many  technology  companies  are subject to  significant  volatility,
particularly  on a  quarterly  basis.  If  revenues  or  earnings  fail  to meet
expectations  of the  investment  community,  there  could be an  immediate  and
significant impact on the market price of the Company's Common Stock.

Due to the  foregoing  factors,  it is likely  that in some  future  quarter  or
quarters the Company's operating results may be below the expectations of public
market analysts and investors.  In such event, the price of the Company's Common
Stock would likely be materially and adversely affected.

LIQUIDITY AND CAPITAL RESOURCES

The Company's  operating  activities used cash of approximately $24.2 million in
fiscal 1999,  versus  generating  cash of  approximately  $6.9 million in fiscal
1998,  and using  approximately  $44.6 million in fiscal 1997.  Cash utilized in
operations in fiscal 1999 was primarily the result of net loss generated  during
the period.  Cash generated by operations in fiscal 1998 was the result of a tax
refund and changes in working  capital  accounts  offset by a net loss  incurred
during the fiscal  year.  Cash  utilized  in  operations  in fiscal 1997 was the
result of an operating loss and an increase in working capital.

Net cash provided by investing  activities  was  approximately  $25.0 million in
fiscal 1999 versus cash used in investment activities of $21.9 million in fiscal
1998,  and  approximately  $19.3  million in fiscal 1997.  Net cash  provided by
investing   activities   in  fiscal  1999   included   equipment   purchases  of
approximately  $2.6 million,

                                      -27-
<PAGE>

investments in USIC of approximately $3.1 million, and proceeds from the sale of
USC shares of approximately $31.7 million. Net cash used in investing activities
in fiscal 1998 reflect equipment  purchases of approximately $3.2 million and an
equity investment in USC of approximately $17.6 million,  while net cash used in
investing  activities  during  fiscal  1997  including  equipment  purchases  of
approximately  $3.1  million and an equity  investment  in USC of  approximately
$16.4 million.

Net cash provided by financing  activities in fiscal 1999  primarily  reflects a
decrease in restricted cash of approximately  $1.3 million,  partially offset by
the reduction of long term debt obligations of approximately  $0.8 million.  Net
cash provided by financing  activities of  approximately  $0.6 million in fiscal
1998,  reflects  receipt of  approximately  $3.1 million from issuance of common
stock upon  exercise  of options  pursuant  to the  Company's  stock  option and
employee stock purchase plans,  partially offset by the reduction of a long term
debt obligation of approximately $1.1 million and an increase in restricted cash
of  approximately  $1.4 million.  Net cash provided by financing  activities was
approximately $0.7 million in fiscal 1997 generated through financing activities
resulting  from  proceeds of a secured  loan of  approximately  $3.8 million and
proceeds of  approximately  $2.0 million  through  issuance of common stock upon
exercise of options under the Company's stock option and employee stock purchase
plans,  partially offset by an increase in restricted cash of approximately $5.1
million.

At April 3, 1999,  the  Company  had  approximately  $6.2  million  in cash,  an
increase of approximately  $3.2 million from March 28, 1998, and working capital
of approximately  $22.1 million, a decrease of approximately  $17.8 million from
March 28, 1998.

The  Company   believes  that  these   sources  of   liquidity,   and  financing
opportunities  the Company  believes will be available to it, will be sufficient
to meet its  projected  working  capital  and other  cash  requirements  for the
foreseeable future.

In order to obtain an adequate supply of wafers,  especially wafers manufactured
using  advanced  process  technologies,  the Company  has entered  into and will
continue to consider various possible transactions, including equity investments
in or loans to foundries in exchange for  guaranteed  production  capacity,  the
formation of joint ventures to own and operate foundries,  or the usage of "take
or pay"  contracts that commit the Company to purchase  specified  quantities of
wafers  over  extended  periods.  Manufacturing  arrangements  such as these may
require substantial capital  investments,  which may require the Company to seek
additional  equity  or debt  financing.  There  can be no  assurance  that  such
additional  financing,  if  required,  will be  available  when  needed  or,  if
available, will be on satisfactory terms. Additionally,  the Company has entered
into and will  continue  to  enter  into  various  transactions,  including  the
licensing of its integrated  circuit designs in exchange for royalties,  fees or
guarantees of manufacturing capacity.

In  February  1995,  the  Company  agreed to purchase  shares of  Chartered  for
approximately  US$10 million and entered into a  manufacturing  agreement  under
which  Chartered  will provide a minimum  number of wafers from its 8-inch wafer
fabrication  facility  known as "Fab2." In April  1995,  the  Company  agreed to
purchase additional shares in Chartered, bringing the total agreed investment in
Chartered to  approximately  US$51.6 million and Chartered  agreed to provide an
increased  minimum  number of wafers to be provided by Chartered  from Fab2. The
Company has paid all  installments to Chartered.  Chartered is a private company
based in Singapore that is controlled by entities  affiliated with the Singapore
government. The Company owns approximately 2.1% of the equity of Chartered.

In July 1995, the Company entered into an agreement with United Microelectronics
corporation  ("UMC")  and S3  Incorporated  ("S3") to form a separate  Taiwanese
company,  United Semiconductor  Corporation ("USC"), for the purpose of building
and  managing an 8-inch  semiconductor  manufacturing  facility  in Taiwan.  The
Company paid  approximately 1 billion New Taiwan Dollars ("NTD")  (approximately
US$36.4 million) in September 1995, approximately NTD 450 million (approximately
US$16.4 million) in July 1996, and approximately NTD 492 million  (approximately
US$17.6  million)  in July  1997.  After the last  payment,  the  Company  owned
approximately 190 million shares of USC, or approximately 19% of the outstanding
shares. In April 1998, the Company sold 35 million shares of USC to an affiliate
of UMC and received  approximately  US$31.7 million. In connection with the sale
of 35 million shares of USC, the Company  additionally  has the right to receive
up  to  another  665  million  NTD  (approximately  US$20.4  million)  upon  the
occurrence of certain  potential  future events.  After the April 1998 sale, the
Company owned  approximately 15.5% of the outstanding shares of USC, and has the
right to purchase up to

                                      -28-
<PAGE>

approximately  25% of the  manufacturing  capacity in the  facility.  In October
1998,  USC  issued  46  million  shares  to  the  Company  by  way  of  dividend
distribution. Additionally, USC made a stock distribution to its employees. As a
result of this distribution, the Company's ownership in USC was reduced to 15.1%
of the  outstanding  shares.  In April 1999, USC issued 46 million shares to the
Company  by  way of  dividend  distribution.  Additionally,  USC  made  a  stock
distribution to its employees.  As a result of this distribution,  the Company's
ownership in USC was reduced to 14.8% of the outstanding  shares.  To the extent
USC experiences operating income or losses and the Company maintains its current
ownership  percentage  of  outstanding  shares,  the Company will  recognize its
proportionate  share of such income or losses.  During fiscal 1999,  the Company
recorded  $10.9 million of equity in income of USC, as compared to $15.5 million
recorded during fiscal 1998.

In October  1995,  the  Company  entered  into an  agreement  with UMC and other
parties to form a separate Taiwanese company,  USIC, for the purpose of building
and  managing an 8-inch  semiconductor  manufacturing  facility  in Taiwan.  The
facility  has  commenced  volume  production   utilizing   advanced   sub-micron
semiconductor  manufacturing  processes.  The  contributions  of the Company and
other  parties  shall  be in the form of  equity  investments,  representing  an
initial ownership  interest of approximately 5% for each US$30 million invested.
The Company had  originally  committed to an investment of  approximately  US$60
million or 10% ownership  interest but subsequently  requested that its level of
participation be reduced by 50%. The first  installment of approximately  50% of
the revised  investment,  or US$13.7 million,  was made in January 1996, and the
Company  had but did not  exercise  the  option to pay a second  installment  of
approximately  25% of the  revised  investment  payable in  December  1997.  The
Company made a third  installment  payment of approximately  106 million NTD (or
approximately  US$3.1 million) in July 1998.  After the third  installment,  the
Company owns  approximately  3.21% of the outstanding shares of USIC and has the
right  to  purchase  approximately  3.7% of the  manufacturing  capacity  of the
facility.

In June 1999,  UMC  announced  plans to merge four  semiconductor  wafer foundry
units, USC, USIC, United Integrated  Circuit  Corporation and UTEK Semiconductor
Corporation,  into UMC, a  publicly-traded  company in Taiwan.  According to the
proposed terms of the merger,  Alliance will receive 247.7 million shares of UMC
stock for its 247.7 million shares or 14.76% ownership of USC and  approximately
35.6 million  shares of UMC stock for its 48.1 million  shares or 3.2% ownership
of USIC.  UMC has indicated that they expect to have  approximately  8.8 billion
shares  outstanding  as of the closing date of the merger.  Based on June 14th's
closing  price for UMC shares of NTD 67.50,  and the then  current  U.S.  dollar
exchange  rate  of  32.36,   the  estimated   value  of  these   investments  is
approximately  $589  million.  At  March  31,  1999  the book  value  for  these
investments was approximately $94 million excluding deferred tax liabilities and
cumulative translation adjustments relating to the investment in USC. The merger
is subject to  shareholders  and  government  approval  and is expected to close
before the end of 1999.  The UMC shares  received by Alliance are expected to be
subject to a six-month  "lock-up"  or no trade period  before the shares  become
freely tradable in Taiwan.

On January 25, 1999,  the Company  agreed to approve a proposed  merger  between
Maverick  Networks  ("Maverick"),  a  startup  company  funded  by the  Company,
Broadcom Corporation  ("Broadcom") and a wholly-owned subsidiary of Broadcom. At
the signing of the merger agreement,  the company owned  approximately  28.4% of
the total outstanding shares of Maverick.

On May 31,  1999,  Maverick  Networks  (an entity in which the Company had a 28%
interest in) completed a transaction with Broadcom Corporation, resulting in the
Company selling its ownership interest in Maverick Networks. As a result of this
transacton,   the  Company  will  report  a  pre-tax,   non-operating   gain  of
approximately  $52  million on its  investment  with  Maverick  Networks  in the
financial results for the first quarter ending July 3, 1999, based on Broadcom's
closing stock price of $95 3/4 on May 31, 1999. The Company will receive 538,961
shares of Boadcom's  Class B Common Stock which are  identical to Class A Common
Stock except for certain voting  rights,  and are  automatically  converted into
Class A Common Stock upon sale.

As reported in the Company's Fourth Quarter FY 1999 earnings release dated April
27, 1999, the Broadcom shares are subject to certain  restrictions,  including a
restriction pursuant to the pooling-of-interest  accounting rules which prevents
the Company from selling its shares until Broadcom first publicly reports thirty
days of Broadcom and Maverick Networks combined operating results.  According to
the Company's  agreement with  Broadcom,  10% or 53,896 shares of Broadcom stock
will be held in escrow for six months to  potentially  compensate  Broadcom  for

                                      -29-
<PAGE>

losses,  if any,  Broadcom  may incur if Maverick  breaches  terms of the merger
agreement, or misrepresents information in the transaction.

ITEM 7A
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We have exposure to the impact of foreign  currency  fluctuations and changes in
market values of our investments. These investments operate in markets that have
experienced significant exchange rate fluctuations over the year ended March 31,
1999. These entities, in which we hold varying percentage interests, operate and
sell their products in various global  markets;  however,  the majority of their
sales are denominated in U.S.  dollars,  and therefore,  their foreign  currency
risk is  reduced.  We did not  hold any  derivative  financial  instruments  for
trading purposes as of March 31, 1999.

INVESTMENT RISK

As of March  31,  1999,  our  investment  portfolio  consisted  of fixed  income
securities. These securities, like all fixed income instruments,  carry a degree
of interest rate risk.  Fixed rate  securities  may have their fair market value
adversely  impacted  due  to a rise  in  interest  rates,  while  floating  rate
securities may produce less income than expected if interest rates fall.

FOREIGN CURRENCY RISK

Based on our overall  currency  rate exposure at March 31, 1999, a near term 10%
appreciation  or  depreciation  in the value of the U.S.  dollar  would  have an
insignificant  effect on our financial position,  results of operations and cash
flows over the next fiscal year.  There can be no assurance  that there will not
be a material impact in the future.

ITEM 8
CONSOLIDATED FINANCIAL STATEMENTS

The index to the Company's Consolidated Financial Statements and Schedules,  and
the report of the independent  accountants appear in Part III of this Form 10-K.
Selected quarterly financial data appears in Item 6 above.

ITEM 9
CHANGES IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND  FINANCIAL
DISCLOSURE

None.

                                      -30-
<PAGE>

================================================================================
PART III

ITEM 10
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

Other than the information  required pursuant to Item 405 of Regulation S-K, the
information  required by this item concerning  executive officers of the Company
is set forth in Part I of this Form 10-K after Item 4. The information  required
by this item with  respect to  directors  is  incorporated  by  reference to the
section captioned "Election of Directors" in the proxy statement.

ITEM 11
EXECUTIVE COMPENSATION

The  information  required  by this item is  incorporated  by  reference  to the
section captioned "Executive Compensation" contained in the Proxy Statement.

ITEM 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The  information  required  by this item is  incorporated  by  reference  to the
section  captioned   "Security   Ownership  of  Certain  Beneficial  Owners  and
Management" contained in the Proxy Statement.

ITEM 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The  information  required  by this item is  incorporated  by  reference  to the
section captioned "Certain Transactions" contained in the Proxy Statement.

ITEM 14
EXHIBITS,  FINANCIAL  STATEMENTS,  FINANCIAL  STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K

 (a) (1) (I)  FINANCIAL  STATEMENTS  --  See  Index  to  Consolidated
              Financial Statements on page F-1 of this Form 10-K Annual Report.

         (II) REPORT OF INDEPENDENT  ACCOUNTANTS -- See Index to Consolidated
              Financial Statements on F-1 of this Form 10-K Annual Report.

     (2) (I)  SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS - See Index to
              Consolidated Financial Statements on F-1 of this Form 10-K Annual
              Report.

         (II) FINANCIAL  STATEMENTS OF UNITED  SEMICONDUCTOR  CORPORATION,  A
              TAIWANESE COMPANY - The following financial  statements are filed
              as  part  of  this  report:   Financial   Statements   of  United
              Semiconductor  Corporation for the Fiscal Year Ended December 31,
              1998 and December 31, 1997.

     (3)      EXHIBITS -- See Exhibit Index on page 32 of this Form 10-K Annual
              Report.

 (b)          The  following  Current  Report on Form 8-K was filed  during the
              Registrant's  fourth fiscal  quarter:  Current Report on Form 8-K
              filed on February 2, 1999.

 (c)          See Exhibit Index on page 32 of this Form 10-K Annual Report.

                                      -31-
<PAGE>

================================================================================
EXHIBIT INDEX

<TABLE>
<CAPTION>

  Exhibit      Document Description
   Number
-------------  ------------------------------------------------------------------------
<S>            <C>
  3.01(A)      Registrant's Certificate of Incorporation

  3.02(A)      Registrant's Certificate of Elimination of Series A Preferred Stock

  3.03(F)      Registrant's Certificate of Amendment of Certificate of Incorporation

  3.04(A)      Registrant's Bylaws

  4.01(A)      Specimen of Common Stock Certificate of Registrant

 10.01+(K)     Registrant's  1992 Stock  Option Plan  adopted by  Registrant  on
               April 7, 1992 and amended through September 19, 1996, and related
               documents

 10.02+(A)     Registrant's Directors Stock Option Plan adopted by Registrant on
               October 1, 1993 and related documents

 10.03+(A)     Form of Indemnity Agreement used between Registrant and certain of its
               officers and directors

 10.04+(K)     Form of Indemnity Agreement used between the Registrant and certain of
               its officers

 10.05(B)      Sublease Agreement dated February 1994 between Registrant and Fujitsu
               America, Inc.

 10.06(B)      Net Lease Agreement dated February 1, 1994 between Registrant and
               Realtec Properties I L.P.

 10.07*(C)     Subscription Agreement dated February 17, 1995, by and among
               Registrant, Singapore Technology Pte. Ltd. and Chartered Semiconductor
               Manufacturing  Pte. Ltd.

 10.8*(C)      Manufacturing Agreement dated February 17, 1995, between Registrant
               and Chartered Semiconductor Manufacturing Pte. Ltd.

 10.9(D)       Supplemental Subscription Agreement dated March 15, 1995, by and among
               Registrant, Singapore Technology Pte. Ltd. and Chartered Semiconductor

               Manufacturing Pte. Ltd.

 10.10*(D)     Supplemental Manufacturing Agreement dated March 15, 1995, between
               Registrant and Chartered Semiconductor Manufacturing Pte. Ltd.

 10.11*(E)     Foundry  Venture  Agreement  dated  July 8,  1995,  by and  among
               Registrant,   S3   Incorporated   and   United   Microelectronics
               Corporation

 10.12*(E)     Foundry Capacity Agreement dated July 8, 1995, by and among
               Registrant, Fabco, S3 Incorporated and United Microelectronics
               Corporation

 10.13*(F)     Foundry Venture Agreement dated September 29, 1995, between Registrant
               and United Microelectronics Corporation

 10.14*(F)     Foundry Capacity Agreement dated September 29, 1995, by and among
               Registrant, FabVen and United Microelectronics Corporation

 10.15*(F)     Written Assurances Re: Foundry Venture Agreement dated September 29,
               1995 by and among Registrant, FabVen and United Microelectronics
               Corporation

 10.16*(G)     Letter Agreement dated June 26, 1996 by and among Registrant,  S3
               Incorporated and United Microelectronics Corporation

 10.17(H)      Stock Purchase Agreement dated as of June 30, 1996 by and among
               Registrant, S3 Incorporated, United Microelectronics Corporation and
               United Semiconductor Corporation

 10.18*(H)     Amendment to Fabco Foundry Capacity Agreement dated as of July 3, 1996
               by and among Registrant, S3 Incorporated, United Microelectronics
               Corporation and United Semiconductor Corporation

 10.19(H)      Side Letter dated July 11, 1996 by and among Registrant, S3
               Incorporated, United Microelectronics Corporation and United
               Semiconductor Corporation

 10.20+(I)     1996 Employee Stock Purchase Plan

 10.21(J)      Letter Agreement dated December 23, 1996 by and among Registrant, S3
               Incorporated, United Microelectronics Corporation and United
               Semiconductor Corporation

 10.22(K)      Trademark  License Agreement dated as of October 17, 1996 between
               Registrant and Alliance Semiconductor  International Corporation,
               a Delaware corporation, as amended through May 31, 1997

 10.23(K)      Restated Amendment to FabCo Foundry Venture Agreement dated as of
               February 28, 1997 by and among Registrant, S3 Incorporated, United
               Microelectronics Corporation and United Semiconductor Corporation

 10.24(K)      Letter Agreement dated April 25, 1997 by and among Registrant, S3
               Incorporated, United Microelectronics Corporation and United
               Semiconductor Corporation

 10.25*(K)     Restated  DRAM  Agreement  dated as of February  28, 1996 between
               Registrant and United Microelectronics Corporation

 10.26*(K)     First  Amendment to Restated DRAM Agreement dated as of March 26,
               1996 between Registrant and United Microelectronics Corporation

 10.27*(K)     Second  Amendment to Restated DRAM Agreement dated as of July 10,
               1996 between Registrant and United Microelectronics Corporation

 10.28(K)      Promissory Note and Security Agreement dated March 28, 1997 between
               Registrant and Matrix Funding Corporation

 10.29*(L)     Sale and Transfer Agreement dated as of March 4, 1998

 21.01(M)      Subsidiaries of Registrant

 23.01(M)      Consent of PricewaterhouseCoopers LLP (San Jose, California)

 23.02(M)      Consent of PricewaterhouseCoopers (Hsinchu, Taiwan, R.O.C.)

 27.01(M)      Financial Data Schedule
</TABLE>

+    MANAGEMENT  CONTRACT OR  COMPENSATORY  PLAN OR  ARRANGEMENT  REQUIRED TO BE
     FILED AS AN EXHIBIT TO THIS FORM 10-K.

*    CONFIDENTIAL TREATMENT HAS BEEN GRANTED WITH RESPECT TO CERTAIN PORTIONS OF
     THIS DOCUMENT.

**   CONFIDENTIAL  TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN PORTIONS
     OF THIS DOCUMENT.

(A)  THE  DOCUMENT  REFERRED  TO  IS  HEREBY   INCORPORATED  BY  REFERENCE  FROM
     REGISTRANT'S  REGISTRATION  STATEMENT  ON FORM SB-2 (FILE NO.  33-69956-LA)
     DECLARED EFFECTIVE BY THE COMMISSION ON NOVEMBER 30, 1993.

                                      -32-
<PAGE>

(B)  THE  DOCUMENT  REFERRED  TO  IS  HEREBY   INCORPORATED  BY  REFERENCE  FROM
     REGISTRANT'S ANNUAL REPORT ON FORM 10-KSB FILED WITH THE COMMISSION ON JUNE
     29, 1994.

(C)  THE  DOCUMENT  REFERRED  TO  IS  HEREBY   INCORPORATED  BY  REFERENCE  FROM
     REGISTRANT'S  REGISTRATION  STATEMENT  ON FORM SB-2 (FILE NO.  33-90346-LA)
     DECLARED EFFECTIVE BY THE COMMISSION ON MARCH 28, 1995.

(D)  THE  DOCUMENT  REFERRED  TO  IS  HEREBY   INCORPORATED  BY  REFERENCE  FROM
     REGISTRANT'S  CURRENT REPORT ON FORM 8-K FILED WITH THE COMMISSION ON APRIL
     28, 1995.

(E)  THE  DOCUMENT  REFERRED  TO  IS  HEREBY   INCORPORATED  BY  REFERENCE  FROM
     REGISTRANT'S  CURRENT  REPORT ON FORM 8-K FILED WITH THE COMMISSION ON JULY
     24, 1995.

(F)  THE  DOCUMENT  REFERRED  TO  IS  HEREBY   INCORPORATED  BY  REFERENCE  FROM
     REGISTRANT'S  CURRENT  REPORT  ON FORM 8-K  FILED  WITH THE  COMMISSION  ON
     OCTOBER 23, 1995.

(G)  THE  DOCUMENT  REFERRED  TO  IS  HEREBY   INCORPORATED  BY  REFERENCE  FROM
     REGISTRANT'S  QUARTERLY  REPORT ON FORM 10-Q FILED WITH THE  COMMISSION  ON
     AUGUST 13, 1996.

(H)  THE  DOCUMENT  REFERRED  TO  IS  HEREBY   INCORPORATED  BY  REFERENCE  FROM
     REGISTRANT'S  QUARTERLY  REPORT ON FORM 10-Q FILED WITH THE  COMMISSION  ON
     NOVEMBER 12, 1996.

(I)  THE  DOCUMENT  REFERRED  TO  IS  HEREBY   INCORPORATED  BY  REFERENCE  FROM
     REGISTRANT'S  REGISTRATION STATEMENT ON FORM S-8 (FILE NO. 333-13461) FILED
     WITH THE COMMISSION ON OCTOBER 4, 1996.

(J)  THE  DOCUMENT  REFERRED  TO  IS  HEREBY   INCORPORATED  BY  REFERENCE  FROM
     REGISTRANT'S  QUARTERLY  REPORT ON FORM 10-Q FILED WITH THE  COMMISSION  ON
     FEBRUARY 11, 1997.

(K)  THE  DOCUMENT  REFERRED  TO  IS  HEREBY   INCORPORATED  BY  REFERENCE  FROM
     REGISTRANT'S  ANNUAL REPORT ON FORM 10-K FILED WITH THE  COMMISSION ON JUNE
     27, 1997.

(L)  THE  DOCUMENT  REFERRED  TO  IS  HEREBY   INCORPORATED  BY  REFERENCE  FROM
     REGISTRANT'S  CURRENT REPORT ON FORM 8-K FILED WITH THE COMMISSION ON MARCH
     19, 1998.

(M)  THE DOCUMENT REFERRED TO IS FILED HEREWITH.

                                      -33-
<PAGE>

================================================================================
SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) 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.

                              ALLIANCE SEMICONDUCTOR CORPORATION

June 30, 1999          By:    /S/ N. DAMODAR REDDY
                              ------------------------------------------
                              N. Damodar Reddy
                              Chairman of the Board, President and
                              Chief Executive Officer
                              (Principal Executive Officer)

June 30, 1999          By:    /S/ DAVID EICHLER
                              ------------------------------------------
                              David Eichler
                              Vice President, Finance and Administration and
                              Chief Financial Officer
                              (Principal Financial and Accounting Officer)

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS,  that each person whose signature  appears below
constitutes  and appoints N.  Damodar  Reddy and Bradley A. Perkins or either of
them,  his true and  lawful  attorneys-in-fact  and  agents,  with full power of
substitution and  re-substitution,  for him and in his name, place and stead, in
any and all  capacities  to sign any and all  amendments  to this Report on Form
10-K,  and to file the same,  with all exhibits  thereto and other  documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing  requisite  and necessary to be done
in  connection  therewith,  as fully to all intents and  purposes as he might or
could  do  in  person,   hereby   ratifying   and   confirming   all  that  said
attorneys-in-fact  and agents, or either of them, or their or his substitutes or
substitute, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this Report on Form 10-K has been signed by the  following  persons on behalf of
the Registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>

SIGNATURE                    TITLE                                 DATE

<S>                          <C>                                   <C>
/S/ N. DAMODAR REDDY         Director, Chairman of the Board,      June 30, 1999
N. Damodar Reddy             President and Chief Executive Officer

/S/ DAVID EICHLER            Vice President, Finance and           June 30, 1999
David Eichler                Administration and Chief Financial
                             Officer

/S/ C. N. REDDY              Director, Chief Operating Officer     June 30, 1999
C. N. Reddy                  and Secretary

/S/ SANFORD L. KANE          Director                              June 30, 1999
Sanford L. Kane

/S/ JON B. MINNIS            Director                              June 30, 1999
Jon B. Minnis
</TABLE>

                                      -34-
<PAGE>

                       ALLIANCE SEMICONDUCTOR CORPORATION
                   Index to Consolidated Financial Statements

                                                                           PAGES
ONSOLIDATED FINANCIAL STATEMENTS:

   Report of Independent Accountants........................................F-2

   Consolidated Balance Sheets as of March 31, 1999 and 1998................F-3

   Consolidated Statements of Operations for the years ended
   March 31, 1999, 1998 and 1997............................................F-4

   Consolidated Statements of Stockholders' Equity for the
   years ended March 31, 1999, 1998 and 1997................................F-5

   Consolidated  Statements  of Cash Flows for the years
   ended  March 31,  1999, 1998 and 1997....................................F-6

   Notes to Consolidated Financial Statements ..............................F-7

FINANCIAL STATEMENT SCHEDULE:

   Report of Independent Accountants .......................................F-19

   Schedule II - Valuation and Qualifying Accounts..........................F-20

   Financial Statements of United Semiconductor Corporation
   for the Fiscal Year Ended December 31, 1998 and December 31, 1997........F-21

                                      F-1
<PAGE>


                        REPORT OF INDEPENDENT ACCOUNTANTS

The Board of Directors and Stockholders of
Alliance Semiconductor Corporation:

In our opinion,  the  accompanying  consolidated  balance sheets and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly,  in all material  respects,  the financial  position of Alliance
Semiconductor  Corporation and its  subsidiaries at March 31, 1999 and 1998, and
the results of their operations and their cash flows for each of the three years
in the period  ended March 31,  1999,  in  conformity  with  generally  accepted
accounting principles.  These financial statements are the responsibility of the
Company's  management;  our  responsibility  is to  express  an opinion on these
financial  statements  based on our  audits.  We  conducted  our audits of these
statements  in accordance  with  generally  accepted  auditing  standards  which
require that we plan and perform the audit to obtain reasonable  assurance about
whether the financial  statements  are free of material  misstatement.  An audit
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the financial  statements,  assessing the  accounting  principles
used and  significant  estimates made by management,  and evaluating the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for the opinion expressed above.

/s/ PRICEWATERHOUSECOOPERS LLP

San Jose, California
April 26, 1999

                                      F-2
<PAGE>

<TABLE>
<CAPTION>

                       ALLIANCE SEMICONDUCTOR CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

                                               March 31,
                                         -----------------------
                                            1999        1998
                                         ----------- -----------
                 ASSETS
Current assets:
<S>                                      <C>         <C>
  Cash and cash equivalents                $6,219      $3,010
  Restricted cash                           5,175       6,512
  Accounts receivable, net                  8,943      15,716
  Inventory                                12,927      32,375
  Deferred income taxes                         -       8,397
    Income tax receivable                      78      17,147
    Related party receivables               1,815           -
  Other current assets                      1,631       1,670
                                         ----------- -----------
   Total current assets                    36,788      84,827

Property and equipment, net                 9,943      11,123
Investment in Chartered Semiconductor      51,596      51,596
Investment in United Semiconductor Corp.   77,310      81,338
Investment in United Silicon, Inc.         16,799      13,701
Other assets                                1,121       1,083
                                         ----------- -----------
   Total assets                          $193,557    $243,668
                                         =========== ===========

  LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable                         $8,046     $35,714
  Accrued liabilities                       5,325       7,771
  Current portion of long term              1,315       1,463
    obligations
                                         ----------- -----------
   Total current liabilities               14,686      44,948
Long term obligations                         578       1,276
Deferred income taxes                      14,723       8,333
                                         ----------- -----------
   Total  liabilities                      29,987      54,557
                                         ----------- -----------
Commitments and contingencies (Notes 4,
5, 6, 10 and 11)

Stockholders' equity:
  Preferred  stock, $0.01  par  value;
   5,000shares authorized; none
   issued and outstanding                       -           -
  Common stock, $0.01 par value;
   100,000 shares authorized;
   41,609 and 40,450 shares issued and
   outstanding                                416         404

  Additional paid-in capital              185,025     183,099
  Retained earnings (deficit)              (3,505)     18,538
  Accumulated other comprehensive loss    (18,366)    (12,930)
                                         ----------- -----------
    Total stockholders' equity            163,570     189,111
                                         ----------- -----------
     Total liabilities and               $193,557    $243,668
       stockholders' equity              =========== ===========
</TABLE>




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

                                      F-3
<PAGE>

<TABLE>
<CAPTION>

                       ALLIANCE SEMICONDUCTOR CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

                                     Year Ended March 31,
                               --------------------------------
                                 1999       1998        1997
                               ---------  ----------  ----------
<S>                           <C>        <C>         <C>
Net revenues                   $47,783    $118,400    $82,572
Cost of revenues                60,231     117,400     84,630
                               ---------  ----------  ----------
  Gross profit (loss)          (12,448)      1,000     (2,058)
Operating expenses:
  Research and development      14,099      15,254     15,012
  Selling, general and          12,652      18,666     10,344
    administrative
                               ---------  ----------  ----------
Loss from operations           (39,199)   (32,920)    (27,414)
Other income, net               14,697        287       1,753
                               ---------  ----------  ----------
Loss before income taxes       (24,502)   (32,633)    (25,661)
Provision (benefit) for          8,397    (11,421)     (8,990)
  income taxes
                               ---------  ----------  ----------
Loss before equity in income   (32,899)   (21,212)    (16,671)
  of USC
Equity in income of USC         10,856     15,475           -
                               ---------  ----------  ----------
Net loss                      $(22,043)   $(5,737)   $(16,671)
                               =========  ==========  ==========
Net loss per share:
  Basic                         $(0.53)     $(0.15)    $(0.43)
                               =========  ==========  ==========
  Diluted                       $(0.53)     $(0.15)    $(0.43)
                               =========  ==========  ==========
Weighted average number
  of common shares:
  Basic                         41,378      39,493     38,653
                               =========  ==========  ==========
  Diluted                       41,378      39,493     38,653
                               =========  ==========  ==========
</TABLE>

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

                                      F-4
<PAGE>

<TABLE>
<CAPTION>

                       ALLIANCE SEMICONDUCTOR CORPORATION
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                        (IN THOUSANDS, EXCEPT SHARE DATA)

                                            Additional Accumulated Retained   Total
                             Common Stock   Paid In      Other     Earnings  Stockholders'
                           ---------------- Capital  Comprehensive  (Deficit) Equity
                           Shares    Amount              Loss
                           --------- ------ -------- -------------- -------  ---------
<S>               <C>     <C>         <C>   <C>      <C>            <C>      <C>
Balances at March 31,     38,390,310  $383  $178,052           -    $40,946  $219,381
1996
Issuance of common stock
  under employee stock       594,591     7     1,694           -          -     1,701
  plans

Tax benefit on exercise            -     -       266           -          -       266
  of stock options
Cumulative translation             -     -         -        $(83)         -
  adjustments
Net loss                           -     -         -           -    (16,671)
Total comprehensive loss                                                      (16,754)
                           --------- ------ -------- -------------- -------  ---------

Balances at March 31,     38,984,901   390   180,012         (83)    24,275   204,594
1997
Issuance of common stock
  under employee stock     1,465,087    14     3,087           -          -     3,101
  plans

Cumulative translation            -      -         -     (12,847)         -
  adjustments
Net loss                          -      -         -           -     (5,737)
Total comprehensive loss                                                      (18,584)
                           --------- ------ -------- -------------- -------  ---------

Balances at March 31,     40,449,988   404   183,099     (12,930)    18,538   189,111
1998
Issuance of common stock
  under employee stock     1,158,635    12     1,926           -          -     1,938
  plans

Cumulative translation             -     -         -      (5,436)         -
adjustments
Net loss                          -      -         -           -    (22,043)
Total comprehensive loss                                                      (27,479)
                           --------- ------ -------- -------------- -------  ---------

Balances at March 31,     41,608,623  $416  $185,025    $(18,366)   $(3,505) $163,570
1999                       ========= ====== ======== ============== =======  =========
</TABLE>

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

                                      F-5
<PAGE>

<TABLE>
<CAPTION>

                       ALLIANCE SEMICONDUCTOR CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

                                               Year Ended March 31,
                                      ---------------------------------------
                                         1999          1998         1997
                                      -----------   -----------  ------------
Cash flows from operating activities:
<S>                                   <C>            <C>         <C>
  Net loss                            $(22,043)      $(5,737)    $(16,671)
  Adjustments to reconcile net loss
   to net cash provided by (used in)
   operating activities:
   Depreciation and amortization         3,789         3,465        2,929
   Equity in income of USC             (10,856)      (15,475)           -
   Gain on sale of USC shares (15,824)

Changes in assets and liabilities:
     Accounts receivable                 6,773         1,111      (12,103)
     Inventory                          19,448        (2,840)         617
     Related party receivables          (1,815)            -            -
     Other assets                        1,001             3          905
     Accounts payable                  (27,668)       16,948      (13,592)
     Accrued liabilities                (2,446)        3,187       (6,915)
     Deferred income tax                25,466         6,238          200
       assets and tax receivable
                                      -----------   -----------  ------------
Net cash provided by (used in)         (24,175)        6,900      (44,630)
operating activities
                                      -----------   -----------  ------------

Cash provided (used in) by investing activities:
  Acquisition of equipment              (2,609)       (3,236)      (3,050)
  Proceeds from sale of (investment
   in) United Semiconductor             31,662       (17,631)     (16,391)
   Corporation shares
  Investment in United Silicon, Inc.    (3,098)            -          187
    Other assets                        (1,000)       (1,000)           -
                                      -----------   -----------  ------------
Net cash provided (used in) by          24,955       (21,867)     (19,254)
investing activities
                                       -----------   -----------  ------------
Cash flows from financing activities:
  Net proceeds from the issuance of      1,938         3,101        1,967
    common stock
  Borrowings (repayments) on long         (846)       (1,101)       3,840
    term obligations
  Restricted cash                        1,337        (1,391)      (5,121)
                                      -----------   -----------  ------------
Net cash provided by financing           2,429            609         686
  activities
                                      -----------   -----------  ------------
Net increase (decrease) in cash and      3,209       (14,358)     (63,198)
  cash equivalents
Cash and cash equivalents at             3,010        17,368       80,566
  beginning of the period
                                      ===========   ===========  ============
Cash and cash equivalents at end of     $6,219        $3,010      $17,368
the period
                                      ===========   ===========  ============

Supplemental disclosures:

  Cash paid (refunded) during the     $(17,736)     $(17,783)     $(9,648)
    period for income taxes
                                      ===========   ===========  ============
    Cash paid for interest                $214          $393           $8
                                      ===========   ===========  ============
</TABLE>

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

                                      F-6
<PAGE>

                       ALLIANCE SEMICONDUCTOR CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 1.     THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES

Alliance  Semiconductor  Corporation  (the "Company" or "Alliance"),  a Delaware
corporation,  designs, develops and markets high performance memory products and
memory  intensive logic products.  The Company sells its products to the desktop
and  portable  computing,  networking,  telecommunications  and  instrumentation
markets.

The  semiconductor   industry  is  highly  cyclical  and  has  been  subject  to
significant  rapid  technological  changes  at  various  times  that  have  been
characterized  by  diminished  product  demand,  production  overcapacity,   and
accelerated  erosion of  selling  prices.  The  average  selling  price that the
Company is able to command for its products is highly dependent on industry-wide
production  capacity  and  demand,  and  as  a  consequence  the  Company  could
experience rapid erosion in product pricing (such as that occurred with SRAM and
DRAM  pricing  during  fiscal year 1999,  1998 and 1997) which is not within the
control of the Company and which  could have an adverse  material  effect on the
Company's operating results. The Company is unable to predict when or if average
selling prices will stabilize.

BASIS OF PRESENTATION

The consolidated  financial  statements  include the accounts of the Company and
its direct and indirect subsidiaries.  All significant intercompany accounts and
transactions have been eliminated. These financial statements have been prepared
on the  accrual  basis of  accounting  in  accordance  with  generally  accepted
accounting   principles.   This  requires   management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements and the reported amounts of revenues and expenses during the period.

Actual results could differ from those estimates.

FISCAL YEAR

For  purposes of  presentation,  the Company has  indicated  its fiscal years as
ending on March 31,  whereas  the  Company's  fiscal year  actually  ends on the
Saturday  nearest  the end of March.  The  fiscal  year  ended  March  31,  1999
contained  53 weeks.  The fiscal  years  ended March 31, 1998 and March 31, 1997
each contained 52 weeks.

REVENUE RECOGNITION

Revenue from product  sales is  recognized  upon  shipment,  net of accruals for
estimated sales returns and allowances.

CASH EQUIVALENTS

The Company  considers  all highly  liquid  debt  instruments  purchased  with a
maturity of three months or less to be cash  equivalents.  The Company  accounts
for its  short-term  investments  in  accordance  with  Statement  of  Financial
Accounting  Standards No. 115,  "Accounting for Certain  Investments in Debt and
Equity Securities."

The  Company's  investments  are  primarily  money  market  funds  and state and
municipal bonds and classified as available for sale securities.

INVENTORIES

During  fiscal years 1997,  1998 and the first half of fiscal 1999,  the Company
experienced  a  deterioration  in the  average  selling  prices and a slowing in
demand  for SRAM,  DRAM and MMUI  products.  As a result of these  factors,  the
Company  recorded  pre-tax  charges in the first,  second and third  quarters of
fiscal 1999 of approximately $20 million,  pre-tax charges in the second,  third
and fourth  quarters of fiscal 1998  aggregating  approximately  $15 million and
pre-tax  charges in fiscal 1997 of $17 million.  These pre-tax charges were made
to

                                      F-7
<PAGE>

reflect a further  decline in market value of certain  inventory  and to provide
additional reserves for obsolete and excess inventory.  The Company is unable to
predict when or if such decline in prices will stabilize. A continued decline in
average  selling  prices for its products  could result in  additional  material
inventory valuation adjustments and corresponding charges to operations.

PROPERTY AND EQUIPMENT

Property and equipment  are stated at cost and  depreciated  on a  straight-line
basis over the  estimated  economic  useful lives of the assets which range from
three to five years.

CONCENTRATION OF RISKS

Financial  instruments that potentially subject the Company to concentrations of
credit risk consist principally of cash equivalents and accounts receivable.

The Company  invests  primarily in money  market  funds and state and  municipal
bonds.  The Company further limits its exposure to these  investments by placing
such  investments  with various  financial  institutions.  The Company  performs
periodic evaluations of these financial institutions.

The  Company  sells  its  products  to  original  equipment   manufacturers  and
distributors   throughout  the  world.   The  Company  performs  ongoing  credit
evaluations  of its customers  and, on occasion,  may require  letters of credit
from its non-US customers. Two customers accounted for approximately 15% and 13%
of net revenues for the year ended March 31, 1999 and one customer accounted for
approximately 18% of net revenues for the year ended March 31, 1998. No customer
accounted  for 10% or more of net revenues for the year ended March 31, 1997. At
March  31,  1999,  two  customers  accounted  for  approximately  15% and 12% of
accounts receivable. At March 31, 1998, one customer accounted for approximately
27% and another customer accounted for approximately 11% of accounts receivable.

The Company  conducts the  majority of its business in U.S.  dollars and foreign
currency  translation  gains and losses have not been  material in any one year.
International  sales accounted for approximately  $24.0 million,  $48.5 million,
and $29.7 million of net revenues for the years ended March 31, 1999,  March 31,
1998 and March 31, 1997, respectively.

STOCK-BASED COMPENSATION

The Company accounts for its stock-based awards using the intrinsic value method
in accordance with  Accounting  Principles  Board No. 25,  "Accounting for Stock
Issued to Employees." The Company's  policy is to grant options with an exercise
price  equal to the fair  market  value  of the  Company's  stock on the date of
grant. Accordingly, no compensation expense has been recognized in the Company's
statements of operations.  The Company provides additional pro forma disclosures
as  required  under  Statement  of  Financial   Accounting   Standard  No.  123,
"Accounting for Stock-Based Compensation" ("SFAS 123").

NET INCOME (LOSS) PER SHARE

Basic EPS is computed by dividing net income  available  to common  stockholders
(numerator)  by  the  weighted  average  number  of  common  shares  outstanding
(denominator)  during  the  period.  Diluted  EPS gives  effect to all  dilutive
potential common shares  outstanding  during the period including stock options,
using the treasury  stock  method.  In computing  Diluted EPS, the average stock
price for the period is used in  determining  the number of shares assumed to be
purchased from the proceeds obtained upon exercise of stock options.

                                      F-8
<PAGE>

Following is a  reconciliation  of the numerators and  denominators of the Basic
and Diluted EPS computations for the periods presented below:

<TABLE>
<CAPTION>

                                            Year Ended March 31,

                                     -----------------------------------
                                         1999        1998         1997
                                     -----------  ----------   ---------

<S>                                  <C>           <C>         <C>
Net loss available to common         $(22,043)     $(5,737)    $(16,671)
  shareholders
                                     ===========  ==========   =========
Weighed average common shares          41,378       39,493       38,653
  outstanding (basic)
Effect of dilutive options                 -           -            -
                                     -----------  ----------   ---------
Weighed average common shares          41,378       39,493       38,653
  outstanding (diluted)
                                     ===========  ==========   =========
Net loss per share:
   Basic                               $(0.53)     $(0.15)      $(0.43)
                                     ===========  ==========   =========
   Diluted                             $(0.53)     $(0.15)      $(0.43)
                                     ===========  ==========   =========
</TABLE>


Due to the Company's net loss from continuing operations in 1999, 1998 and 1997,
a calculation of EPS assuming dilution is not required.  At March 31, 1999 there
were  2,741,298  options  outstanding  to  purchase  common  stock at a weighted
average  price of $5.37 per  share.  At March 31,  1998,  there  were  3,675,431
options  outstanding  to purchase  common stock at a weighted  average  price of
$5.81 per share. At March 31, 1997, there were 4,191,289 options  outstanding to
purchase common stock at a weighted average price of $3.87 per share.

COMPREHENSIVE INCOME

In 1999,  the Company  adopted SFAS No. 130,  "Reporting  Comprehensive  Income.
"Comprehensive  income is defined as the change in equity of a company  during a
period  from  transactions  and  other  events  and   circumstances,   excluding
transactions  resulting from investments by owners and  distributions to owners.
The primary  difference  between net income and  comprehensive  income,  for the
Company,  is due to  foreign  currency  translation  adjustments.  Comprehensive
income is being shown in the statement of stockholders' equity.

SEGMENT REPORTING

In 1999,  the Company  adopted SFAS No. 131,  "Disclosures  about Segments of an
Enterprise  and  Related  Information."  SFAS No.  131  supersedes  SFAS No. 14,
"Financial  Reporting for Segments of a Business  Enterprise,"  and replaces the
"industry  segment"  approach with the  "management"  approach.  The  management
approach  designates  the internal  organization  that is used by management for
making  operating  decisions  and  assessing  performance  as  the  source  of a
company's  reportable  segments.  SFAS No. 131 also requires  disclosures  about
products and services,  geographic  areas, and major customers.  The adoption of
SFAS No. 131 did not affect results of operations or financial position.

RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1998,  the  Financial  Accounting  Standards  Board issued SFAS No. 133,
"Accounting  for Derivative  Instruments and Hedging  Activities."  SFAS No. 133
requires  that  an  entity   recognize  all  derivatives  as  either  assets  or
liabilities in the statement of financial position and measure those instruments
at fair value.  It further  provides  criteria for derivative  instruments to be
designated as fair value, cash flow and foreign currency hedges, and establishes
respective  accounting  standards for reporting changes in the fair value of the
instruments.  The statement is effective for all fiscal quarters of fiscal years
beginning  after June 15, 2000.  Upon adoption of SFAS No. 133, the Company will
be required to adjust  hedging  instruments  to fair value in the balance sheet,
and  recognize  the  offsetting  gain or loss as  transition  adjustments  to be
reported  in net  income or other  comprehensive  income,  as  appropriate,  and
presented in a manner similar to the cumulative effect of a change in accounting
principle.  The Company  believes the adoption of this statement will not have a
significant effect on the results of operations.

                                      F-9
<PAGE>

RECLASSIFICATIONS

Certain items previously  reported in specific financial statement captions have
been reclassified to conform with the 1999 presentation.

NOTE 2.  BALANCE SHEET COMPONENTS

<TABLE>
<CAPTION>

                                           March 31,
                                  --------------------------
                                     1999          1998
                                  ------------  ------------
                                       (in thousands)
Accounts receivable:
<S>                                 <C>          <C>
  Trade receivables                 $11,470      $17,726
  Less allowance for doubtful
    accounts and sales
    related reserves                 (2,527)      (2,010)
                                  ------------  ------------
                                     $8,943      $15,716
                                  ============  ============
Inventory:
  Work in process                    $5,119      $17,564
  Finished goods                      7,808       14,811
                                  ------------  ------------
                                    $12,927      $32,375
                                  ============  ============
Property and equipment:
  Engineering and test equipment    $12,725      $11,704
  Computers and software              9,011        7,231
  Furniture and office equipment        778          970
  Land                                  288          288
                                   ------------  ------------
                                     22,802       20,193
Less:  accumulated depreciation     (12,859)      (9,070)
       and amortization
                                  ------------  ------------
                                     $9,943      $11,123
                                  ============  ============
</TABLE>


NOTE 3. INVESTMENT IN CHARTERED SEMICONDUCTOR MANUFACTURING LTD. ("CHARTERED")

In February  1995,  the Company  agreed to purchase  shares of Chartered for $10
million and entered into a  manufacturing  agreement  under which Chartered will
provide a minimum  number of wafers from its 8-inch wafer  fabrication  facility
known as "Fab2." In April 1995, the Company agreed to purchase additional shares
in Chartered, bringing the total agreed investment in Chartered to $51.6 million
and  Chartered  agreed to provide an  increased  minimum  number of wafers to be
provided  by  Chartered  from Fab2.  The Company  has paid all  installments  to
Chartered.  Chartered is a private company based in Singapore that is controlled
by entities affiliated with the Singapore government.  The Company is accounting
for this  investment  using the cost  method of  accounting.  The  Company  owns
approximately 2.1% of the equity of Chartered.

NOTE 4.  INVESTMENT IN UNITED SEMICONDUCTOR CORPORATION ("USC")

In July 1995, the Company entered into an agreement with United Microelectronics
Corporation  ("UMC")  and S3  Incorporated  ("S3") to form a separate  Taiwanese
company,  United Semiconductor  Corporation ("USC"), for the purpose of building
and  managing an 8-inch  semiconductor  manufacturing  facility  in Taiwan.  The
Company paid  approximately 1 billion New Taiwan Dollars ("NTD")  (approximately
US$36.4 million) in September 1995, approximately NTD 450 million (approximately
US$16.4 million) in July 1996, and approximately NTD 492 million  (approximately
US$17.6  million)  in July  1997.  After the last  payment,  the  Company  owned
approximately 190 million shares of USC, or approximately 19% of the outstanding
shares. In April 1998, the Company sold 35 million shares of USC to an affiliate
of UMC and received  approximately  US$31.7 million. In connection with the sale
of 35 million  shares of USC, the Company had the right to receive up to another
665 million NTD  (approximately  US$20.4 million) upon the occurrence of certain
potential  future  events.   After  the  April  1998  sale,  the  Company  owned
approximately  15.5% of the  outstanding  shares of USC.  In October  1998,  USC
issued  46  million  shares  to the  Company  by way of  dividend  distribution.
Additionally,  USC made a stock  distribution  to its employees.  As a result of
this  distribution,  the Company's  ownership in USC was reduced to 15.1% of the
outstanding shares. To the extent USC experiences operating income or losses and
the Company  maintains its current ownership  percentage of outstanding  shares,
the Company will  recognize  its  proportionate  share of such income or losses.
During fiscal 1999,  the Company  recorded  $10.9 million of equity in income of
USC, as compared to $15.5 million recorded during fiscal 1998.

                                      F-10
<PAGE>

The  Company  is  accounting  for this  investment  using the  equity  method of
accounting with a ninety-day lag in recording the Company's share of results for
the entity.  The Company had not  recorded its share of USC's net income for the
two-year period ended December 31, 1996, as it was immaterial.

Summarized  financial  information,  using the respective year-end exchange rate
for the financial  position and an average exchange rate for the respective year
for results of operations,  for USC at December 31, 1998 and 1997, is as follows
(in thousands):

<TABLE>
<CAPTION>

                           December 31,
                    ---------------------------
Financial Position     1998           1997
                    ------------   ------------
<S>                 <C>            <C>
Current assets      US$392,340     US$348,414
Non-current assets     532,360        369,329
Current liabilities    149,985        127,506
Non-current            228,924        159,184
  liabilities
Stockholders'          544,791        431,053
  equity

 Results of Operations
Sales                US$366,588     US$340,060
Gross Profit            156,077        154,465
Net income              114,740        138,873
</TABLE>


NOTE 5.  INVESTMENT IN UNITED SILICON, INC. ("USIC")

In October  1995,  the  Company  entered  into an  agreement  with UMC and other
parties to form a separate Taiwanese company,  USIC, for the purpose of building
and  managing an 8-inch  semiconductor  manufacturing  facility  in Taiwan.  The
facility  has  commenced  volume  production   utilizing   advanced   sub-micron
semiconductor  manufacturing  processes.  The  contributions  of the Company and
other  parties  shall  be in the form of  equity  investments,  representing  an
initial ownership  interest of approximately 5% for each US$30 million invested.
The Company had  originally  committed to an investment of  approximately  US$60
million or 10% ownership  interest but subsequently  requested that its level of
participation be reduced by 50%. The first  installment of approximately  50% of
the revised investment was made in January 1996, and the Company had but did not
exercise  the option to pay a second  installment  of  approximately  25% of the
revised   investment  payable  in  December  1997.  The  Company  made  a  third
installment  payment of approximately 106 million NTD (or  approximately  US$3.1
million)  in  July  1998.  After  the  third   installment,   the  Company  owns
approximately  3.21% of the  outstanding  shares  of USIC  and has the  right to
purchase  approximately 3.7% of the manufacturing  capacity of the facility. The
Company is accounting for this investment using the cost method of accounting.

NOTE 6.  LONG TERM OBLIGATIONS, LEASES AND COMMITMENTS

OPERATING LEASES

The Company  leases its  headquarters  facility  under an operating  lease which
expires in September 1999. Under the terms of the lease, the Company is required
to pay property taxes, insurance and maintenance costs. In addition, the Company
also leases sales and design center offices under operating  leases which expire
in between  1999 and 2007,  and leases  other  sales  offices on  month-to-month
leases.

Future minimum rental payments under these leases are as follows:

<TABLE>
<CAPTION>

    Fiscal       (in
    Year     thousands)
------------------------
<S>             <C>
2000            $315
2001             100
2002             115
2003             115
2004             118
Thereafter       398
------------------------
Total         $1,161
payments
========================
</TABLE>

Rent  expense  for  fiscal  1999,  1998  and 1997 was  $635,000,  $484,000,  and
$437,000, respectively.

                                      F-11
<PAGE>

LONG TERM OBLIGATIONS

The Company obtained secured financing of $3.8 million at the end of March 1997.
This borrowing is  collateralized  by equipment with a total acquisition cost of
$4.8  million,  and bears  interest  at a fixed  rate of  11.26%.  No  financial
covenants  are required to be met under the security  agreement  related to such
financing.  Principal and interest are payable in thirty-six consecutive monthly
installments through March 2000.

The Company  entered into a financing  arrangement  with respect to its purchase
and  maintenance  of certain  business  software  applications,  under which the
Company is obligated to make quarterly payments of approximately $96,000 through
late 2001, subject to certain contingencies.

PURCHASE COMMITMENTS

At March 31, 1999, the Company had approximately $18.0 million in non-cancelable
purchase  commitments  with suppliers.  The Company expects to sell all products
which it has committed to purchase from suppliers.

LETTERS OF CREDIT

At March 31, 1999,  approximately $5.2 million in standby letters of credit were
outstanding  and expire  through June 30, 1999,  secured by restricted  cash and
short term investments.

NOTE 7.  PROVISION (BENEFIT) FOR INCOME TAXES

The provision (benefit) for income taxes is comprised of the following:

<TABLE>
<CAPTION>

                                 March 31,
                    ------------------------------------
                      1999         1998         1997
                    ----------  -----------  -----------
                              (in thousands)
Current:
<S>                 <C>         <C>           <C>
  Federal                -      $(20,173)     $(17,419)
  State                  -             -             -
                    ----------  -----------  -----------
                         -       (20,173)      (17,419)
Deferred:
  Federal           $8,397         8,752         8,529
  State                  -             -          (100)

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

   Total provision  $8,397      $(11,421)     $(8,990)
   (benefit)
                    ==========  ===========  ===========
</TABLE>

In addition to the provision (benefit) for taxes noted above,  deferred taxes of
$6.4 million,  $8.3 million,  and $0 million for the years ended March 31, 1999,
1998 and 1997,  respectively,  are  recorded  as part of the equity in income of
USC.

Deferred tax assets (liabilities) comprise the following:

<TABLE>
<CAPTION>
                              March 31,
                        ---------------------
                          1999       1998
                        ---------  ----------
                            (in thousands)
<S>                      <C>        <C>
Inventory reserves        $5,267     $5,127
Accrued expenses and       3,226      2,310
  reserves
NOL carry forward          8,531          -
Other                        791        960
                        ---------  ----------
  Gross deferral tax      17,815      8,397
    assets
                        ---------  ----------
Investment in USC        (14,723)   (8,333)
                        ---------  ----------
Deferred tax asset
  valuation
  allowance              (17,815)        -
                        =========  ==========
                        $(14,723)     $64
                        =========  ==========
</TABLE>

                                      F-12
<PAGE>


The provision  (benefit)  for income taxes  differs from the amount  obtained by
applying  the U.S.  federal  statutory  rate to income  before  income  taxes as
follows:

<TABLE>
<CAPTION>
                                       Year Ended March 31,
                             -----------------------------------------
                                 1999         1998           1997
                             ------------  ------------  -------------
                                (in thousands, except percentages)

<S>                            <C>         <C>             <C>
Federal  statutory rate             35%          35%            35%
Tax at federal statutory       $(8,531)    $(11,421)       $(8,981)
  rate
State taxes, net of federal          -            -           (291)
  benefit
Valuation allowance on
  prior year deferred tax        8,397            -              -
  asset
Current year losses and
  timing differences with        8,531            -              -
  no tax benefit  recognized
Other, net                           -            -            282
                             ------------  ------------  -------------
  Total                          $8,397     $(11,421)      $(8,990)
                             ============  ============  =============
</TABLE>

Due to the  uncertainty  of the  realization  of the  deferred  tax assets,  the
Company has  provided a full  valuation  allowance on the deferred tax assets at
March  31,  1999.  Upon  recognition  of  the  Company's  deferred  tax  assets,
approximately  $0.3 million  will be credited  directly to equity as a result of
previous exercises of non qualified stock options and disqualifying dispositions
of incentive stock options.

NOTE 8.  STOCK OPTION PLANS

1992 STOCK OPTION PLAN

In April 1992,  the Company  adopted the 1992 Stock Option Plan (the "Plan") and
reserved  5,625,000  shares  of Common  Stock  for  issuance  to  employees  and
consultants of the Company. The Board of Directors may terminate the Plan at any
time at its  discretion.  On September 30, 1993,  the number of shares of Common
Stock  reserved for issuance  under the Plan was  increased to 7,875,000  and on
September 14, 1995,  the number of shares  reserved for issuance  under the Plan
was  increased to  9,000,000.  The Option  Plan,  which has a term of ten years,
provides for incentive as well as nonqualified stock options.

Incentive  stock  options  may not be  granted  at less than 100  percent of the
estimated fair value, as determined by the Board of Directors,  of the Company's
Common  Stock at the date of grant and the option  term may not exceed 10 years.
For holders of more than 10 percent of the total  combined  voting  power of all
classes  of the  Company's  stock,  options  may not be granted at less than 110
percent of the estimated fair value of the Common Stock at the date of grant and
the option term may not exceed five years.

DIRECTORS' STOCK OPTION PLAN

On September 30, 1993, the Company adopted its 1993 Directors' Stock Option Plan
(the  "Directors'  Plan"),  under which 900,000 shares of Common Stock have been
reserved for issuance.  The Directors'  Plan provides for the automatic grant to
each  non-employee  director  of  the  Company  (but  excluding  persons  on the
Company's  Board of Directors in November 1993) of an option to purchase  22,500
shares of Common Stock on the date of such director's  election to the Company's
Board of Directors.  Thereafter,  such director will receive an automatic annual
grant of an option to purchase 11,250 shares of Common Stock on the date of each
annual  meeting  of  the  Company's  stockholders  at  which  such  director  is
re-elected.  The maximum number of shares that may be issued to any one director
under this plan is 90,000.  Such  options will vest ratably over four years from
their respective dates of grant.

                                      F-13
<PAGE>


The following  table  summarizes  grant and stock option activity under the Plan
and the Directors' Plan for fiscal years 1999, 1998 and 1997.

<TABLE>
<CAPTION>
                         Options           Options Outstanding
                                      -------------------------------
                        Available       Shares     Weighted Average
                        for Grant                       Prices
                      --------------  -----------  ------------------
<S>                    <C>            <C>               <C>
  Balance at March      2,670,145      4,138,824         $4.06
  31, 1996
    Options granted    (1,846,738)     1,846,738          7.25
    Options canceled    1,387,389     (1,387,389)         9.79
    Options exercised           -       (406,884)         0.98
                      --------------  -----------  ------------------
  Balance at March      2,210,796      4,191,289         $3.87
  31, 1997
    Options granted    (1,588,504)     1,588,504          8.18
    Options canceled      736,197       (736,197)         6.77
    Options exercised           -     (1,368,165)         2.12
                      --------------  -----------  ------------------
  Balance at March      1,358,489      3,675,431         $5.81
  31, 1998
    Options granted    (1,405,150)     1,405,150          3.52
    Options canceled    1,352,324     (1,352,324)         7.23
    Options exercised         -         (986,959)         1.56
                      ==============  ===========  ==================
  Balance at March      1,305,663      2,741,298         $5.37
  31, 1999
                      ==============  ===========  ==================
</TABLE>

As of March 31, 1999, options to purchase approximately 546,187 shares of Common
stock  were  exercisable.  Options  granted  vest  over a period of four to five
years.

The weighted  average  estimated fair value at the date of grant,  as defined by
SFAS 123, for options granted in fiscal 1999,  1998, and 1997 was $2.44,  $4.90,
and $2.44  per  option,  respectively.  The  estimated  grant  date  fair  value
disclosed above was calculated  using the  Black-Scholes  model.  This model, as
well as other  currently  accepted  option  valuation  models,  was developed to
estimate the fair value of freely tradable,  fully transferable  options without
vesting restrictions, which significantly differ from the Company's stock option
awards. These models also require subjective assumptions, including future stock
price  volatility  and  expected  time to  exercise,  which  greatly  affect the
calculated values.  Significant option groups outstanding at March 31, 1999, and
related  weighted average exercise price and contractual life information are as
follows:

<TABLE>
<CAPTION>

                  Outstanding and Exercisable by Price Range

                  Number        Weighted      Weighted    Number Vested    Weighted
  Range of     Outstanding      Average       Average          and         Average
  Exercise     As of March     Remaining     Exercise      Exercisable     Exercise
   Prices        31, 1999     Contractual      Price       As of March       Price
                                  Life                       31, 1999
-------------  -------------  -------------  -----------  ---------------  -----------
<S>            <C>               <C>          <C>           <C>               <C>
  $2.09 -        602,200           5.46         $2.31             0           $0.00
   $2.50
  $2.56 -        497,250           7.00         $3.44             0           $0.00
   $4.06
  $4.16 -        230,900           4.55         $4.57        48,900           $4.64
   $4.91
  $5.13 -        146,000           4.06         $5.63        35,000           $5.72
   $6.25
  $6.31 -        468,248           2.22         $6.79       287,437           $6.84
   $6.88
  $7.00 -        486,700           4.11         $7.51       121,550           $7.57
   $8.00
  $8.09 -        310,000           4.36         $9.38        53,300           $9.38
   $13.63
-------------  -------------  -------------  -----------  ---------------  -----------
  $2.09 -      2,741,298           4.67         $5.37       546,187           $6.98
   $13.63
=============  =============  =============  ===========  ===============  ===========
</TABLE>

The following  assumptions  are included in the estimated  grant date fair value
calculations for stock options:

<TABLE>
<CAPTION>

                   1999          1998           1997
                 ----------   ------------  --------------
<S>              <C>           <C>            <C>
Expected life    5.00 years    5.00 years     5.25 years
Risk-free           5.7%          6.0%           6.3%
  interest rate
Volatility         88.0%         65.0%          58.0%
Dividend yield      0.0%          0.0%           0.0%
</TABLE>

EMPLOYEE STOCK PURCHASE PLAN

In September 1996, the Company and its  shareholders  approved an Employee Stock
Purchase Plan ("ESPP"),  which allows eligible  employees of the Company and its
designated  subsidiaries  to purchase  shares of Common  Stock  through  payroll
deductions.  The ESPP consists of a series of 12-month offering periods composed
of two consecutive 6-month purchase periods. The purchase price per share is 85%
of the fair market value of the Common Stock at the date of  commencement of the
offering period or at the last day of the respective  6-month  purchase  period,
whichever  is lower.  Purchases  are  limited to 10% of an  eligible  employee's
compensation,

                                      F-14
<PAGE>

subject to a maximum  annual  employee  contribution  limited to a $25,000  fair
market value. Of the 750,000 shares of Common Stock  authorized  under the ESPP,
171,676, 96,922 and 35,983 shares were issued during fiscal 1999, 1998 and 1997,
respectively.

Compensation  costs  (included  in pro forma net  income  (loss)  and net income
(loss) per share amounts) for the grant date fair value, as defined by SFAS 123,
of the  purchase  rights  granted  under  the ESPP  were  calculated  using  the
Black-Scholes  model. The following weighted average assumptions are included in
the estimated  grant date fair value  calculations  for rights to purchase stock
under the ESPP:

<TABLE>
<CAPTION>

                   1999         1998            1997
                 ----------  ------------   -------------
<S>               <C>          <C>             <C>
Expected life     6 months     6 months        6 months
Risk-free           4.9%         5.4%            5.5%
  interest rate
Volatility         88.0%        65.0%           58.0%
Dividend yield      0.0%         0.0%            0.0%
</TABLE>

The weighted average estimated grant date fair value, as defined by SFAS 123, or
rights to purchase  Common Stock under the ESPP granted in fiscal 1999, 1998 and
1997 was $2.55, $3.04 and $7.99 per share, respectively.

PRO FORMA NET INCOME (LOSS) AND NET INCOME (LOSS) PER SHARE

Had the Company recorded  compensation expense based on the estimated grant date
fair  value,  as defined by SFAS 123,  for awards  granted  under the Plan,  the
Directors'  Plan and its ESPP, the Company's pro forma net income (loss) and net
income (loss) per share for the years ended March 31, 1999, 1998 and 1997, would
have been as follows (in thousands, except per share data):

<TABLE>
<CAPTION>

                                  March 31,
                     ------------------------------------
                        1999        1998         1997
                     -----------  ----------  -----------
<S>                  <C>          <C>         <C>
Pro forma net loss:  $(23,231)    $(8,153)    $(18,795)
Pro forma net loss
  per share:
  Basic               $(0.56)      $(0.21)       $(0.49)
  Diluted             $(0.56)      $(0.21)       $(0.49)
</TABLE>

The pro forma  effect on net income  (loss) and net income  (loss) per share for
fiscal 1999, 1998 and 1997 is not  representative of the pro forma effect on net
income  (loss) in the future years  because it does not take into  consideration
pro forma compensation expense related to grants prior to fiscal 1996.

NOTE 9.  401(K) SALARY SAVINGS PLAN

Effective May 1992,  the Company  adopted the Salary  Savings Plan (the "Savings
Plan")  pursuant to Section  401(k) of the Internal  Revenue Code (the  "Code"),
whereby  eligible  employees may contribute up to 15% of their earnings,  not to
exceed amounts allowed under the Code.  Effective April 1999, the Company agreed
to match up to 50% of the first 6% of the employee  contribution to a maximum of
$2 thousand annually per employee.  The Company's  matching  contribution  vests
over five years.

NOTE 10.  LEGAL MATTERS

In March 1996, a putative class action lawsuit was filed against the Company and
certain of its officers and directors  and others in the United States  District
Court for the Northern  District of California,  alleging  violations of Section
10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5
promulgated thereunder.  (The complaint alleged that the Company, N.D. Reddy and
C.N.  Reddy also had liability  under  Section  20(a) of the Exchange  Act.) The
complaint,  brought by an individual who claimed to have purchased 100 shares of
the Company's common stock on November 2, 1995, was putatively brought on behalf
of a class of persons who purchased the Company's  common stock between July 11,
1995 and December 29, 1995. In April 1997,  the Court  dismissed the  complaint,
with  leave to file an  amended  complaint.  In June  1997,  plaintiff  filed an
amended  complaint against the Company and certain of its officers and directors
alleging  violations  of Sections  10(b) and 20(a) of the Exchange  Act. In July
1997,  The Company moved to dismiss the amended  complaint.  In March 1998,  the
court ruled in defendants' favor as to all claims but one, and dismissed all but
one claim with prejudice. In April 1998, defendants requested reconsideration of
the  ruling  as to the one  claim  not  dismissed.  In

                                      F-15
<PAGE>

June 1998,  the  parties  stipulated  to dismiss  the  remaining  claim  without
prejudice,  on the condition  that in the event the dismissal  with prejudice of
the other  claims is affirmed in its  entirety,  such  remaining  claim shall be
deemed  dismissed  with  prejudice.  In June 1998,  the court  entered  judgment
dismissing the case pursuant to the parties' stipulation. The Company intends to
continue  to defend  vigorously  against  any claims  asserted  against  it, and
believes it has meritorious  defenses against the remaining  asserted claim. Due
to the inherent uncertainty of litigation, the Company is not able to reasonably
estimate the potential  losses, if any, that may be incurred in relation to this
litigation.

In  December  1996,  Alliance   Semiconductor   International   Corporation,   a
wholly-owned  subsidiary  of the  Company  ("ASIC")  was served with a complaint
alleging  that ASIC has  infringed  two  patents  owned by AMD  related to flash
memory devices,  and seeking  injunctive relief and damages.  In March 1997, the
Company  was added as a  defendant.  A trial  date has been set by the Court for
January 2000.  Each  defendant has denied the  allegations  of the complaint and
asserted a counterclaim  for declaration that each of the AMD Patents is invalid
and not infringed by such defendant. The Company believes that the resolution of
this matter will not have a material  adverse effect on the financial  condition
of the Company.

In July 1998, the Company learned that a default judgment may be entered against
the Company in Canada, in the amount of approximately  US$170 million, in a case
filed in 1985 captioned  Prabhakara  Chowdary Balla and TritTek Research Ltd. v.
Fitch Research  Corporation,  et al., British Columbia Supreme Court No. 85-2805
(Victoria Registry).  The Company,  which had previously not participated in the
case,  believes  that it never was properly  served with process in this action,
and that the Canadian court lacks  jurisdiction over the Company in this matter.
In  addition to  jurisdictional  and  procedural  arguments,  the  Company  also
believes it may have grounds to argue that the claims against the Company should
be deemed discharged by the Company's  bankruptcy in 1991. In February 1999, the
court set aside the default  judgment  against the Company.  In April 1999,  the
plaintiffs were granted leave by the Court to appeal this judgment.

NOTE 11.  ANTIDUMPING PROCEEDING (TAIWAN-MANUFACTURED SRAMS AND DRAMS)

In February 1997, Micron Technology, Inc. filed an antidumping petition with the
United  States   International   Trade  Commission  ("ITC")  and  United  States
Department of Commerce  ("DOC"),  alleging  that static  random access  memories
("SRAMs") fabricated in Taiwan were being sold in the United States at less than
fair value,  and that the United States industry  producing SRAMs was materially
injured  or  threatened  with  material  injury by reason  of  imports  of SRAMs
fabricated in Taiwan. After a final affirmative DOC determination of dumping and
a final affirmative ITC determination of injury,  DOC issued an antidumping duty
order in April 1998.  Under that order,  the  Company's  imports into the United
States on or after approximately April 16,1998 of SRAMs fabricated in Taiwan are
subject to a cash deposit in the amount of 50.15% (the "Antidumping  Margin") of
the entered  value of such SRAMs.  (The  Company  posted a bond in the amount of
59.06%  (the  preliminary  margin)  with  respect  to its  importation,  between
approximately  October 1997 and April 1998,  of SRAMs  fabricated in Taiwan.) In
May 1998,  the Company and others filed an appeal in the United  States Court of
International  Trade (the "CIT"),  challenging the determination by the ITC that
imports of  Taiwan-fabricated  SRAMs were  causing  material  injury to the U.S.
industry.  The  decision  of the CIT can be  further  appealed  to the  Court of
Appeals for the Federal Circuit. The Company cannot predict either the timing or
the  eventual  results of the appeal.  Until a final  judgment is entered in the
appeal,  no final duties will be assessed on the Company's entries of SRAMs from
Taiwan covered by the DOC  antidumping  duty order. If the appeal is successful,
the antidumping order will be terminated and cash deposits will be refunded with
interest.   If  the   appeal  is   unsuccessful,   the   Company's   entries  of
Taiwan-fabricated  SRAMs from  October 1, 1997  through  March 31,  1999 will be
liquidated  at the deposit  rate in effect at the time of entry.  On  subsequent
entries of  Taiwan-fabricated  SRAMs,  the  Company  will  continue to make cash
deposits  in the  amount of 50.15% of the  entered  value.  In April  2000,  the
Company  will  have  an  opportunity  to  request  a  review  of  its  sales  of
Taiwan-fabricated  SRAMs from April 1, 1999 through  March 31, 2000 (the "Review
Period").  If it does so,  the amount of  antidumping  duties,  if any,  owed on
imports from April 1999 through  March 2000 will remain  undetermined  until the
conclusion of the review in early 2001. If the DOC found, based upon analysis of
the Company's  sales during the Review Period,  that  antidumping  duties either
should not be imposed or should be imposed at a lower rate than the  Antidumping
Margin,  the difference  between the cash deposits made by the Company,  and the
deposits  that would have been made had the lower rate (or no rate,  as the case
may be) been in effect, would be returned to the Company, plus interest.  If, on
the other hand, the DOC found that higher margins were appropriate,  the Company
would have to pay  difference  between the cash deposits paid by the

                                      F-16
<PAGE>

Company and the  deposits  that would have been made had the higher rate been in
effect.  A material  portion of the SRAMs  designed  and sold by the Company are
fabricated  in Taiwan,  and the cash  deposit  requirement  and  possibility  of
assessment of antidumping duties could materially adversely affect the Company's
ability to sell Taiwan-fabricated SRAMs in the United States and have a material
adverse effect on the Company's  operating results and financial  condition.  At
March 31,  1999,  the Company had posted a bond secured by a letter of credit in
the amount of approximately $1.7 million and made cash deposits in the amount of
$1.7 million relating to the Company's importation of Taiwan-manufactured SRAMs.

In October 1998, Micron Technology,  Inc. filed an antidumping petition with the
DOC  and the  ITC,  alleging  that  dynamic  random  access  memories  ("DRAMs")
fabricated  in Taiwan  are  being  sold in the  United  States at less than fair
value, and that the United States industry producing DRAMs is materially injured
or threatened with material  injury by reason of imports of DRAMs  fabricated in
Taiwan. The petition requests the United States government to impose antidumping
duties on  imports  into the United  States of DRAMs  fabricated  in  Taiwan.  A
material portion of the DRAMs designed and sold by the Company are fabricated in
Taiwan. The Company received  preliminary  producer and importer  questionnaires
from the ITC, and submitted  responses to such  questionnaires in November 1998.
In December 1998, the ITC  preliminarily  determined  that there is a reasonable
indication that the imports of the products under investigation are injuring the
United States industry.  The Company received a questionnaire  from the DOC, and
responded to such questionnaire in accordance with the established  deadline. In
January 1999,  the DOC decided to limit the number of  respondents  investigated
and notified Alliance that it would not be separately investigated.  In May 1999
the DOC issued a preliminary  affirmative  determination of dumping.  Under that
determination,  the Company's imports into the United States on or after May 28,
1999 of DRAMs fabricated in Taiwan are subject to an antidumping duty deposit in
the amount of 16.65% (the preliminary "all others" rate) of the entered value of
such DRAMs, an antidumping margin calculated by weight-averaging the antidumping
margins of individually investigated respondent companies. The Company will post
a bond to cover  deposits on such  entries.  The DOC is  currently  scheduled to
complete  its  investigation  by late 1999.  If the DOC final  determination  of
dumping and the ITC final determination of injury are affirmative,  the DOC will
issue an antidumping duty order.  Under any such order, the Company's imports of
Taiwan-fabricated DRAMs into the United States on or after the date the order is
published  will be  subject  to a cash  deposit  in the amount of the final "all
others"  rate of the  entered  value of such  DRAMs.  If either  agency's  final
determination is negative, the investigation will be terminated,  the suspension
of liquidation  lifted,  and the bond released.  If an antidumping duty order is
issued, in late 2000 the Company will have an opportunity to request a review of
its  sales of  Taiwan-fabricated  DRAMs  from  approximately  May  1999  through
November 2000 (the "Review  Period").  If the Company makes such a request,  the
amount of antidumping  duties,  if any, owed on entries during the Review Period
will remain  undetermined until the conclusion of the review in late 2001, which
would determine a  Company-specific  antidumping duty margin.  If the DOC found,
based upon  analysis  of the  Company's  sales  during the Review  Period,  that
antidumping  duties either should not be imposed or should be imposed at a lower
rate than the final "all others" rate determined in the original  investigation,
the difference  between the cash deposits made by the Company,  and the deposits
that would  have been made had the lower  rate (or no rate,  as the case may be)
been in effect,  would be returned to the  Company,  with  interest.  If, on the
other hand, the DOC found a higher Company-specific rate, the Company would have
to pay the  difference  between  the cash  deposits  paid by the Company and the
deposits  that  would have been made had the  higher  rate been in effect,  with
interest.  (In either case, the Company also would be responsible to antidumping
duties in the amount of the revised  margin with respect to its imports  covered
by the bond.) A material  portion of the DRAMs  designed and sold by the Company
are fabricated in Taiwan,  and the cash deposit  requirement  and possibility of
assessment of antidumping duties could materially adversely affect the Company's
ability to sell Taiwan-fabricated DRAMs in the United States and have a material
adverse effect on the Company's operating results and financial condition.

Note 12.  RELATED PARTY TRANSACTIONS

On May 18,  1998,  the  Company  provided  loans  to two of its  officers  and a
director aggregating $1,735,000. The loans to officers were used for the payment
of taxes resulting from the gain on the exercise of non-qualified stock options.
The loan to a director was used for the exercise of stock  options.  Under these
loans,  both  principal  and accrued  interest  are due on December 31, 1999 and
interest is accrued at rates ranging from 5.50% to 5.58% per annum.  As of March
31, 1999,  $1,735,000 was outstanding under these loans with accrued interest of
$80,000.

                                      F-17
<PAGE>


Note 13.  GEOGRAPHIC INFORMATION

The  following  illustrates  revenues  by  geographic  locations.  Revenues  are
attributed to countries based on the customer's location.

<TABLE>
<CAPTION>
                           Year Ended March 31,
                    ------------------------------------
                      1999         1998         1997
                    ----------  -----------  -----------
                              (in thousands)
<S>                 <C>          <C>           <C>
United States       $23,770      $68,985       $52,908
Taiwan               6,061        24,966        14,962
Asia (except         9,076        11,262         7,984
   Taiwan)
Europe               8,567        12,240         5,781
Rest of world          310           947           937
                    ----------  -----------  -----------
   Total            $47,783     $118,400       $82,572
                    ----------  -----------  -----------
</TABLE>

Note 14.  SUBSEQUENT EVENTS (UNAUDITED)

USC SHARE DIVIDEND DISTRIBUTION

In April  1999,  USC issued 46 million  shares to the Company by way of dividend
distribution.  A  distribution  was also  made to  certain  other  entities  and
employees  resulting in the Company's  ownership  interest in USC declining from
approximately 15.1% to 14.8%.

ACQUISITION OF MAVERICK NETWORKS BY BROADCOM CORPORATION

On May 31,  1999,  Maverick  Networks  (an entity in which the Company had a 28%
interest in) completed a transaction with Broadcom Corporation, resulting in the
Company  selling its  ownership  interest in Maverick  Networks in exchange  for
538,961 shares of Broadcom's Class B common stock.  Based on Broadcom's  closing
share  price on the date of sale,  the  Company  will record a gain in the first
quarter of fiscal 2000 of approximately $52 million, before taxes. Subsequent to
the transaction date, the Company's  investment in Broadcom  Corporation will be
accounted for as "available for sale" securities in accordance with FAS 115. The
Company  will be able to sell up to 90% of the  Broadcom  shares  after the date
upon which 30 days of combined  results of  Broadcom  Corporation  and  Maverick
Networks have been publicly reported.  According to the Company's agreement with
Broadcom,  10% or 53,896 shares of Broadcom stock will be held in escrow for six
months to potentially compensate Broadcom for losses, if any, Broadcom may incur
if Maverick breaches the merger agreement or  misrepresented  information in the
transaction.

NEW FACILITIES LEASE

In June 1999, the Company signed a seven year lease for a new 56,000 square foot
corporate  headquarters located in Santa Clara,  California.  Under the terms of
the  lease,  the  Company is  required  to pay  property  taxes,  insurance  and
maintenance  costs.  Future  minimum  lease  payments  under  this  lease are as
follows:

<TABLE>
<CAPTION>

 Fiscal         (in
  Year       thousands)
------------------------
<S>           <C>
2000          $1,019
2001           1,389
2002           1,431
2003           1,474
2004           1,518
Thereafter     3,579
------------------------
Total        $10,410
payments
========================
</TABLE>

UMC ANNOUNCEMENT

In June 1999,  UMC  announced  plans to merge four  semiconductor  wafer foundry
units, USC, USIC, United Integrated  Circuit  Corporation and UTEK Semiconductor
Corporation,  into UMC, a  publicly-traded  company in Taiwan.  According to the
proposed terms of the merger,  Alliance will receive 247.7 million shares of UMC
stock for its 247.7 million shares or 14.76% ownership of USC and  approximately
35.6 million  shares of UMC stock for its 48.1 million  shares or 3.2% ownership
of USIC.  UMC has indicated that they expect to have  approximately  8.8 billion
shares  outstanding as of the closing date of the merger.  The merger is subject
to shareholders and government  approval and is expected to close before the end
of 1999.  The UMC shares  received by Alliance  are  expected to be subject to a
six-month  "lock-up" or no trade period before the shares become freely tradable
in Taiwan.

                                      F-18
<PAGE>

                      REPORT OF INDEPENDENT ACCOUNTANTS ON
                          FINANCIAL STATEMENT SCHEDULE

To the Board of Directors
of Alliance Semiconductor Corporation:

Our audits of the consolidated  financial  statements  referred to in our report
dated April 26, 1999, appearing in this Annual Report on Form 10-K also included
an audit of the Financial  Statement Schedule listed in Item 14(a)(1)(I) of this
Form 10-K. In our opinion, this Financial Statement Schedule presents fairly, in
all  material  respects,   the  information  set  forth  therein  when  read  in
conjunction with the related consolidated financial statements.

/s/ PRICEWATERHOUSECOOPERS LLP

San Jose, California
April 26, 1999

                                      F-19
<PAGE>

<TABLE>
<CAPTION>

                       ALLIANCE SEMICONDUCTOR CORPORATION
                 SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS
                                 (IN THOUSANDS)

                                         BALANCE AT                          BALANCE
              DESCRIPTION                BEGINNING     ADDITIONS  REDUCTIONS AT END
                                         OF PERIOD                           OF PERIOD
                                        -------------  ---------  ---------  ----------
YEAR ENDED MARCH 31, 1999
<S>                                        <C>         <C>        <C>         <C>
  Allowance  for doubtful  accounts and    $2,010       $3,193     $(2,676)    $2,527
   sales-related reserves
  Inventory    related   reserves   for
   excess and  obsolescence;  and lower   $14,967      $20,437    $(19,703)   $15,701
   of cost or market issues

YEAR ENDED MARCH 31, 1998
  Allowance  for doubtful  accounts and      $650       $7,512     $(6,152)    $2,010
   sales-related reserves
  Inventory    related   reserves   for
   excess and  obsolescence;  and lower   $40,732      $15,154    $(40,919)   $14,967
   of cost or market issues

YEAR ENDED MARCH 31, 1997
  Allowance  for doubtful  accounts and    $3,102       $5,803     $(8,255)      $650
   sales-related reserves
  Inventory    related   reserves   for
   excess and  obsolescence;  and lower   $53,555      $16,918    $(29,741)   $40,732
   of cost or market issues
</TABLE>

                                      F-20
<PAGE>
            Financial Statements of United Semiconductor Corporation
       for the Fiscal Year Ended December 31, 1998 and December 31, 1997.

                                      F-21
<PAGE>

          UNITED SEMICONDUCTOR CORPORATION

          FINANCIAL STATEMENTS

          DECEMBER 31, 1998 AND 1997




<PAGE>
[IMAGE OMMITED]
PRICEWATERHOUSECOOPERS  [LOGO]                2/F No. 11 Innovation Rd., 1
                                              Science-Based Industrial Park
                                              Hsinchu, Taiwan, Republic of China
                                              Tel:(03) 578-0205
                                              Fax:(03) 577-7985

January 22, 1999
(99)B.L36P4065



To the Board of Directors of United Semiconductor Corporation



We have  examined  the  accompanying  balance  sheets  of  United  Semiconductor
Corporation  as of December  31, 1998 and 1997,  and the related  statements  of
income, of changes in stockholders'  equity and of cash flows for the years then
ended.  Our  examinations  were made in accordance with the "Rules Governing the
Certification  of Financial  Statements  by Certified  Public  Accountants"  and
generally accepted auditing standards and accordingly included such tests of the
accounting records and such other auditing procedures as we considered necessary
in the circumstances.


In our  opinion,  the  financial  statements  examined by us present  fairly the
financial position of United  Semiconductor  Corporation as of December 31, 1998
and 1997,  and the  results of its  operations  and its cash flows for the years
then  ended,  in  conformity  with  generally  accepted  accounting   principles
consistently applied.


/S/ PRICEWATERHOUSECOOPERS

                                      ~1~
<PAGE>
<TABLE>
<CAPTION>
                            UNITED SEMICONDUCTOR CORPORATION
                            --------------------------------
                                     BALANCE SHEET
                                     -------------
                                      DECEMBER 31,
                                      ------------
                       (EXPRESSED IN NEW TAIWAN THOUSAND DOLLARS)


                                                            1998              1997
                                                         -----------       -----------
<S>                                                      <C>               <C>
ASSETS
Current Assets
     Cash and cash equivalents (Note 4(1))               $ 7,516,907       $ 5,469,227
     Marketable securities (Note 4(2))                     3,138,393         3,190,746
     Notes receivable -- third parties                           189              --
                      -- related parties (Note 5)              8,352               781
     Accounts receivable
          third parties (Note 4(3))                          778,399           937,320
          related parties (Note 5)                           436,937           939,664
     Other receivables                                       165,146            88,905
     Inventories (Note 4(4))                                 665,344           511,486
     Prepaid expenses                                          7,803            17,669
     Other current assets (Note 4(12))                        93,353           230,381
                                                         -----------       -----------
                                                          12,810,823        11,386,179
                                                         -----------       -----------
Long-Term  Investments  (Note  4(5))
     Long-term  investment                                   105,759              --
     Prepaid long-term investment                            250,400              --
                                                         -----------       -----------
                                                             356,159              --
                                                         -----------       -----------

Property, Plant and Equipment (Notes 4(6) and 6)
Cost
     Machinery and equipment                              18,591,271        10,169,495
     Transportation equipment                                  3,206             3,206
     Furniture and fixtures                                  217,742           130,771
     Leasehold improvements                                   10,966            10,966
     Other equipment                                          40,974            14,270
                                                         -----------       -----------
                                                          18,864,159        10,328,708
     Acculmulated depreciation                            (4,452,290)       (1,944,961)
     Construction in progress and prepayments                967,065         2,460,306
                                                         -----------       -----------
                                                          15,378,934        10,844,053
Tangible Asset                                           -----------       -----------

     Other intangible assets                                 813,455         1,037,500
                                                         -----------       -----------
Other Assets
     Deposit -- out                                            1,475            30,979
     Preferred expense                                       134,044            54,027
     Preferred income tax assets (Note 4(12))                238,121           103,102
     Other assets                                              2,231              --
                                                         -----------       -----------
                                                             375,871           188,108
                                                         -----------       -----------
TOTAL ASSETS                                             $29,735,242       $23,455,840
                                                         ===========       ===========


                                                             1998             1997
                                                         -----------       -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
     Short-term loans (Note 4(7))                        $   781,944       $ 1,911,632
     Notes payable (Note 5)                                     --             125,209
     Accounts payable -- third parties                       461,646           513,371
                      -- related parties (Note 5)             23,634            21,485
     Accrued expenses (Notes 5)                              811,301           578,013
     Other payables                                        1,213,782           359,172
     Current portion of long-term loans (Note 4(8))        1,571,458           656,744
     Other current liabilities                                 6,607             1,268
                                                         -----------       -----------
                                                           4,870,372         4,166,894
                                                         -----------       -----------
Long-term Liabilities
     Long-term loans (Note 4(8))                           7,041,589         5,190,525
                                                         -----------       -----------
Other  Liabilities
     Accrued pension liabilities                              24,958            11,619
                                                         -----------       -----------

Total Liabilities                                         11,936,919         9,369,038
                                                         -----------       -----------

Stockholders' Equity
     Common stock (Note 4(10))                            13,367,809        10,000,000
     Capital reserve generated from the gain on
        disposal of fixed assets                                  40                40
     Retained earnings (Note 4(11))
            -- Legal reserve                                 408,676              --
            -- Unappropriated earnings                     4,022,045         4,086,762
     Cumulative translation adjustment                          (247)             --
                                                         -----------       -----------
Total stockholders' equity                                17,798,323        14,086,802
                                                         -----------       -----------
Commitments and Contingent Liabilities (Note 7)




TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY               $29,735,242       $23,455,840
                                                         ===========       ===========


<FN>
      The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
                                          ~2~

<PAGE>

<TABLE>
                        UNITED SEMICONDUCTOR CORPORATION
                               STATEMENT OF INCOME
                        FOR THE YEARS ENDED DECEMBER 31,
                    (EXPRESSED IN NEW TAIWAN THOUSAND DOLLARS
                         EXCEPT EARNINGS PER SHARE DATA)

<CAPTION>
                                                          1998             1999
                                                      ------------    ------------
<S>                                                   <C>             <C>
Operating Revenues
  Sales revenues                                      $ 12,614,679    $ 10,003,022
  Sales returns                                           (186,848)        (21,216)
  Sales allowance                                         (634,954)       (302,184)
                                                      ------------    ------------
  Net sales                                             11,792,877       9,679,622
  Other operating revenues                                 183,553          81,542
                                                      ------------    ------------
  Net operating revenues                                11,976,430       9,761,164
                                                      ------------    ------------
Operating Cost
  Cost of goods sold                                    (6,748,200)     (5,278,405)
  Other operating cost                                    (129,181)        (38,604)
                                                      ------------    ------------
                                                        (6,877,381)     (5,317,009)
                                                      ------------    ------------
Gross Profit                                             5,099,049       4,444,155
                                                      ------------    ------------
Operating Expenses
  Selling expenses                                        (218,789)        (88,841)
  Administrative expenses                                 (214,364)       (265,943)
  Research and development expenses                       (701,179)       (443,866)
                                                      ------------    ------------
                                                        (1,134,332)       (798,650)
                                                      ------------    ------------
Operating Income                                         3,964,717       3,645,505
                                                      ------------    ------------
Non-operating Income
  Interest income                                          368,695         264,153
  Dividends revenue                                         28,010          21,420
  Gain on disposal of investment                            41,516          16,956
  Foreign exchange gain                                       --           397,616
  Gain on reverse of allowance on inventory loss            59,540            --
  Other income                                               5,370           6,853
                                                      ------------    ------------
                                                           503,131         706,998
                                                      ------------    ------------
Non-operating Expenses
  Interest expense                                        (464,199)       (354,973)
  Foreign exchange loss                                    (71,071)           --
  Provision for loss on obsolescence of inventories           --           (50,562)
  Financial expense                                        (10,919)           (391)
  Other loss                                              (103,307)           (419)
                                                      ------------    ------------
                                                          (649,496)       (406,345)
                                                      ------------    ------------
Income before income tax                                 3,818,352       3,946,158
Income tax (expense) benefit (Note 4(12))                  (69,803)         84,057
                                                      ------------    ------------
Net income                                            $  3,748,549    $  4,030,215
                                                      ============    ============

Earnings per share (Note 4(13))
  Net income                                          $       2.80    $       3.01
                                                      ============    ============

<FN>
   The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
                                      ~3~
<PAGE>

<TABLE>
                                    UNITED SEMICONDUCTOR CORPORATION
                                    --------------------------------
                              STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                              --------------------------------------------
                                    FOR THE YEARS ENDED DECEMBER 31,
                                    --------------------------------
                               (EXPRESSED IN NEW TAIWAN THOUSAND DOLLARS)
<CAPTION>

                                                                                     Retained Earnings
                                                                                     -----------------
                                                                                              Unappropriated
                                            Common Stock   Capital Reserve    Legal Reserve      Earnings
                                            ------------   ---------------    -------------      --------
<S>                                         <C>                 <C>                 <C>           <C>
Balance at January 1, 1997                  $ 10,000,000        $ --              $   --        $    56,587
Net income for 1997                                 --            --                  --          4,030,215
Transfer of the gain on disposal of
     fixed assets to capital reserve                --            40                  --                (40)
                                            ------------        ----              --------      -----------
Balance at December 31,1997                   10,000,000          40                  --          4,086,762
Appropriation of 1997 earnings:
     Appropriation for legal reserve                --            --               408,676         (408,676)
     Capitalization of employees' bonus          367,809          --                  --           (367,809)
     Directors' and supervisors'
         remuneration                               --            --                  --            (36,781)
     Stock dividends                           3,000,000          --                  --         (3,000,000)
Net income for 1998                                 --            --                  --          3,748,549
Accumulative translation adjustment                 --            --                  --               --
                                            ------------        ----              --------       -----------
Balance at December 31, 1998                 $13,367,809        $ 40              $408,676       $ 4,022,045
                                            ============        ====              ========       ===========
</TABLE>
<TABLE>
<CAPTION>
                                            Cumulative Translation
                                            Adjustment from Long-       Total Stock-
                                               Term Investments        holders' Equity
                                               ----------------        ---------------
<S>                                                <C>                  <C>
Balance at January 1, 1997                         $ --                 $10,056,587
Net income for 1997                                  --                   4,030,215
Transfer of the gain on disposal of
     fixed assets to capital reserve                 --                        --
                                                   ----                 -----------
Balance at December 31,1997                          --                  14,086,802
Appropriation of 1997 earnings:
     Appropriation for legal reserve                 --                        --
     Capitalization of employees' bonus              --                        --
     Directors' and supervisors'
         remuneration                                --                     (36,781)
     Stock dividends                                 --                        --
Net income for 1998                                  --                   3,748,549
Accumulative translation adjustment                 (247)                      (247)
                                                   -----                -----------
Balance at December 31, 1998                       $(247)               $17,798,323
                                                   =====                ===========

<FN>
     The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
                                         ~4~


<PAGE>

<TABLE>
                        UNITED SEMICONDUCTOR CORPORATION

                            STATEMENT OF CASH FLOWS

                        FOR THE YEARS ENDED DECEMBER 31,

                   (EXPRESSED IN NEW TAIWAN THOUSAND DOLLARS)

<CAPTION>
                                                                          1998          1999
                                                                      -----------    -----------
<S>                                                                   <C>            <C>
Operating activities:
  Net income                                                          $ 3,748,549    $ 4,030,215
  Adjustments to reconcile net income to net cash provided by
    (used in) operating activities
    Depreciation                                                        2,510,951      1,591,371
    Amortization                                                          363,314        320,071
    (Reverse of) Provision for loss on obsolescence of inventories        (47,943)        38,403
    Loss (gain) on disposal of fixed assets                                    15            (40)
    Fixed assets transferred to expenses                                    4,759         26,516
    Changes in asset and liability accounts:
      Accounts and notes receivable                                       653,888     (1,026,445)
      Other receivables                                                   (76,241)       (24,017)
      Inventories                                                        (105,915)       (64,203)
      Prepaid expenses                                                      9,866         (5,673)
      Other current assets                                                137,028       (208,429)
      Deferred income tax assets                                         (135,019)       116,684
      Other assets                                                         (2,231)          --
      Accounts and notes payable                                         (174,785)       213,748
      Accrued expenses and other payable                                  233,288        283,571
      Other current liabilities                                              (908)         5,911
      Accrued pension liabilities                                          13,339         11,619
                                                                      -----------    -----------
  Net cash provided by operating activities                             7,131,955      5,309,302
                                                                      -----------    -----------
Investing activities:
  Acquisition of fixed assets                                          (6,280,177)    (4,644,743)
  Proceeds from disposal of fixed assets                                     --            9,180
  Decrease (increase) in marketable securities                             52,353     (2,987,926)
  Increase in long-term investment                                       (356,406)          --
  Increase in deferred expense and intangible assets                     (128,858)       (25,882)
  Decrease (increase) in deposit-out                                       29,504           (915)
                                                                      -----------    -----------
  Net cash used in investing activities                                (6,683,584)    (7,650,286)
                                                                      -----------    -----------
</TABLE>

                                      ~5~
<PAGE>

<TABLE>
                        UNITED SEMICONDUCTOR CORPORATION

                      STATEMENT OF CASH FLOWS (CONTINUED)

                        FOR THE YEARS ENDED DECEMBER 31,

                   (EXPRESSED IN NEW TAIWAN THOUSAND DOLLARS)

<CAPTION>
                                                                1998           1999
                                                            -----------    -----------
<S>                                                         <C>            <C>
Financing activities:
 (Decrease) increase in short-term loans                     (1,129,688)     1,750,112
 Proceeds from long-term loans                                2,765,778      1,517,771
 Appropriation of directors' and supervisors' remuneration      (36,781)          --
                                                            -----------    -----------
Net cash provided by financing activities                     1,599,309      3,267,883
                                                            -----------    -----------
Net increase in cash and cash equivalents                     2,047,680        926,899
Cash and cash equivalents at the beginning of year            5,469,227      4,542,328
                                                            -----------    -----------
Cash and cash equivalents at the end of year                $ 7,516,907    $ 5,469,227
                                                            ===========    ===========


Supplemental disclosures of cash flow information
 Cash paid for interest (excluding interest capitalized)    $   444,233    $   345,781
                                                            ===========    ===========
 Cash paid for income tax                                   $     1,744    $    51,501
                                                            ===========    ===========
Investing activities partially paid by cash
Acquisition of fixed assets                                 $ 7,154,510    $ 3,445,946
Add:  payable at the beginning of year                          352,925      1,551,722
Less: payable at the end of year                             (1,213,782)      (352,925)
      Fixed assets exchange                                     (13,476)          --
                                                            -----------    -----------
Cash paid                                                   $ 6,280,177    $ 4,644,743
                                                            ===========    ===========

<FN>
   The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>

                                      ~6~
<PAGE>

                        UNITED SEMICONDUCTOR CORPORATION

                         NOTES TO FINANCIAL STATEMENTS

                           DECEMBER 31, 1998 AND 1997

                   (EXPRESSED IN NEW TAIWAN THOUSAND DOLLARS)


1. HISTORY AND ORGANIZATION

   United  Semiconductor  Corporation  was  incorporated as a company limited by
   shares on October 6, 1995 and commenced its  operations in June,  1996. As of
   December 31, 1998, the paid-in  capital is  $13,367,809.  The Company's major
   business activities are as follows:

   a. Semiconductor and semiconductor device foundry;

   b. Providing the mask tooling, package, burn-in, and testing services for the
      above-mentioned products; and

   c. Research and development for the technology of wafer fabrication.


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   Translation of foreign currency transactions

   The  accounts  of  the  Company  are   maintained  in  New  Taiwan   dollars.
   Transactions denominated in foreign currencies are translated into New Taiwan
   dollars  at the  rates  of  exchange  prevailing  on the  transaction  dates.
   Receivables,  other monetary  assets and  liabilities  denominated in foreign
   currencies  are  translated  into New Taiwan dollars at the rates of exchange
   prevailing at the balance sheet date.  Exchange  gains or losses are included
   in the current year's results.

   Cash equivalents

   Cash equivalents are short-term, highly liquid investments, which are readily
   convertible  to known  amounts  of cash and with  maturity  dates that do not
   present  significant  risk of changes in value because of changes in interest
   rates.

   Marketable securities

   Marketable securities are recorded at cost when acquired. The carrying amount
   of  the  marketable  securities  portfolio  is  stated  at the  lower  of its
   aggregate  cost or market value at the balance  sheet date.  The market value
   for listed  equity  securities  or  close-ended  funds are  determined by the
   average closing prices occurred during the last month of the fiscal year. The
   market value for open-ended  funds are determined by their equity per unit at
   balance sheet date.

                                      ~7~
<PAGE>

   Inventories

   Inventories,  except raw materials  stated at actual,  are stated at standard
   cost which is adjusted to actual  cost based on  weighted  average  method at
   month end. Inventories are valued at the lower of cost or market value at the
   year end. An allowance for loss on  obsolescence  and decline in market value
   is provided when necessary.

   Long-term investments

   A. If the  investee  company is listed and the Company  owns less than 20% of
      the  outstanding  shares and has no  significant  influence on operational
      decisions of the listed  company,  such investment is accounted for by the
      lower of cost or market value method.  The unrealized  loss resulting from
      the  decline  in  market  value  of  such   investment  is  deducted  from
      stockholders'  equity. The Company's  investment in a company which is not
      listed is accounted for under the cost method.

   B. Investment  income or loss from  investments  in both listed and  unlisted
      companies is accounted for under equity  method  provided that the Company
      owns over 20% of the outstanding  shares or has  significant  influence on
      operational decisions of the listed and unlisted companies.

   C. For long-term  investments  in which the Company owns more than 50% of the
      subsidiary,  consolidated  financial statements are prepared, if the total
      assets and the operating income of the subsidiary are less than 10% of the
      respective  nonconsolidated  total assets and income of the  Company,  the
      subsidiary's  financial  statements are not  consolidated  and instead are
      accounted  for using the equity  method.  Irrespective  of the above test,
      when  the  total  combined   assets  or  operating   income  of  all  such
      nonconsolidated  subsidiaries  constitute  more than 30% of the  Company's
      nonconsolidated  total assets or income,  then each individual  subsidiary
      with total assets or  operating  income  greater than 3% of the  Company's
      respective  nonconsolidated  total  assets and income is  included  in the
      consolidation.

   D. In evaluation of overseas long-term investment, the cumulative translation
      adjustment   derived  form  the  investee's   foreign  currency  financial
      statements  is treated as  adjusted  item of the  Company's  stockholders'
      equity account.

   Property, plant and equipment

   A. Property,  plant and  equipment are stated at cost.  Interest  incurred on
      loans  used  to  finance  the   construction  of  property  and  plant  is
      capitalized and depreciated accordingly.

                                      ~8~
<PAGE>

   B. Depreciation  is provided on the  straight-line  method  using the assets'
      economic  service  lives.  When the economic  service lives are completed,
      fixed assets which are still in use are depreciated  based on the residual
      value. The service lives of the fixed assets are five to ten years.

   C. Maintenance  and repairs are charged to expenses as incurred.  Significant
      renewals  and  improvements  are treated as capital  expenditures  and are
      depreciated accordingly.

   Intangible assets

   A. Technology  knowhow was provided by a major shareholder as part of paid-in
      capital.  The  asset is  amortized  over five  years on the  straight-line
      method starting from the date of operation.

   B. Royalties are stated at cost and amortized on a  straight-line  basis over
      the contract period.

   Deferred charges

   Deferred  charges are stated at cost and amortized on a  straight-line  basis
   over the following years: software - 3 years; organization cost - 5 years.

Retirement plan

   A. The Company has a  non-contributory  and funded defined benefit retirement
      plan covering all its regular employees.

   B. The net  pension  cost is  computed  based on an  actuarial  valuation  in
      accordance with the provision of FASB No. 18 of the R.O.C., which requires
      consideration  of cost  components  such as service cost,  interest  cost,
      expected  return on plan  assets and  amortization  of net  obligation  at
      transition.

   Income tax

   Income  tax is  provided  based on  accounting  income  after  adjusting  for
   permanent  differences.  The provision  for income tax includes  deferred tax
   resulting  from items  reported in  different  periods for tax and  financial
   reporting purposes and from investment tax credits. A valuation  allowance is
   provided for deferred tax asset to the extent that it is more likely than not
   that  the  tax  benefits  will  not  be  realized.  Deferred  tax  assets  or
   liabilities are further  classified into current or noncurrent  items and are
   presented in the financial statements as net balance. Over or under provision
   of prior years' income tax  liabilities  are  included in the current  year's
   income tax expense.

3. EFFECT OF CHANGE IN ACCOUNTING PRINCIPLES
   None.

4. CONTENTS OF SIGNIFICANT ACCOUNTS

                                      ~9~
<PAGE>


(1) CASH AND CASH EQUIVALENTS

                                                            December 31
                                                     ---------------------------
                                                        1998             1997
                                                     ----------       ----------
Cash:
Cash on hand                                         $    2,355       $    1,817
Demand accounts                                         387,694           58,655
Checking accounts                                       169,402           16,607
Time deposits                                         6,054,016        5,342,348
                                                     ----------       ----------
                                                      6,613,467        5,419,427

Cash equivalents:
Bonds with repurchase agreement                         903,440           49,800
                                                     ----------       ----------
                                                     $7,516,907       $5,469,227
                                                     ==========       ==========


(2) MARKETABLE SECURITIES

                                                             December 31
                                                     ---------------------------
                                                        1998             1997
                                                     ----------       ----------
Mutual funds                                         $  199,040       $  251,393
Listed equity securities stocks                       2,939,353        2,939,353
                                                     ----------       ----------
                                                     $3,138,393       $3,190,746
                                                     ==========       ==========


(3) ACCOUNTS RECEIVABLE - NET
                                                             December 31
                                                       ------------------------
                                                          1998           1997
                                                       ---------      ---------
Accounts receivable -- third parties                   $ 863,417      $ 959,159
Less: Allowance for doubtful accounts                    (20,982)       (21,839)
      Allowance for sales returns and discounts          (64,036)          --
                                                       ---------      ---------
                                                       $ 778,399      $ 937,320
                                                       =========      =========


(4) INVENTORIES
                                                              December 31
                                                       ------------------------
                                                          1997           1998
                                                       ---------      ---------
Raw materials, supplies and spare parts                $  88,653      $ 226,426
Work in process                                          445,414        315,274
Finished goods                                           171,737         58,189
                                                       ---------      ---------
                                                         705,804        599,889

Less: Allowance for loss on obsolescence                 (40,460)       (88,403)
                                                       ---------      ---------
                                                       $ 665,344      $ 511,486
                                                       =========      =========

                                      ~10~

<PAGE>


<TABLE>
(5) LONG-TERM INVESTMENT

<CAPTION>
                                                                            December 31,
                                                         --------------------------------------------------
                                                                  1998                       1997
                                                         ------------------------  ------------------------
                                                                     Percentage                Percentage
    Investee Company                                       Amount   of ownership    Amount    of ownership
    ----------------                                     ----------  ------------  ----------  ------------
<S>                                                      <C>              <C>      <C>              <C>
    Investment accounted for under equity
    method:
         UMC-USA                                         $106,006         20%      $   --            --
         Cumulative translation adjustment                   (247)                     --
                                                         --------                  --------
         Subtotal                                         105,759                      --
                                                         --------                  --------

    Prepaid long-term investment:
         Industrial Bank of Taiwan                        250,000                      --
         SBIP Administration Recycle Co.                      400                      --
                                                         --------                  --------
    Subtotal                                              250,400                      --
                                                         --------                  --------
    Grand total                                          $356,159                  $   --
                                                         ========                  ========
</TABLE>


<TABLE>
(6) PROPERTY, PLANT AND EQUIPMENT

<CAPTION>
                                                                                            December 31, 1998
                                                                        ------------------------------------------------------------
                                                                                                Accumulated
                                                                            Cost                depreciation             Book value
                                                                        ------------            ------------            ------------
<S>                                                                     <C>                     <C>                     <C>
Machinery and equipment                                                 $ 18,591,271            $ (4,387,198)           $ 14,204,073
Transportation equipment                                                       3,206                  (1,122)                  2,084
Furniture and fixtures                                                       217,742                 (53,978)                163,764
Leasehold improvements                                                        10,966                  (4,142)                  6,824
Other equipment                                                               40,974                  (5,850)                 35,124
Construction in progress and prepayments                                     967,065                    --                   967,065
                                                                        ------------            ------------            ------------
                                                                        $ 19,831,224            $ (4,452,290)           $ 15,378,934
                                                                        ============            ============            ============


                                                                                            December 31, 1997
                                                                        ------------------------------------------------------------
                                                                                                Accumulated
                                                                            Cost                depreciation             Book value
                                                                        ------------            ------------            ------------
Machinery and equipment                                                 $ 10,169,495            $ (1,915,540)           $  8,253,955
Transportation equipment                                                       3,206                    (587)                  2,619
Furniture and fixtures                                                       130,771                 (24,341)                106,430
Leasehold improvements                                                        10,966                  (2,315)                  8,651
Other equipment                                                               14,270                  (2,178)                 12,092
Construction in progress and prepayments                                   2,460,306                    --                 2,460,306
                                                                        ------------            ------------            ------------
                                                                        $ 12,789,014            $ (1,944,961)           $ 10,844,053
                                                                        ============            ============            ============
</TABLE>


Interest expense  amounting to $118,745 and $24,321 were capitalized in 1998 and
1997, respectively.

                                      ~11~

<PAGE>


(7)     SHORT-TERM LOANS

                                                      December 31
                                           ---------------------------------
                                               1998                 1997
                                           -------------       -------------
Unsecured loans                            $     781,944       $   1,911,632
                                           =============       =============
Annual interest rates                       0.73% - 8.22%       1.25% - 7.66%
                                           =============       =============


(8) LONG-TERM LOANS


                                                        December 31
                                           -------------------------------------
                                                1998                   1997
                                           -------------          -------------
Long-term loans                            $   8,613,047          $   5,847,269
Less: Current portion                         (1,571,458)              (656,744)
                                           -------------          -------------
                                           $   7,041,589          $   5,190,525
                                           =============          =============
Annual interest rates                       1.25% - 7.60%          1.31% - 7.20%
                                           =============          =============


(9) RETIREMENT PLAN

A.   All of the  regular  employees  of the  Company  are covered by the pension
     plan.  Under the plan,  the Company  contributes  an amount  equal to 2% of
     total wages on a monthly basis to the pension fund deposited in the Central
     Trust of China.  Pension benefits are generally based on service years (two
     points per year for service years 15 years and below and one point per year
     for service years over 15 years). Each employee is limited up to 45 points.
     During 1998 and 1997,  the Company  recognized  pension  cost  amounting to
     $22,262 and $17,793, respectively. The balances of the Company's employees'
     retirement  fund in  Central  Trust of China  was  $18,068  and  $9,270  at
     December 31, 1998 and 1997, respectively.

B.   Based on  actuarial  assumptions  for the years of 1998 and 1997,  both the
     discount rate and expected rate of return on plan asset are 6.25% and 6.5%,
     respectively  and the  rates of  compensation  increase  are  both 8%.  The
     unrecognized  net  obligation at  transition  is amortized  equally over 15
     years. The funded status of pension plan is listed as follows:

                                      ~12~

<PAGE>


                                                              December 31
                                                         ----------------------
                                                           1998          1997
                                                         --------      --------
Vested benefit obligation                                $   --        $   --
Non-vested benefit obligation                             (11,417)       (4,947)
                                                         --------      --------
Accumulated benefit obligation                            (11,417)       (4,947)
Effect on projected salary increase                       (57,082)      (25,388)
                                                         --------      --------
Projected benefit obligation                              (68,499)      (30,335)
Market-related value of plan assets                        18,068         8,638
                                                         --------      --------
Projected benefit obligation exceeds plan asset           (50,431)      (21,697)
Unrecognized net obligation at transition                     260           281
Unrecognized pension gain or loss                          26,647        11,360
                                                         --------      --------
Accrued pension liability                                $(23,524)     $(10,056)
                                                         ========      ========


(10)    COMMON STOCK

A.   As of December 31, 1998, the Company's  authorized capital was $23,000,000,
     representing  2,300,000 thousand shares, with par value of NT$10. The total
     issued  and  outstanding  capital  at  December  31,  1998  and  1997  were
     $13,367,809 and $10,000,000, respectively.

B.   Based on the resolution of the  shareholders'  meeting on May 26, 1998, the
     Company   issued   new  shares  of  336,781   thousand   shares   from  the
     capitalization  of retained  earnings of $3,000,000 and employees' bonus of
     $367,809.   The  Company  has  completed  the  amendment   procedures   for
     registration.


(11) RETAINED EARNINGS

A.   According  to the  Company's  Articles  of  Incorporation,  current  year's
     earnings, if any, shall be distributed in the following order:

     (1)  paying all taxes and dues;

     (2)  covering prior years' operating losses, if any;

     (3)  setting aside 10% of the  remaining  amount,  after  deducting (1) and
          (2), as legal reserve;

     (4)  allocating  not over 10% of the par value of common stocks as interest
          of capital to common stockholders;

     (5)  allocating 1% of the remaining  amount,  after deducting (1), (2), (3)
          and (4) above from the current  year's  earnings,  as  directors'  and
          supervisor's renumeration;

     (6)  allocating not below 10% of the remaining amount, after deducting (1),
          (2), (3) and (4) above from the current year's earnings, as employees'
          bonus;  and

                                      ~13~

<PAGE>


     (7)  distributing the remaining amount in accordance with the resolution of
          the board of directors and stockholders.


(12) INCOME TAX

A.   Income tax receivable at December 31, 1998 and 1997 was derived as follows:

                                                           1998           1997
                                                         --------      --------
Income tax expense (benefit)                             $ 69,803      $(84,057)
Net effect of the change in deferred
  income tax assets and liabilities                       (54,187)       89,634
Adjustment of prior year's income tax expense              (3,101)         --
Withholding income tax                                    (34,994)      (51,259)
Tax on interest which is subject to separate
  withholding income tax                                   (1,744)         (242)
                                                         --------      --------
Income tax receivable (shown in other
  current assets)                                        $(24,223)     $(45,924)
                                                         ========      ========


B.   Deferred income tax assets and liabilities as of December 31, 1998 and 1997
     were as follows

                                                             December 31
                                                    ---------------------------
                                                        1998             1997
                                                    -----------     -----------
Deferred income tax assets -- current               $    43,335     $   228,270
Deferred income tax liabilities -- current               (4,271)           --
                                                    -----------     -----------
                                                         39,064         228,270
                                                    -----------     -----------
Deferred income tax assets -- noncurrent              1,526,536       1,262,960
Deferred income tax liabilities -- noncurrent          (470,012)       (611,435)

Valuation allowance for deferred income
  tax assets -- noncurrent                             (818,403)       (548,423)
                                                    -----------     -----------
                                                        238,121         103,102
                                                    -----------     -----------
                                                    $   277,185     $   331,372
                                                    ===========     ===========


<TABLE>
C.   Components of deferred income tax assets and liabilities as of December 31,
     1998 and 1997 were as follows:

<CAPTION>
                                                                      December 31, 1998                    December 31, 1997
                                                               ------------------------------        ------------------------------
                                                                 Amount            Tax Effect          Amount           Tax Effect
                                                               -----------        -----------        -----------        -----------
<S>                                                            <C>                <C>                <C>                <C>
Current items:
  Temporary differences
    Unrealized foreign exchange gain                           $   195,322        $    39,064        $ 1,141,350        $   228,270
                                                               -----------        -----------        -----------        -----------
Non-current items
  Temporary differences
    Depreciation                                                (2,350,062)          (470,012)        (3,057,175)          (611,435)
    Amortization of technology knowhow, etc.                       135,180             27,036            956,290            191,258
  Investment tax credits                                              --            1,499,500               --            1,071,702
  Valuation allowance for deferred income
    tax assets                                                        --             (818,403)              --             (548,423)
                                                               -----------        -----------        -----------        -----------
                                                               $(2,214,882)           238,121        $(2,100,885)           103,102
                                                               ===========        -----------        ===========        -----------
                                                                                  $   277,185                           $   331,372
                                                                                  ===========                           ===========
</TABLE>

                                      ~14~
<PAGE>


D.   The Company's  income tax return for 1996 has been assessed and approved by
     the Tax Authority.

E.   Pursuant  to the  "Statute  For The  Establishment  and  Administration  of
     Science-Based  Industrial Park", the Company was granted several periods of
     tax holidays with respect to income derived from approved investments.  The
     tax holidays will be expired on December, 2001.

F.   As of December 31, 1998,  the unused  investment  tax credits  amounting to
     $1,499,500  resulting from the acquisition of equipment and expenditures on
     research and development will expire on December 31, 2002.

G.   As of December 31, 1998, the Company's  deductible  credit account  balance
     for   shareholders'   income  tax  is  $36,733.   The  ending   balance  of
     unappropriated  earnings amounting to $4,022,045,  of which $3,748,549 came
     from the year of 1998 and $273,496  came from and before the years of 1997.
     The  estimated  ratio of  deductible  tax credit for the  appropriation  of
     1998's earnings is 0.33%.


(13) EARNINGS PER SHARE

                                                      1998              1997
                                                   -----------     -----------
Net income                                         $ 3,748,549     $ 4,030,215
                                                   ===========     ===========
Weighted average outstanding common stock
  (Expressed in thousand shares)                     1,336,781       1,000,000
                                                   ===========     ===========
Retroactively adjusted weighted average
  outstanding common stock
  (Expressed in thousand shares)                     1,336,781       1,336,781
                                                   ===========     ===========
Earnings per share (Expressed in
  New Taiwan dollars)                              $      2.80     $      4.03
                                                   ===========     ===========
Retroactively adjusted weighted average
  earnings per share                               $      2.80     $      3.01
                                                   ===========     ===========



5. RELATED PARTY TRANSACTION

(1) Names and Relationships of Related Parties

       Name of the related parties             The relationship with the Company
       ---------------------------             ---------------------------------
United Microelectronics Co., Ltd. (UMC)        The major investor of the Company
United  Integrated  Circuits  Corporation      Common board chairman
United Silicon  Incorporated                   Common board chairman
Utek  Semiconductor  Inc.                      Common board chairman
AMIC Technology, Incorporated                  The affiliate of UMC
Faraday Technology Corporation                 Common major investor
NOVATEK Microelectronics Corp.                 Common major investor
Integrated Technology Express                  Common major investor
MediaTek Incorporation                         Common major investor
Industrial Bank of Taiwan                      The Company is the promoter
Chiao Tung Bank                                The Company's chairman is a board
                                               member of the Bank
S3 Inc.                                        A director of the Company
S3 International Ltd.                          100% investee of S3 Inc.
ALLIANCE Semiconductor Corp. (Alliance)        A director of the Company
UMC-USA                                        The investee of the Company

                                      ~15~

<PAGE>


(2)  Significant Related Party Transactions

     a. Sales

                                    1998                        1997
                          -------------------------   -------------------------
                                        Percentage                   Percentage
                            Amount     of net sales     Amount     of net sales
                          ----------   ------------   ----------   ------------
United Microelectronics
  Co., Ltd.               $1,562,443            13%   $2,503,897           26%
United Integrated
  Circuit Co., Ltd.          229,583             2%      302,866            3%
S3 International Ltd.      1,456,778            12%         --            --
Alliance                     271,453             2%         --            --
Others                       108,098             1%      425,071            4%
                          ----------    ----------    ----------    ----------
                          $3,628,355            30%   $3,231,834           33%
                          ==========    ==========    ==========    ==========

     The above sales are dealt with in the ordinary  course of business  similar
     to those with other companies. The actual collection period is appoximately
     two months.

     b. Purchases

                                           1998                   1997
                                   ---------------------   --------------------
                                              Percentage              Percentage
                                                of net                 of net
                                    Amount     purchases    Amount    purchases
                                   --------    ---------   --------   ---------
United Microelectronics
  Co., Ltd.                        $ 69,942           3%   $ 15,912           2%
United Silicon Incorporated          17,115           1%       --          --
United Integrated Circuit
  Co., Ltd.                          19,060           1%       --          --
                                   --------    --------    --------    --------
                                   $106,117           5%   $ 15,912           2%
                                   ========    ========    ========    ========


     The above  purchases  are dealt  with in the  ordinary  course of  business
     similar to those with other companies and are payable after two months from
     the date of transaction entries.

     c. Notes receivable

                                              1998                  1997
                                       -------------------   -------------------
                                                Percentage            Percentage
                                                 of notes              of notes
                                       Amount   receivable   Amount   receivable
                                       ------   ----------   ------   ----------
United Microelectronics
  Co., Ltd.                            $ --         --       $  781        100%
AMIC Technology Incorporated            6,736         79%      --         --
Faraday Technology Corporation            812         10%      --         --
Integrated Technology Express             804          9%      --         --
                                       ------     ------     ------     ------
                                        8,352         98%    $  781        100%
                                       ======     ======     ======     ======

                                      ~16~

<PAGE>


<TABLE>
     d. Accounts receivable

<CAPTION>
                                                                         1998                                     1997
                                                              -----------------------------           ------------------------------
                                                                                 Percentage                              Percentage
                                                                                 of accounts                             of accounts
                                                                Amount           receivable            Amount             receivable
                                                              --------           ----------           ---------           ----------
<S>                                                           <C>                        <C>          <C>                        <C>
United Microelectronics Co., Ltd.                             $ 303,987                  22%          $ 218,633                  11%
United Integrated Circuits Co., Ltd.                               --                  --               317,533                  17%
S3 International Ltd.                                           140,624                  10%            263,252                  14%
Others                                                           79,157                   6%            148,453                   8%
                                                              ---------           ---------           ---------           ---------
                                                                523,768                  38%            947,871                  50%
Less: Allowance for doubtful accounts                            (4,541)               --                (8,207)               --
      Allowance for sales returns and discounts                 (82,290)                 (6)%              --                  --
                                                              ---------           ---------           ---------           ---------
                                                              $ 436,937                  32%          $ 939,664                  50%
                                                              =========           =========           =========           =========
</TABLE>


     e. Notes payable

                                             1998                   1997
                                       ----------------     -------------------
                                               Percentage             Percentage
                                               of notes                of notes
                                       Amount   payable     Amount      payable
                                       ------   -------     ------      -------
United Microelectronics
  Co., Ltd.                            $ --        --      $25,992           21%
                                       ======      ==      =======      =======


     f. Accounts payable

                                         1998                     1997
                                  -------------------     -------------------
                                             Percentage              Percentage
                                            of accounts             of accounts
                                  Amount      payable     Amount      payable
                                  ------      -------     ------      -------
United Microelectronics
  Co., Ltd.                       $20,776           4%    $ 9,428           2%
United Integrated
  Circuit Co., Ltd.                 1,281        --        12,057           2%
United Silicon
  Incorporated                      1,577           1%       --          --
                                  -------     -------     -------     -------
                                  $23,634           5%    $21,485           4%
                                  =======     =======     =======     =======

                                      ~17~

<PAGE>


     g. Accrued expenses

                                           1998                     1997
                                   --------------------    --------------------
                                              Percentage              Percentage
                                              of accrued              of accrued
                                    Amount     expenses     Amount     expenses
                                   --------    --------    --------    --------
United Microelectronics
  Co., Ltd.                        $190,761          24%   $ 77,387          13%
Others                                  197        --          --          --
                                   --------    --------    --------    --------
                                   $190,958          24%   $ 77,387          13%
                                   ========    ========    ========    ========

     h. Property transaction

     1998:  None.

     1997:  The  Company  sold one set of  machinery  and  equipment  to  United
            Integrated Circuit Co., Ltd. for $9,180. The gain on the transaction
            was $40.


<TABLE>
     i. Financing transaction -- Long-term loan

<CAPTION>
                                                                    1998
                           -------------------------------------------------------------------------------------
                            The Highest Balance
                           ----------------------
Chiao-Tung Bank            Time            Amount       Ending Balance    Interest Rate    Interest Expense Paid
                           ----            ------       --------------    -------------    ---------------------
<S>                   <C>                <C>              <C>           <C>                     <C>
                      February 1998      $ 720,144        $ 576,112     6.575% ~ 6.975%         $ 44,824
                                         =========        =========                             ========

                                                                    1997
                           -------------------------------------------------------------------------------------
                            The Highest Balance
                           ----------------------
Chiao-Tung Bank            Time            Amount       Ending Balance    Interest Rate    Interest Expense Paid
                           ----            ------       --------------    -------------    ---------------------
                      December 1997      $ 720,144        $ 720,144           6.575%            $ 40,409
                                         =========        =========                             ========
</TABLE>


<TABLE>
     j. Other transactions

<CAPTION>
        Related Parties                      Item                  1998            1997
        ---------------                      ----                  ----            ----
<S>                                     <C>                     <C>             <C>
United Microelectronics Co., Ltd.       Rental                  $ 201,211       $ 199,329
              "                         Fab service charge         87,696          64,954
              "                         Research & design
                                          expense                 168,420          76,992
              "                         Technology
                                          developing expense      145,911            --
              "                         Management
                                          allocation fee           69,915            --
                                                                ---------       ---------
                                                                  673,153         341,275
UMC-USA                                 Commission                137,272            --
                                                                ---------       ---------
                                                                $ 810,425       $ 341,275
                                                                =========       =========
</TABLE>

                                      ~18~

<PAGE>


<TABLE>
6.   ASSETS PLEDGED AS COLLATERAL

<CAPTION>
                                                       December 31
                                            -------------------------------
                                                1998                1997          Subject of collateral
                                            ------------        -----------       ---------------------
<S>                                         <C>                 <C>                 <C>
Machinery and equipment                     $ 12,575,024        $ 6,272,029         Long-term loan
Deferred assets-software                          53,690             --             Long-term loan
Time deposits                                      2,231              2,111         Guaranty for Customs Duties
                                            ------------        -----------
                                            $ 12,630,945        $ 6,274,140
                                            ============        ===========
</TABLE>


7.   COMMITMENTS AND CONTINGENT LIABILITIES

     a.   The Company's  unused  letters of credit for import of machinery  were
          approximately   USD25,510  thousand  dollars,   JPY3,516,992  thousand
          dollars, and DEMl20 thousand dollars at December 31, 1998.

     b.   The Company has signed several contracts for the purchase of equipment
          amounting to USD1,204,098  thousand  dollars,  TPY91,153,936  thousand
          dollars,  and DEM703  thousand  dollars.  As of December 31, 1998, the
          amount of unrecorded outstanding obligations under these contracts are
          USD1,101,281  thousand dollars,  JPY77,117,921  thousand dollars,  and
          DEM120 thousand dollars.

     c.   On September 24, 1997,  the Department of Commerce (DOC) of the United
          States of America (USA) made a preliminary  determination  that Static
          Random Access Memory (SRAM)  manufactured  in Taiwan are being sold at
          less than fair market value, i.e. dumped prices.  In March,  1998, the
          DOC issued its final  determination,  setting  the duty rate at 41.75%
          for "all others" not named as direct participants in the investigation
          (such as customers who used the Company to fabricate SRAM). Management
          believes  that this final  ruling of the case will not have a material
          adverse effect on the Company's  financial position because the volume
          of  SRAM  products   exported  by  the  Company  to  the  USA  is  not
          significant.

                                      ~19~

<PAGE>


     d.   On December 7, 1998, the  International  Trade Commission (ITC) of the
          USA  issued  a  statement  to the  DOC  that  there  was a  reasonable
          indication that the U.S.  industry is suffering a material injury as a
          result of Dynamic Random Access Memory (DRAM),  which are manufactured
          in Taiwan  and being sold at less than fair  market  value in the USA.
          Based on the precedent set in the SRAM investigation  described above,
          the Company expects that foundry  customers who were not  participants
          in the investigation will also be subject to the "all other" rate with
          respect to DRAM.  Management  believes  that the final  outcome of the
          investigation will not have a material adverse effect to the Company's
          financial  position  because the  Company's  volume of export sales of
          DRAM to the USA is not significant.

     e.   A number of third  parties hold  patents in the area of  semiconductor
          processing,  and some have  notified  the Company  demanding  that the
          Company  obtain  a  license  for  various  semiconductor   fabrication
          techniques and circuit  designs.  The third parties  involved  include
          Texas Instruments,  EMI, Intel, Chou H. Li, NEC, and Sanyo. Management
          has indicated a willingness to obtain licenses  wherever  required and
          necessary to continue its business.


8.   COMPARATIVE FIGURES RECLASSIFICATION

     Certain accounts in the 1997 financial statements have been reclassified to
     conform with the presentation adopted for the 1998 financial statements.

                                      ~20~