SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                             -----------------------

                                    FORM 10-K

                        FOR ANNUAL AND TRANSITION REPORTS
                     PURSUANT TO SECTIONS 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
(Mark One)

[X]  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934 [NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996]
     For the fiscal year ended March 28, 1998
                                       OR

[ ]  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
     EXCHANGE  ACT OF 1934 [NO FEE  REQUIRED]
     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
   incorporation or organization)                            Identification No.)

3099 North First Street, San Jose, California                       95134
 (Address of principal executive offices)                         (Zip Code)

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

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

           Securities registered pursuant to Section 12(g) of the Act:
                         Common Stock, par value $0.01
                                (Title of class)

     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 in this form,  and no disclosure  will 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 of this Form 10-K. [ ]

     The  aggregate   market  value  of   Registrant's   Common  Stock  held  by
non-affiliates  of  Registrant  as of June  18,  1998 was  approximately  $144.9
million  based on the  closing  sale price of such stock on the Nasdaq  National
Market.

              APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

                                      -1-

<PAGE>


     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, 1998,  there were 41,389,842  shares of Registrant's  Common
Stock outstanding.


                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of Registrant's  definitive Proxy Statement for its 1998 Annual Meeting
of Stockholders  (the "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 March 28, 1998, are incorporated by reference
into Part III hereof.

                                      -2-

<PAGE>


     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.


                                     PART I

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 also offers
multimedia user interface ("MMUI")  accelerator  products that combine 2D and 3D
graphics and motion video acceleration capabilities,  and 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  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  1998,  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

                                      -3-

<PAGE>


in average  selling  prices.  Pricing  pressure  also  resulted  in  significant
declines in average  selling prices during fiscal 1998 for many of the Company's
SRAM,  flash and  graphics  products.  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. The Company announced in May
1998 that primarily due to continued  weakening in the DRAM market,  the Company
expects  its  operating  results  for the first  quarter  of  fiscal  1999 to be
significantly below results from the prior quarter,  and to result in a net loss
for the quarter.  The Company  anticipates  that in the first  quarter of fiscal
1999,  it will  record a  material  valuation  adjustment  with  respect  to its
inventory, primarily to reflect a decline in the market value of such inventory.

     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 years ended March 31, 1998, March 31, 1997
and March 31, 1996 each contained 52 weeks.

Industry Background

     SRAMs and DRAMs are the most commonly-used  memory circuits for the storage
and retrieval of data during a computer  system's  operation,  and are used in a
wide variety of other applications,  such as telecommunications,  networking and
instrumentation.  SRAMs are roughly  four to six times as complex as DRAMs (four
to six  transistors  per bit of memory  compared to one transistor) but also are
generally  roughly  four  times  as fast.  SRAMs  are  also  substantially  more
expensive than DRAMs per unit of storage. Computer architectures have evolved to
make  efficient use of both SRAMs and DRAMs,  taking into account their cost and
performance  characteristics.  DRAMs  are used in a  computer's  main  memory to
temporarily  store the large  amounts of data  retrieved  from low cost external
mass memory, such as hard disk drives.  SRAMs are principally used as caches and
buffers  between the computer's  microprocessor  and its DRAM-based main memory.
DRAMs and SRAMs also are used in a variety of applications in industries such as
networking, Communications and instrumentation.

     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

                                      -4-

<PAGE>


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  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

                                      -5-

<PAGE>


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 1998, SRAM products,  including cache memory modules,  contributed
approximately  27% of the Company's net revenues,  as compared to  approximately
41% of the Company's net revenues in fiscal 1997. 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,  substantially  all of the Company's volume SRAM products are
manufactured using 0.35 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 256Kbitx16 and 1Mbitx16  configurations,  respectively.
Sales of the Company's family of DRAM products  experienced  significant  growth
during the fiscal year, contributing  approximately 66% of the fiscal year's net
revenues,  as compared to  approximately  47% of the  Company's  net revenues in
fiscal 1997.

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  7% of the
Company's net revenues  during fiscal 1998 as compared to  approximately  11% of
the Company's net revenues in fiscal 1997.

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.

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 80  development  personnel as of
March 28,  1998.  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 1998, fiscal 1997 and fiscal
1996, the Company spent  approximately  $15.3  million,  $15.0

                                      -6-

<PAGE>


million and $14.7 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,  MMUI accelerators 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 1998, the Company incurred  pre-tax charges of  approximately  $18
million, primarily to adjust the valuation of the Company's inventory to relect,
declines in market value.  The Company  anticipates that in the first quarter of
fiscal 1999, it will record a material valuation  adjustment with respect to its
inventory, primarily to reflect a decline in the market value of such inventory.

Customer

     The  Company's  primary  customers  are major  domestic  and  international
suppliers  and  manufacturers  of  personal   computers  and  personal  computer
peripheral  system boards  including  Acer,  Apricot  (acquired by  Mitsubishi),
Diamond  Multimedia,  Hewlett Packard,  IBM, Jabil,  NEC, SCI  Manufacturing and
Solectron.  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 1998 from the sale of SRAMs
for personal computer cache applications. Intel introduced last year 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  products  and to  develop  new  products  complementary  to  its  existing
products,  

                                      -7-

<PAGE>


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,  1998,  1997 and 1996
sales to customers in Asia accounted for  approximately  30%, 28% and 25% 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, Adaptec, Alteon, Ascend, Bay Networks,
Hitachi,  Mitsubishi,  Siemens, Sony, Tektronix and Xircom. 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 as early as the
year 2000 (see Item 3 - Legal Proceedings,  below), the deposit requirement, and
the potential  that  antidumping  duties will be  liquidated in early 2000,  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, 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.
For fiscal year ended March 31, 1996, one customer  accounted for  approximately
18% 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

                                      -8-

<PAGE>


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 41%, 36% and 43% of net revenues in
fiscal  1998,  fiscal 1997 and fiscal  1996,  respectively.  The majority of the
Company's  international revenues in fiscal years 1996 through 1998 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  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.  Further, the Company's investments in
foundries 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

                                      -9-

<PAGE>


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, 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 "Fab 2."  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 Fab 2. 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  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 Fab 2. 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.

     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

                                      -10-

<PAGE>


payment of up to approximately 665 million New Taiwan Dollars  (approximately US
$19.3  million at the exchange rate  prevailing on June 18, 1998,  which rate is
subject to material  change).  As a result of that sale,  the Company  currently
owns approximately  15.5% of the outstanding shares of USC, and has the right to
purchase up to approximately 25% of the manufacturing capacity in this facility.
The Company  anticipates  that as a result of an upcoming  issuance of shares to
USC employees  (which  issuance has been approved by USC's board of  directors),
the Company's  ownership  position  will be diluted to  approximately  15.1%.  A
portion of UMC's equity contribution was paid through the grant by UMC to USC of
royalty-free  licenses to certain UMC sub-micron  process  technologies.  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 1998, the
Company reported income of  approximately  $15.5 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 for 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. ("USI"),  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
Alliance  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.  Alliance  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. Currently,  the Company owns approximately 3.33% of the outstanding shares
of USI and has the right to purchase  approximately  4.17% of the  manufacturing
capacity  of the  facility.  A portion  of UMC's  equity  contribution  was paid
through  the  grant  by UMC to USI  of  royalty-free  licenses  to  certain  UMC
sub-micron below process technologies.

     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 USI all are located in
the  Science-Based  Industrial  Park in  Hsin  Chu  City,  Taiwan.  The  Company
currently expects these three foundries to supply the substantial portion of the
Company's  products in fiscal 1999.  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

                                      -11-

<PAGE>


     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 USI 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  USI.)  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 USI 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,  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

                                      -12-

<PAGE>


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 affect 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 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.;  Motorola;  Samsung;  S3; 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

                                      -13-

<PAGE>


     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 35 United
States patents  covering certain aspects of its product designs or manufacturing
technology,  which patents  expire   between 2009 and 2016. The Company also has
32 pending United States patent  applications,  9 of which have been allowed and
are  expected  to be  issued as  patents.  There  can be no  assurance  that any
additional  patents will be issued to the Company or that the Company's  patents
will provide  meaningful  protection from competition or will not be invalidated
or challenged in the future. Copyrights,  maskwork protection, trade secrets and
confidential  technological know-how are also key elements in the conduct of the
Company's business.

     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

                                      -14-

<PAGE>


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 March 28, 1998, the Company had 168 full-time  employees,  consisting
of 80 in research and development,  7 in marketing,  24 in sales, 11 in finance,
and 46 in  administration  and  operations.  Of the 80 research and  development
employees,  26 have advanced  degrees.  The Company recently has 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.

     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(R) and its manufacturing  tracking systems to FASTech(R) which will be
further  integrated  with the  Oracle(R)  application.  The full  conversion  is
scheduled to be completed in February 1999,  however,  there can be no assurance
that the  conversion  will not suffer delays or not  experience  other  problems
which may have a materially  adverse  impact on the business  operations  of the
Company.  Additionally  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,
Chief  Financial  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 1998
and  subsequently,  a number of officers and design  personnel  left Alliance 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

                                      -15-

<PAGE>


     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 1999, which the
Company may extend for 5 years beyond such  expiration.  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 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  Irvine,
California;  Reading,  Massachusetts;  Plano, Texas; Heathrow,  Florida; Taipei,
Taiwan; Munich, Germany; and Derby, England.


ITEM 3.         LEGAL PROCEEDINGS

     As previously reported,  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   judgement   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.

     As  previously   reported,   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.  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 February 1997, Micron  Technology,  Inc. filed an anti-dumping  petition
(the "Petition") with the United States  International  Trade Commission ("ITC")
(Investigation  Nos.  731-TA-761-762)  and United States  Department of Commerce
("DOC")  (Investigations  No.  A-583-827),  alleging  that static  random access
memories  ("SRAMs")  produced  in South  Korea and  Taiwan are being sold in the
United  States at less than fair  value,  and that the  United  States  industry
producing  SRAMs is  materially  injured or threatened  with material  injury by
reason of imports of SRAMs  manufactured in South Korea and Taiwan.  As a result
of the Petition,  the Company,  in order to import into the United States, on or
after  approximately  April 1998, SRAMs manufactured in Taiwan,  must pay a cash
deposit in the amount of 50.15% (the  "Antidumping  Margin") of the cost of such
SRAMs.  (The Company has posted a bond in the

                                      -16-

<PAGE>


amount of 59.06%  (the  preliminary  margin)  with  respect to its  importation,
between  approximately  October 1997 and March 1998,  of SRAMs  manufactured  in
Taiwan.) The Company and others have appealed the  determination by the ITC that
imposed the Antidumping  Margin.  The Company may, in 1999,  request a review of
its sales of  Taiwan-fabricated  SRAMs from  approximately  October 1997 through
March 1999 (the "Review Period").  If the Company makes such a request, the cash
deposits made by the Company shall not be "assessed" or  "liquidated"  until the
conclusion of the review,  in early 2000. 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 made by the Company,  and
the deposits  that would have been made had the higher rate been in effect.  (In
either case, the Company also would be responsible to pay antidumping  duties in
the  amount  of  the  revised  margin  with  respect  to  its  imports,  between
approximately  October 1997 and March 1998, of SRAMs  manufactured in Taiwan.) A
material  portion of the SRAMs designed and sold by the Company are manufactured
in Taiwan,  and the cash  deposit  requirement  and  possibility  of  assessment
(liquidation)  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.


ITEM 4.         SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

                                      -17-

<PAGE>


EXECUTIVE OFFICERS OF THE REGISTRANT

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

     Name                         Age    Position
     ----                         ---    --------
     N. Damodar Reddy..........   59     President and Chief Executive Officer,
                                         Chief Financial Officer

     C.N. Reddy................   42     Executive Vice President and Chief
                                         Operating Officer

     Gregory Barton............   36     Vice President - Corporate and Legal
                                         Affairs, General Counsel

     William Caparelli.........   54     Senior Vice President - Sales (resigned
                                         effective July 1998)

     Sunit Saxena..............   39     Vice President - Product/Test
                                         Engineering  and Operations

     Ritu Shrivastava..........   47     Vice President - Technology Development


     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.  In June 1998,  after the  resignation  of Charles
Alvarez as Chief  Financial  Officer,  Mr. Reddy was appointed  Chief  Financial
Officer until a replacement is named.  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 a 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 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.

                                      -18-

<PAGE>


     Gregory  Barton  joined  the  Company in 1995 as  General  Counsel  and was
appointed  Vice  President - Corporate and Legal  Affairs in 1996.  From 1986 to
1993, he was an associate in the New York office of the law firm Gibson,  Dunn &
Crutcher.  Mr.  Barton  received a J.D.  degree magna cum laude from Harvard Law
School, and a B.A. degree summa cum laude from Claremont McKenna College.

     William  Caparelli  joined  the  Company  in  October  1997 as Senior  Vice
President - Sales. Prior to joining the Company,  Mr. Caparelli spent almost ten
years in various  positions at Cirrus Logic,  Inc., most recently as Senior Vice
President,   Worldwide  Sales.  Mr.  Caparelli  holds  a  B.S.E.E.  from  Lowell
Technological  Institute. In June 1998, Mr. Caparelli announced his resignation,
effective July 1998, to pursue other opportunities.

     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.

     Charles  Alvarez,  the Company's Chief Financial  Officer since March 1997,
resigned from the Company effective June 1998 to pursue other opportunities.

                                      -19-

<PAGE>



PART II

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

     The  Company's  Common Stock is traded in the  over-the-counter  market and
quoted  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 sale prices for the
Company's  Common Stock,  as adjusted to reflect the  three-for-two  stock split
effected in in July 1995. Such prices represent  prices between dealers,  do not
include retail mark-ups,  mark-downs or commissions and may not represent actual
transactions.

Calendar Year                                   High                Low
-------------                                   ----                ---
1996
----
1st Quarter ....................           $     13.00        $      8.00
2nd Quarter ....................                 12.00               7.75
3rd Quarter ....................                  9.00               5.13
4th Quarter ....................                 10.00               6.00

1997
----
1st Quarter ....................           $      9.50        $      6.31
2nd Quarter ....................                  9.38               6.44
3rd Quarter ....................                 15.75               7.63
4th Quarter ....................                 11.06               4.00

1998
----
1st Quarter ....................           $      8.25        $      4.50


     As of June 18, 1998, there were  approximately 187 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.

                                      -20-

<PAGE>


ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

<TABLE>
     The following table summarizes selected consolidated  financial information
for each of the five  fiscal  years  ended  March 31, 1998 and should be read in
conjunction  with the  consolidated  financial  statements  and  notes  relating
thereto.

<CAPTION>
                                                                              Year Ended March 31,
                                                     -----------------------------------------------------------------------
                                                       1998            1997             1996          1995           1994
                                                     ---------       ---------       ---------      ---------      ---------
                                                                     (in thousands, except per share data)
<S>                                                  <C>             <C>             <C>            <C>            <C>      
Consolidated Statement of Operations Data:

Net revenues .....................................   $ 118,400       $  82,572       $ 201,098      $ 119,327      $  54,574
Cost of revenues .................................     117,400          84,630         158,159         65,035         33,414
                                                     ---------       ---------       ---------      ---------      ---------
   Gross profit (loss) ...........................       1,000          (2,058)         42,939         54,292         21,160
Operating expenses:
   Research and development ......................      15,254          15,012          14,664          8,374          3,661
   Selling, general and administrative ...........      18,666          10,344          17,202          9,600          3,953
                                                     ---------       ---------       ---------      ---------      ---------
Income (loss) from operations ....................     (32,920)        (27,414)         11,073         36,318         13,546
Other income, net ................................         287           1,753           6,498          2,035            343
                                                     ---------       ---------       ---------      ---------      ---------
Income (loss) before income taxes ................     (32,633)        (25,661)         17,571         38,353         13,889
Provision for income taxes .......................     (11,421)         (8,990)          6,852         14,462          5,213
                                                     ---------       ---------       ---------      ---------      ---------
Income (loss) before equity in income of USC .....     (21,212)        (16,671)         10,719         23,891          8,676
Equity in income of USC ..........................      15,475            --              --             --             --
                                                     ---------       ---------       ---------      ---------      ---------
Net income (loss) ................................   $  (5,737)      $ (16,671)      $  10,719      $  23,891      $   8,676
                                                     =========       =========       =========      =========      =========

Net income (loss) per share:
    Basic ........................................   $   (0.15)      $   (0.43)      $    0.28      $    0.78      $    0.37
                                                     =========       =========       =========      =========      =========
    Diluted ......................................   $   (0.15)      $   (0.43)      $    0.26      $    0.69      $    0.32
                                                     =========       =========       =========      =========      =========
Weighted average number of common shares:
    Basic ........................................      39,493          38,653          37,900         30,612         23,475
                                                     =========       =========       =========      =========      =========
    Diluted ......................................      39,493          38,653          40,633         34,559         26,906
                                                     =========       =========       =========      =========      =========


                                                                                   March 31,
                                                    ------------------------------------------------------------------------
                                                      1998           1997             1996            1995            1994
                                                    --------        --------        --------        --------        --------
                                                                                 (in thousands)
Consolidated Balance Sheet Data:
Working capital ..................................  $ 39,879        $ 78,000        $106,171        $ 86,845        $ 26,550
Total assets .....................................   248,265         232,569         263,238         126,866          40,192
Stockholders' equity .............................   202,041         204,677         219,381         107,803          28,998
</TABLE>

                                                        -21-

<PAGE>


<TABLE>
<CAPTION>
                                                                          Fiscal Year
                                   --------------------------------------------------------------------------------------------
                                                       1998                                           1997
                                   --------------------------------------------    --------------------------------------------
                                     4th         3rd         2nd          1st        4th         3rd         2nd          1st
                                   --------    --------    --------    --------    --------    --------    --------    --------
Operating Summary:                                             (in thousands, except per share data)
<S>                                <C>         <C>         <C>         <C>         <C>         <C>         <C>         <C>     
Net revenues ..................... $ 28,295    $ 24,768    $ 28,998    $ 36,339    $ 30,105    $ 25,224    $ 13,135    $ 14,108
Cost of revenues .................   29,756      26,336      31,693      29,615      27,437      21,833      11,029      24,331
                                   --------    --------    --------    --------    --------    --------    --------    --------

   Gross profit (loss) ...........   (1,461)     (1,568)     (2,695)      6,724       2,668       3,391       2,106     (10,223)
Operating expenses:
   Research and development ......    4,313       3,276       3,558       4,107       4,261       3,673       3,639       3,439
   Selling, general and
       administrative ............    4,851       4,875       4,885       4,055       3,003       2,146       2,703       2,492
                                   --------    --------    --------    --------    --------    --------    --------    --------

Income (loss) from operations ....  (10,625)     (9,719)    (11,138)     (1,438)     (4,596)     (2,428)     (4,236)    (16,154)
Other income (expenses), net .....     (127)        171          54         189         209         369         459         716
                                   --------    --------    --------    --------    --------    --------    --------    --------
Income (loss) before income
   taxes .........................  (10,752)     (9,548)    (11,084)     (1,249)     (4,387)     (2,059)     (3,777)    (15,438)
Provision (benefit) for income
   taxes .........................   (3,763)     (3,342)     (3,879)       (437)     (1,544)       (721)     (1,322)     (5,403)
                                   --------    --------    --------    --------    --------    --------    --------    --------

Income (loss) before equity in
Income of USC ....................   (6,989)     (6,206)     (7,205)       (812)     (2,843)     (1,338)     (2,455)    (10,035)
Equity in income of USC ..........    7,068       3,833       2,654       1,920        --          --          --          --
                                   --------    --------    --------    --------    --------    --------    --------    --------

Net income (loss) ................ $     79    $ (2,373)   $ (4,551)   $  1,108    $ (2,843)   $ (1,338)   $ (2,455)   $(10,035)
                                   ========    ========    ========    ========    ========    ========    ========    ========
Net income (loss) per share:
    Basic ........................ $   0.00    $  (0.06)   $  (0.12)   $   0.03    $  (0.07)   $  (0.03)   $  (0.06)   $  (0.26)
                                   ========    ========    ========    ========    ========    ========    ========    ========
    Diluted ...................... $   0.00    $  (0.06)   $  (0.12)   $   0.03    $  (0.07)   $  (0.03)   $  (0.06)   $  (0.26)
                                   ========    ========    ========    ========    ========    ========    ========    ========
Weighted average number of
common shares:
    Basic ........................   40,361      39,439      39,175      38,999      38,896      38,513      38,483      38,416
                                   ========    ========    ========    ========    ========    ========    ========    ========
    Diluted ......................   40,985      39,439      39,175      41,042      38,896      38,513      38,483      38,416
                                   ========    ========    ========    ========    ========    ========    ========    ========
</TABLE>


     During  fiscal 1997 and fiscal 1998,  the Company  experienced  significant
deterioration  in the  average  selling  prices  of its SRAM and DRAM  products.
Primarily  as a result  of this  deterioration,  the  Company  recorded  pre-tax
charges in the first and fourth  quarters  of fiscal 1997 of  approximately  $16
million and $1 million,  respectively; and pre-tax charges in the second, third,
and fourth  quarters  of fiscal  1998,  of  approximately  $6 million  each such
quarter. The Company is unable to predict when or if such decline in prices will
stabilize.  The Company  announced in May 1998 that  primarily  due to continued
weakening in the DRAM market,  the Company expects its operating results for the
first  quarter of fiscal 1999 to be  significantly  below  results for the prior
quarter,  and to result in a net loss for the  quarter.  A continued  decline in
average  selling  prices of any of the  Company's  products  could  result in an
additional material valuation  adjustment and corresponding charge to operations
which could have a material adverse effect on the Company's  operating  results.
The Company anticipates that in the first quarter of fiscal 1999, it will record
a material  valuation  adjustment  with respect to its  inventory,  primarily to
reflect a decline in the market value of such inventory.

                                      -22-

<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 most of fiscal 1998 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 1996, 1997 and
1998 of approximately  $55 million,  $17 million and $18 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.  The Company anticipates
that in the first  quarter of fiscal 1999,  it will record a material  valuation
adjustment with respect to its inventory,  primarily to reflect a decline in the
market value of such inventory.

     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  1998,  DRAM  products  accounted  for  approximately  66% of net
revenues,  SRAM  products  accounted for  approximately  27% of net revenues and
graphics products  accounted for  approximately 7% 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.  Finally,  the
Company put into volume  production  a 4-Mbit  flash  product and  introduced  a
8-Mbit flash design.  Flash products did not contribute  significant  revenue in
fiscal 1998. A substantial portion of the Company's net revenues is derived from
a relatively small number of customers in the personal computer industry.

     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
1998 (which has  continued  into the first  quarter of fiscal  1999).  While the
Company's   strategy  is  to  increase  its  penetration  into  the  networking,
telecommunications  and instrumentation  markets with its existing SRAM 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.

                                      -23-

<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.

                                                  Percentage of Net Revenues
                                                      Year Ended March 31,
                                                  -----------------------------
                                                   1998        1997        1996
                                                  -----       -----       -----
Net revenues ................................     100.0%      100.0%      100.0%
Cost of revenues ............................      99.2       102.5        78.7
                                                  -----       -----       -----
   Gross profit (loss) ......................       0.8        (2.5)       21.3
Operating expenses:
   Research and development .................      12.9        18.2         7.3
   Selling, general and administrative ......      15.7        12.5         8.5
                                                  -----       -----       -----
Income (loss) from operations ...............     (27.8)      (33.2)        5.5
Other income, net ...........................       0.2         2.1         3.2
                                                  -----       -----       -----
Income (loss) before income taxes ...........     (27.6)      (31.1)        8.7
Provision (benefit) for income taxes ........      (9.7)      (10.9)        3.4
                                                  -----       -----       -----
Income (loss) before equity in
   income of USC ............................     (17.9)%     (20.2)%       5.3%
                                                  =====       =====       =====


     Net Revenues.  The Company's net revenues increased to approximately $118.4
million in fiscal 1998,  from  approximately  $82.6  million in fiscal 1997,  an
increase of  approximately  43%. The increase in net revenues in fiscal 1998 was
due primarily to increased sales of DRAM products,  an overall increase in units
shipped,  and increase in average  selling prices due to a change in the product
mix of SRAMs and DRAMs.

     During fiscal 1998, the Company  commenced volume  production of 4-Mbit and
16-Mbit DRAM products in 256Kbitx16 and 1-Mbitx16 configurations,  respectively.
Revenues from the Company's  DRAM product  family grew steadily  throughout  the
year and contributed  approximately  66% of the Company's net revenues in fiscal
1998.  During fiscal 1998, 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
could have a material adverse effect on the Company's operating results, as will
be the case for the first quarter of fiscal 1999.

     The Company also  commenced  volume  production  in fiscal 1998 of a 4-Mbit
family of  asynchronous  SRAM  products.  Overall,  SRAM products  accounted for
approximately 27% of the Company's fiscal 1998 revenue. In general,  SRAM prices
continued a steady decline throughout fiscal 1998. 

     Sales of the Company's MMUI product line  contributed  approximately  7% of
the  Company's  net revenues  during  fiscal 1998.  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.

                                      -24-

<PAGE>


     The Company's flash memory products did not contribute  significant revenue
during fiscal 1998 and prior years.

     A  significant  decline in average  selling  prices in any of the Company's
product lines due to competitive conditions, including overall supply and demand
in the market,  could have a material adverse effect on the Company's  operating
results.  The Company  announced  in May 1998 that  primarily  due to  continued
weakening in the DRAM market,  the Company expects its operating results for the
first  quarter of fiscal 1999 to be  significantly  below results from the prior
quarter, and to result in a net loss for the quarter.

     The  Company's  net revenues  decreased to  approximately  $82.6 million in
fiscal 1997, a decrease of approximately 59% from  approximately  $201.1 million
of net revenues in fiscal 1996.  The decrease in net revenues in fiscal 1997 was
due  primarily to lower unit demand and lower  average  selling  prices for SRAM
products as  compared  to the prior  year.  During  fiscal  1998,  one  customer
accounted for approximately 18% of net revenues. During fiscal 1997, no customer
accounted  for 10% or more of net  revenues.  During  fiscal 1996,  one customer
accounted for approximately 18% of net revenues. During fiscal 1997, 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.

     Generally,  the markets for the  Company's  products are  characterized  by
volatile supply and demand condition, numerous competitors,  rapid technological
change, and product obsolescence,  conditions which could require the Company to
make significant shifts in its product mix in a relatively short period of time.
To diversify its product  offerings,  the Company has introduced new SRAM, DRAM,
MMUI  accelerators and flash memory products and is developing its capability to
produce a variety of  embedded-memory  products.  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  1998 was
approximately  $1.0 million or approximately  0.8% of net revenues compared to a
gross  loss of  approximately  $(2.1)  million  or  approximately  (2.5)% of net
revenues  for the same period in fiscal  1997.  The  increase  in gross  profits
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  $18 million  (compared  with
pre-tax charges in fiscal 1997 of approximately $17 million) primarily to adjust
the valuation of the Company's inventory to reflect declines in market value.

     The Company's gross loss for fiscal 1997 was  approximately  $(2.1) million
or   approximately   (2.5)%  of  net  revenues   compared  to  gross  profit  of
approximately  $42.9 million or approximately 21.3% of net revenues for the same
period in fiscal  1996.  The  decrease in gross  profit in fiscal 1997  resulted
primarily  from reduced  unit demand and lower  average  selling  prices for the
Company's SRAM products.  Gross profits associated with sales from the Company's
DRAM and MMUI  product  families  contributed  partially  to offset the declines
attributable to the SRAM products.

                                      -25-

<PAGE>


     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.  As
indicated  above,  the  Company  believes  that it will incur a net loss for the
first quarter of fiscal 1999,  and will record a material  valuation  adjustment
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  were
approximately  $15.3 million or  approximately  12.9% of net revenues for fiscal
1998,  approximately  $15.0 million or  approximately  18.2% of net revenues for
fiscal  1997  and  approximately  $14.7  million  or  approximately  7.3% of net
revenues for fiscal 1996.  These  dollar  increases in research and  development
expenses were primarily due to the addition of new personnel for  development of
new products and the  enhancement  of existing  products  and  expenditures  for
materials  related to such  development  activities.  During  fiscal  1998,  the
Company's development efforts focused on advanced process and design technology,
SRAMs,  DRAMs,  flash  memory  and  MMUI  accelerator  products.   Research  and
development  expenses are expected to continue to increase in absolute  dollars,
although  such  expenses  may  fluctuate as a percentage  of net  revenues.  The
Company also may incur  research and  development  expenses in  connection  with
development of a variety of embedded-memory products.

     Selling,  General and Administrative.  Selling,  general and administrative
expenses in fiscal 1998 were approximately  $18.7 million or approximately 15.7%
of net revenues compared to approximately  $10.3 million or approximately  12.5%
of  net  revenues  for  fiscal  1997,   and   approximately   $17.2  million  or
approximately  8.5% of net revenues  for fiscal  1996.  The increase in selling,
general and  administrative  expenses 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  antidumping   proceeding.   Selling,   general  and
administrative expenses may increase in absolute dollars, although such expenses
may fluctuate as a percentage of net revenues.

     Other  Income,  Net.  Net other income was  approximately  $0.3 million for
fiscal 1998,  approximately  $1.8 million for fiscal 1997 and approximately $6.5
million for fiscal 1996 (constituting  approximately  0.2%, 2.1% and 3.2% of the
respective  fiscal year's net revenues).  Net other income primarily  represents
interest, dividend income and other income or losses from investments, offset by
interest expense for long term obligations.

     Provision  for Income Taxes.  The Company's  effective tax rate was 35% for
fiscal 1998, 35% for fiscal 1997 and 39% for fiscal 1996. The effective tax rate
for fiscal 1998 and fiscal 1997  represented tax benefits  accrued at applicable
statutory  rates.  The  effective  tax rate for fiscal  1996  represented  taxes
accrued at applicable statutory rates partially offset by the effect of research
and development tax credits.

                                      -26-

<PAGE>


     Equity in Income of USC. The  Company's  investment in USC is accounted for
under the equity  method of  accounting.  In fiscal 1998,  the Company  recorded
income of approximately $15.5 million representing its share of USC's income for
the year ended December 31, 1997 (the Company uses a 90-day lag in recording its
share of USC's results of  operations).  The Company's  share of USC's income in
fiscal 1997 and fiscal 1996 was not recorded as it was not material.

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 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. The Company is unable
to predict when or if such  decline in prices will  stabilize.  Average  selling
prices for DRAM products, in particular,  have continued to weaken significantly
through the first quarter of fiscal 1999.  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

                                      -27-

<PAGE>


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 1997 and fiscal 1998, when the Company recorded pre-tax charges totalling
approximately $17 million and $18 million, respectively,  primarily to reflect a
decline in market value of certain  inventory.  The Company  anticipates that in
the first quarter of fiscal 1999, it will record a material valuation adjustment
with  respect  to its  inventory,  primarily  to reflect a decline in the market
value of such 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 USI 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  USI.)  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 USI 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.

                                      -28-

<PAGE>


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.

     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 in the
process of implementing new information  systems which the Company believes will
be year 2000  compliant  and does not  anticipate  that it will  incur  material
expenditures  for the resolution of any year 2000 issues  relating to either its
own  information  systems,  databases  and programs,  or its software  products.
However,  the Company could be materially adversely impacted by year 2000 issues
faced  by major  distributors,  suppliers,  customers,

                                      -29-

<PAGE>


vendors,  and financial service  organizations with which the Company interacts.
Management  is in the  process of  determining  the impact,  if any,  that third
parties  who are not  year  2000  compliant  may have on the  operations  of the
Company.

     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 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 early 2000 (see
Item 3 - Legal Proceedings,  above), the deposit requirement,  and the potential
that  antidumping  duties  will be  liquidated  in early  2000,  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.

     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.

                                      -30-

<PAGE>


     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  generated cash of approximately  $6.9
million in fiscal 1998, versus using  approximately $44.6 million in fiscal 1997
and  providing  approximately  $1.8  million in fiscal 1996.  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, while cash generated from operations in fiscal 1996
was primarily the result of net income  generated  during the period,  partially
offset by increases in working capital. The increase in inventory in fiscal 1998
is due to an increase  inventory of DRAM products  partially offset by inventory
reduction of older SRAM  products as compared to the same period of the previous
year.

     Net cash used in investing  activities was  approximately  $21.9 million in
fiscal 1998,  approximately $19.3 million in fiscal 1997 and approximatey $104.0
million in fiscal  1996.  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.  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  used in  investing  activities  in  fiscal  1996  equipment  purchases  of
approximately  $9.5 million and investments in Chartered of approximately  $44.6
million, in USC of approximately $36.4 million and in USI of approximately $13.9
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, and approximately  $107.3 million in
fiscal 1996.  Net cash  generated in fiscal 1997  through  financing  activities
resulted  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.  Net cash  provided by  financing  activities  in fiscal 1996  reflects
primarily net proceeds of approximately $97.3 million from sales of common stock
in connection  with the Company's  public  offering in April 1995,  exercises of
stock options pursuant to the Company's stock option plan and a receipt from UMC
of a loan repayment of approximately $10.0 million.

     At March 28, 1998,  the Company had  approximately  $3.0 million in cash, a
decrease of approximately $14.4 million from March 31, 1997, and working capital
of approximately  $40.0 million, a decrease of approximately  $38.0 million from
March 31, 1997. The Company believes that its existing levels of cash,  together
with proceeds from the sale of 35 million  shares of USC stock in April 1998 for
approximately  $32 million,  an expected  income tax refund and other  financing
opportunities  the Company believes to be available to it, will be sufficient to
meet its projected working capital and other cash  requirements  through the end
of fiscal 1999.

     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

                                      -31-

<PAGE>


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 "Fab 2." 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 Fab 2. 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  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 Fab 2. 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.

     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
$19.3  million at the exchange rate  prevailing on June 18, 1998,  which rate is
subject to material  change).  As a result of that sale,  the Company  currently
owns approximately  15.5% of the outstanding shares of USC, and has the right to
purchase up to approximately 25% of the manufacturing capacity in this facility.
The Company  anticipates  that as a result of an upcoming  issuance of shares to
USC employees  (which  issuance has been approved by USC's board of  directors),
the Company's  ownership  position  will be diluted to  approximately  15.1%.  A
portion of UMC's equity contribution was paid through the grant by UMC to USC of
royalty-free  licenses to certain UMC sub-micron  process  technologies.  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 1998, the
Company reported income of  approximately  $15.5 million related to its share of
USC's income.  The Company believes that a number of manufacturers are expanding
or planning to

                                      -32-

<PAGE>


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  for  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  consolidated  results  of
operations.

     In October 1995,  the Company  entered into an agreement with UMC and other
parties to form a separate Taiwanese  company,  USI, for the purpose of building
and  managing an 8-inch  semiconductor  manufacturing  facility  in Taiwan.  The
facility  has  commenced  volume  production   utilizating  advanced  sub-micron
semiconductor  manufacturing  processes. The contributions of Alliance 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. Alliance
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.  Currently,  the Company owns
approximately  3.33%  of the  outstanding  shares  of USI and has the  right  to
purchase  approximately 4.17% of the manufacturing  capacity of the facility.  A
portion of UMC's equity contribution was paid through the grant by UMC to USI of
royalty-free licenses to certain UMC sub-micron process technologies.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Not applicable.


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

     Not applicable.

                                      -33-

<PAGE>


                                    PART III

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

     "Proposal No. 1. Election of  Directors,  Board of Directors'  Meetings and
Committees and Directors'  Compensation" and disclosures pursuant to Item 405 of
Regulation S-K contained in the Proxy  Statement are  incorporated by reference.
Information  required by Item 10 concerning executive officers of the Company is
set forth in Part I of this Form 10-K after Item 4.


ITEM 11. EXECUTIVE COMPENSATION

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


ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K

          (a)(1) Financial Statements

     The following  financial  statements of the Registrant are filed as part of
this report:

     Report of Independent Accountants
     Consolidated Balance Sheets as of March 31, 1998 and 1997
     Consolidated  Statements of Operations  for the years ended March 31, 1998,
         1997 and 1996
     Consolidated  Statements of Stockholders'  Equity for the years ended March
         31, 1998, 1997 and 1996
     Consolidated  Statements  of Cash Flows for the years ended March 31, 1998,
         1997 and 1996
     Notes to Consolidated Financial Statements

          (a)(2)(i) Financial Statement Schedules

     The following consolidated financial statement schedule is filed as part of
     this  report  and  should  be read in  conjunction  with  the  consolidated
     financial statements:

                                      -34-

<PAGE>


     Schedule II - Valuation and Qualifying Accounts

          (a)(2)(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
     Years Ended 12/31/97 and 12/31/96

                                      -35-

<PAGE>


          (a) (3) Exhibits


<TABLE>
                                                    INDEX TO EXHIBITS
<CAPTION>
        Exhibit
        Number                       Document Description                                                            Page
        ------                       --------------------                                                            ----
<S>                    <C>                                                                                            <C>
          3.01         Registrant's Certificate of Incorporation                                                      (A)

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

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

          3.04         Registrant's Bylaws                                                                            (A)

          4.01         Specimen of Common Stock Certificate of Registrant                                             (A)

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

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

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

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

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

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

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

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

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

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

                                                          -36-

<PAGE>


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

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

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

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

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

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

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

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

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

          10.20+       1996 Employee Stock Purchase Plan                                                              (I)

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

          10.22        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                                                                           (K)

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

                                                          -37-

<PAGE>


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

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

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

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

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

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

          21.01        Subsidiaries of Registrant                                                                     (M)

          23.01        Consent of Price Waterhouse LLP (San Jose, California)                                         (M)

          23.02        Consent of Price Waterhouse LLP (Hsinchu, Taiwan, R.O.C.)                                      (M)

          27.01        Financial Data Schedule                                                                        (M)

<FN>
    -------------------
+    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.
(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.

                                      -38-

<PAGE>


(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.
</FN>
</TABLE>


     (b) Reports on Form 8-K

     The following  Current Report on Form 8-K was filed during the Registrant's
     fourth  fiscal  quarter:  Current  Report on Form 8-K dated  March 4, 1998,
     reporting  under Item 5 agreement  to sell  shares of USC,  filed March 19,
     1998.

     Subsequently,  Registrant  also filed the following  Current Report on Form
     8-K: Current Report on Form 8-K dated April 8, 1998, reporting under Item 2
     receipt of funds from sale of shares of USC, filed April 23, 1998.


                                   SIGNATURES

In accordance  with Section 13 or 15(d) of the Exchange Act, the  Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.


             ALLIANCE SEMICONDUCTOR CORPORATION


             By: /s/ N. DAMODAR REDDY                        Date: June 26, 1998
                ------------------------------------
                  N. Damodar Reddy, Chairman
                  of the Board, Chief Executive
                  Officer and President

                                      -39-

<PAGE>


<TABLE>
Pursuant to requirements of the Securities Exchange Act of 1934, this report has
been signed below on behalf of the  Registrant  and in the capacities and on the
dates indicated.

<CAPTION>
Name                                   Title                                Date
----                                   -----                                ----
<S>                                    <C>                                  <C>
Principal Executive Officer:


/s/ N. DAMODAR REDDY                   Chairman of the Board, Chief         June 26, 1998
-----------------------------------    Executive Officer and President
N. Damodar Reddy


Principal Financial Officer and
Principal Accounting Officer:


/s/ N. DAMODAR REDDY                   Chief Financial Officer              June 26, 1998
-----------------------------------
N. Damodar Reddy


Directors:


/s/ SANFORD L. KANE                    Director                             June 26, 1998
-----------------------------------
Sanford L. Kane


/s/ JON B. MINNIS                      Director                             June 26, 1998
-----------------------------------
Jon B. Minnis


/s/ C.N. REDDY                         Director                             June 26, 1998
-----------------------------------
C. N. Reddy


/s/ N. DAMODAR REDDY                   Director                             June 26, 1998
-----------------------------------
N. Damodar Reddy
</TABLE>

                                          -40-

<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, 1998 and
1997,  and the results of their  operations and their cash flows for each of the
three years in the period ended March 31, 1998,  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/ PRICE WATERHOUSE LLP

San Jose, California
April 22, 1998

                                      -41-

<PAGE>


<TABLE>
                                                 ALLIANCE SEMICONDUCTOR CORPORATION

                                                     CONSOLIDATED BALANCE SHEETS
                                                (in thousands, except per share data)

<CAPTION>
                                                                                                             March 31,
                                                                                                    -------------------------
                                                                                                      1998             1997
                                                                                                    --------         --------
                                                               ASSETS
<S>                                                                                                 <C>              <C>     
Current assets:
   Cash and cash equivalents (excluding restricted cash) ..................................         $  3,010         $ 17,368
   Restricted cash and short term investments .............................................            6,512            5,121
   Accounts receivable, net ...............................................................           15,716           16,827
   Inventory ..............................................................................           32,375           29,535
   Deferred taxes .........................................................................            8,397           17,851
   Income tax receivable ..................................................................           17,147           14,633
   Other current assets ...................................................................            1,670            1,636
                                                                                                    --------         --------
       Total current assets ...............................................................           84,827          102,971
Property and equipment, net ...............................................................           11,123           11,352
Investment in Chartered Semiconductor .....................................................           51,596           51,596
Investment in United Semiconductor Corp. ..................................................           85,935           52,829
Investment in United Silicon, Inc. ........................................................           13,701           13,701
Other assets ..............................................................................            1,083              120
                                                                                                    --------         --------
       Total Assets .......................................................................         $248,265         $232,569
                                                                                                    ========         ========


                                                LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Accounts payable .......................................................................         $ 35,714         $ 18,766
   Accrued liabilities ....................................................................            7,771            4,584
   Current portion of long term obligations ...............................................            1,463            1,621
                                                                                                    --------         --------
       Total current liabilities ..........................................................           44,948           24,971
Long term obligations (Note 6) ............................................................            1,276            2,219
Deferred tax liability ....................................................................             --                702
                                                                                                    --------         --------
       Total liabilities ..................................................................           46,224           27,892
                                                                                                    --------         --------

Commitments and contingencies (Notes 4, 5, 6, 10 and 11)

Stockholders' equity:
   Preferred Stock, $0.01 par value; 5,000 shares
     authorized; none issued and outstanding ..............................................             --               --
   Common Stock, $0.01 par value; 100,000 shares authorized;
     40,450 and 38,985 shares issued and outstanding ......................................              404              390
   Paid-in capital ........................................................................          183,099          180,012
   Retained earnings ......................................................................           18,538           24,275
                                                                                                    --------         --------
     Total stockholders' equity ...........................................................          202,041          204,677
                                                                                                    --------         --------
          Total Liabilities and Stockholders' Equity ......................................         $248,265         $232,569
                                                                                                    ========         ========

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

                                                                -42-

<PAGE>


<TABLE>
                                                 ALLIANCE SEMICONDUCTOR CORPORATION

                                                CONSOLIDATED STATEMENTS OF OPERATIONS
                                                (in thousands, except per share data)

<CAPTION>
                                                                                      Year Ended March 31,
                                                                       -----------------------------------------------------
                                                                         1998                  1997                  1996
                                                                       ---------             ---------             ---------
<S>                                                                    <C>                   <C>                   <C>      
Net revenues ......................................................    $ 118,400             $  82,572             $ 201,098
Cost of revenues ..................................................      117,400                84,630               158,159
                                                                       ---------             ---------             ---------
   Gross profit (loss) ............................................        1,000                (2,058)               42,939
                                                                       ---------             ---------             ---------

Operating expenses:
   Research and development .......................................       15,254                15,012                14,664
   Selling, general and administrative ............................       18,666                10,344                17,202
                                                                       ---------             ---------             ---------

Income (loss) from operations .....................................      (32,920)              (27,414)               11,073
Other income, net .................................................          287                 1,753                 6,498
                                                                       ---------             ---------             ---------

Income (loss) before income taxes .................................      (32,633)              (25,661)               17,571
Provision (benefit) for income taxes ..............................      (11,421)               (8,990)                6,852
                                                                       ---------             ---------             ---------

Income (loss) before equity in income of USC ......................      (21,212)              (16,671)               10,719
Equity in income of USC ...........................................       15,475                  --                    --
                                                                       ---------             ---------             ---------
Net income (loss) .................................................    $  (5,737)            $ (16,671)            $  10,719
                                                                       =========             =========             =========
Net income (loss) per share:
   Basic ..........................................................    $   (0.15)            $   (0.43)            $    0.28
   Diluted ........................................................    $   (0.15)            $   (0.43)            $    0.26
Weighted average number of common shares:
   Basic ..........................................................       39,493                38,653                37,900
   Diluted ........................................................       39,493                38,653                40,633

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

                                                                -43-

<PAGE>


<TABLE>
                                             ALLIANCE SEMICONDUCTOR CORPORATION

                                       CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                              (in thousands, except share data)

<CAPTION>
                                                  Common Stock               Additional                             Total
                                            ---------------------------        Paid In           Retained        Stockholders'
                                              Shares           Amount          Capital           Earnings           Equity
                                            ----------       ----------       ----------        ----------        ----------
<S>                                         <C>              <C>              <C>               <C>               <C>       
Balances at March 31, 1994 ...........      27,730,325       $       45       $   22,617        $    6,336        $   28,998
Issuance of common stock under
   employee stock plans ..............         935,781                5              699              --                 704
Proceeds from  public offering,
   net of issuance costs .............       5,568,750               24           53,020              --              53,044
Stock dividend effect ................            --                 75              (75)             --                --
Tax benefit on exercise of
   stock options .....................            --               --              1,166              --               1,166
Net income ...........................            --               --               --              23,891            23,891
                                            ----------       ----------       ----------        ----------        ----------
Balances at March 31, 1995 ...........      34,234,856              149           77,427            30,227           107,803
Issuance of common stock under
   employee stock plans ..............         855,454               89            1,053              --               1,142
Proceeds from public offering,
   net of issuance costs .............       3,300,000               22           96,142              --              96,164
Stock dividend effect ................            --                123             (123)             --                --
Tax benefit on exercise of
   stock options .....................            --               --              3,553              --               3,553
Net income ...........................            --               --               --              10,719            10,719
                                            ----------       ----------       ----------        ----------        ----------
Balances at March 31, 1996 ...........      38,390,310              383          178,052            40,946           219,381
Issuance of common stock under
   employee stock plans ..............         594,591                7            1,694              --               1,701
Tax benefit on exercise of
   stock options .....................            --               --                266              --                 266
Net loss .............................            --               --               --             (16,671)          (16,671)
                                            ----------       ----------       ----------        ----------        ----------
Balances at March 31, 1997 ...........      38,984,901              390          180,012            24,275           204,677
Issuance of common stock under
   employee stock plans ..............       1,465,087               14            3,087              --               3,101
Net loss .............................            --               --               --              (5,737)           (5,737)
                                            ----------       ----------       ----------        ----------        ----------
Balances at March 31, 1998 ...........      40,449,988       $      404       $  183,099        $   18,538        $  202,041
                                            ==========       ==========       ==========        ==========        ==========

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

                                                                -44-

<PAGE>


<TABLE>
                                                 ALLIANCE SEMICONDUCTOR CORPORATION

                                                CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                           (in thousands)

<CAPTION>
                                                                                       Year Ended March 31,
                                                                             -----------------------------------------------
                                                                               1998               1997                1996
                                                                             ---------          ---------          ---------
<S>                                                                          <C>                <C>                <C>      
Cash flows from operating activities:
   Net income (loss) ................................................        $  (5,737)         $ (16,671)         $  10,719
   Adjustments to reconcile net income (loss) to net cash
     provided by (used in) operating activities:
     Depreciation and amortization ..................................            3,465              2,929              1,792
     Equity in income of USC/other ..................................          (15,475)              --                   72
     Changes in assets and liabilities:
       Accounts receivable ..........................................            1,111            (12,103)            14,721
       Inventory ....................................................           (2,840)               617            (23,082)
       Other assets .................................................                3                905               (664)
       Accounts payable .............................................           16,948            (13,592)            21,851
       Accrued liabilities ..........................................            3,187             (6,915)             7,385
       Income taxes (including deferred income taxes
                 and tax receivable) ................................            6,238                200            (30,997)
                                                                             ---------          ---------          ---------
         Net cash provided by (used in) operating
           activities ...............................................            6,900            (44,630)             1,797
                                                                             ---------          ---------          ---------

Cash used in investing activities:
   Acquisition of equipment .........................................           (3,236)            (3,050)            (9,459)
   Investment in Chartered Semiconductor Pte Ltd. ...................             --                 --              (44,584)
   Investment in United Semiconductor Corporation ...................          (17,631)           (16,391)           (36,438)
   Investment in United Silicon Inc. ................................             --                  187            (13,888)
    Other assets ....................................................           (1,000)              --                 --
   Proceeds from sales of equipment .................................             --                 --                  275
                                                                             ---------          ---------          ---------

         Net cash used in investing activities ......................          (21,867)           (19,254)          (104,094)
                                                                             ---------          ---------          ---------

Cash flows from financing activities:
   Net proceeds from the issuance of common stock ...................            3,101              1,967             97,306
   Borrowings (repayments) on long term obligations .................           (1,101)             3,840               --
   Issuance of notes to UMC .........................................             --                 --               10,000
   Restricted cash ..................................................          (1,391)             (5,121)              --
                                                                             ---------          ---------          ---------

         Net cash provided by financing activities ..................              609                686            107,306
                                                                             ---------          ---------          ---------

Net increase (decrease) in cash and cash equivalents ................          (14,358)           (63,198)             5,009
Cash and cash equivalents at beginning of the period ................           17,368             80,566             75,557
                                                                             ---------          ---------          ---------

Cash and cash equivalents at end of the period ......................        $   3,010          $  17,368          $  80,566
                                                                             =========          =========          =========

Supplemental disclosures:
   Cash paid (refunded) during the period for income
   taxes ............................................................        $ (17,783)         $  (9,648)         $  37,873
                                                                             =========          =========          =========
   Cash paid for interest ...........................................        $     393          $       8               --
                                                                             =========          =========          =========

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

                                                                -45-

<PAGE>


                       ALLIANCE SEMICONDUCTOR CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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   downturns  at  various  times  that  have  been  characterized  by
diminished product demand,  production overcapacity,  and accelerated erosion of
selling  prices.  During the second half of fiscal 1996,  the market for certain
SRAM devices experienced an excess supply relative to demand which resulted in a
significant  downward  trend  in  average  selling  price.  This  situation  has
continued  through fiscal 1997 and 1998. In addition,  the average selling price
for the  Company's  DRAM and SRAM  products has  experienced  volatility  during
fiscal  1997 and 1998.  The  Company  is unable to  predict  when or if  average
selling prices will stabilize.

     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 DRAM pricing  during fiscal year 1998) which
is not  within  the  control  of the  Company  and which  could  have an adverse
material effect on the Company's operating results.

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 ends on the  Saturday
nearest the end of March.  The fiscal years ended March 31, 1998, March 31, 1997
and March 31, 1996 each contained 52 weeks.

Revenue recognition

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

                                      -46-

<PAGE>


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
muni-preferreds (state and municipal obligations) and the Company's intent is to
hold investments to maturity.

Inventories

     Inventory  is  stated  at the lower of cost,  determined  on the  first-in,
first-out basis, or market.  Market is based on estimated net realizable  value.
During the third and fourth  quarters of fiscal 1997 and  continuing  throughout
much of fiscal 1998, the Company  experienced  significant  deterioration in the
average selling prices for its SRAM and DRAM products.  Primarily as a result of
this deterioration and certain  manufacturing issues in fiscal 1996, the Company
recorded  pre-tax  charges in fiscal  1998,  fiscal  1997,  and  fiscal  1996 of
approximately  $18  million,  $17 million  and $55  million,  respectively.  The
Company is unable to predict when or if such decline in prices will stabilize. A
continued  decline in average  selling  prices for SRAM and DRAM products  could
result in an additional material valuation  adjustment and corresponding  charge
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
(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  accounts  and state and
municipal  obligations.  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,  generally,  requires no collateral  from its
customers.  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. One customer  accounted for approximately 18%
of net  revenues  for the year ended  March 31,  1996.  At March 31,  1998,  one
customer  accounted for  approximately  27% and another  customer  accounted for
approximately  11% of  accounts  receivable.  At March  31,  1997,  no  customer
accounted for 10% or more 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

                                      -47-

<PAGE>


$48.5  million,  $29.7  million and $85.7  million of net revenues for the years
ended March 31, 1998, March 31, 1997 and March 31, 1996, 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").

Stock splits

     Share  information  for all  periods  has been  retroactively  adjusted  to
reflect a 3-for-2  stock split of the Common  Stock in July 1995,  issued in the
form of a stock  dividend,  and a 3-for-2  stock  split of the  Common  Stock in
January 1995, issued in the form of a stock dividend.

 Net Income (Loss) Per Share

     The Company adopted  Statement of Financial  Accounting  Standards No. 128,
"Earnings Per Share" ("SFAS 128") during the third quarter of fiscal 1998.  This
statement  simplifies  the  standards  for  computing  earnings  per share (EPS)
previously  defined in Accounting  Principles Board Opinion No. 15 "Earnings Per
Share." All prior-period earnings per share data has been restated in accordance
with SFAS 128. SFAS 128 requires  presentation of both Basic EPS and Diluted EPS
on the face of the income  statement.  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, and convertible
preferred stock,  using the if-converted  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 exercise of stock options.

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

<CAPTION>
                                                                                        Year Ended March 31
                                                                             1998                 1997                1996
                                                                           ---------            --------            --------
<S>                                                                        <C>                  <C>                 <C>     
Net income (loss) available to common shareholders ..............          $  (5,737)           $(16,671)           $ 10,719
                                                                           =========            ========            ========
Weighed average common shares outstanding (basic) ...............             39,493              38,653              37,900
Effect of dilutive options ......................................               --                  --                 2,733
                                                                           ---------            --------            --------
Weighed average common shares outstanding (diluted) .............             39,493              38,653              40,633
                                                                           =========            ========            ========

Earnings per share:
   Basic ........................................................          $   (0.15)           $  (0.43)           $  (0.28)
                                                                           =========            ========            ========
  Diluted .......................................................          $   (0.15)           $  (0.43)           $  (0.26)
                                                                           =========            ========            ========
</TABLE>

                                                                -48-

<PAGE>


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

Recently Issued Accounting Standards

     In June 1997,  the  Financial  Accounting  Standards  Board  issued two new
Statements of Financial  Accounting  Standards  ("SFAS").  SFAS 130,  "Reporting
Comprehensive  Income,"  establishes  standards  for  reporting  and  display of
comprehensive income within a financial  statement.  This Statement requires the
Company to report additional  information on comprehensive  income to supplement
the  reporting  of income.  SFAS 130 is  effective  for both  interim and annual
periods  beginning  after December 15, 1997.  Comparative  financial  statements
provided  for  earlier   periods  are  required  to  be   reclassified  so  that
comprehensive  income is  displayed  in a  comparative  format  for all  periods
presented.  SFAS 131,  "Disclosures  about Segments of an Enterprise and Related
Information,"  establishes  standards for reporting  information about operating
segments  in annual  and  interim  financial  statements.  This  Statement  also
establishes  standards  for related  disclosures  about  products and  services,
geographic  areas and  major  customers.  SFAS 131 is  effective  for  financial
statements for periods beginning after December 15, 1997. The Company will adopt
SFAS 130 for the first quarter of fiscal 1999 and does not expect its provisions
to have a material  effect on the  Company's  presentation  of its  consolidated
financial  statements.  The  Company  will adopt SFAS 131 as of the year  ending
March 31, 1999 and is currently studying its provisions.

                                      -49-

<PAGE>


Note 2.  Balance sheet components


                                                                 March 31,
                                                          ---------------------
                                                           1998          1997
                                                          --------     --------
                                                              (in thousands)
Accounts receivable:
   Trade receivables .................................    $ 17,726     $ 17,477
   Less allowance for doubtful accounts ..............      (2,010)        (650)
                                                          --------     --------
                                                          $ 15,716     $ 16,827
                                                          ========     ========


Inventory:
   Work in process ...................................    $ 17,564     $ 18,319
   Finished goods ....................................      14,811       11,216
                                                          --------     --------
                                                          $ 32,375     $ 29,535
                                                          ========     ========


Property and equipment:
   Engineering and test equipment ....................    $ 11,704     $ 11,526
    Computers and software ...........................       7,231        4,496
   Furniture and office equipment ....................         970          935
   Land ..............................................         288         --
                                                          --------     --------
                                                            20,193       16,957
Less:  accumulated depreciation and amortization .....      (9,070)      (5,605)
                                                          --------     --------
                                                          $ 11,123     $ 11,352
                                                          ========     ========


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 "Fab 2."   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 Fab 2. 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 does not own a material percentage of the equity of Chartered.

                                      -50-

<PAGE>


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,  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$19.3  million  at  the  exchange  rate
prevailing  on June 18, 1998,  which rate is subject to material  change).  As a
result of that sale,  the  Company  currently  owns  approximately  15.5% of the
outstanding shares of USC, and has the right to purchase up to approximately 25%
of the manufacturing  capacity in this facility. The Company anticipates that as
a result of an upcoming  issuance of shares to USC employees (which issuance has
been approved by USC's board of  directors),  the Company's  ownership  position
will be diluted to approximately  15.1%. A portion of UMC's equity  contribution
was paid through the grant by UMC to USC of royalty-free licenses to certain UMC
sub-micron process technologies.  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  1998,  the  Company  reported  income of
approximately $15.5 million related to its share of USC's income.

     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.

     Operations  through  December 31, 1995 consisted  primarily of construction
and, therefore, USC's results of operations for this year are immaterial and not
presented below. 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 the entity at December 31, 1997
and 1996, is as follows (in thousands):

                                                           December 31
                                               ---------------------------------
Financial position                              1997                      1996
------------------                             -------                   -------
Current assets...........................   US$348,414                US$224,845
Noncurrent assets ........................     369,329                   387,866
Current liabilities ......................     127,506                    89,327
Noncurrent liabilities ...................     159,184                   157,557
Stockholders' equity .....................     431,053                   365,827

Results of operations
Sales....................................   US$340,060                 US$60,878
Gross Profit.............................      154,465                     1,654
Net income...............................      138,873                       563

                                      -51-

<PAGE>


Note 5.  Investment in United Silicon, Inc. ("USI")

     In October 1995,  the Company  entered into an agreement with UMC and other
parties to form a separate Taiwanese  company,  USI, 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 Alliance 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. Alliance
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.  Currently,  the Company owns approximately
3.33%  of  the  outstanding  shares  of  USI  and  has  the  right  to  purchase
approximately 4.17% of the manufacturing  capacity of the facility. A portion of
UMC's  equity  contribution  was  paid  through  the  grant  by  UMC  to  USI of
royalty-free licenses to certain UMC sub-micron process technologies.

Note 6.  Long Term Obligations, Leases and Commitments

Operating Leases

     The Company leases its headquarters facility under an operating lease which
expires in 1999.  The  Company  has an option to extend the lease for five years
beyond such expiration. 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
between 1999 and 2007, and leases other sales offices on month-to-month leases.

     Future minimum rental payments under these leases are as follows:

               Fiscal Year                                     (in thousands)
               -----------                                     --------------
                  1999...................................            $568
                  2000...................................             286
                  2001...................................             103
                  2002...................................             115
                  2003...................................             115
                  Thereafter.............................             494
                                                                   ------
               Total payments............................          $1,681
                                                                   ======


     Rent  expense for fiscal  1998,  fiscal 1997 and fiscal 1996 was  $484,000,
$437,000 and $360,000, respectively.

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

                                      -52-

<PAGE>


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 2002, subject to certain contingencies.

Purchase Commitments

     At  March  31,  1998,  the  Company  had  approximately  $22.5  million  in
noncancelable  purchase commitments with suppliers.  The Company expects to sell
all products  which it has  committed  to purchase  from  suppliers.  During the
fourth quarter of fiscal 1996, the average  selling prices of the Company's SRAM
products  deteriorated  significantly.  As a result of this  deterioration,  the
Company  recorded a charge of  approximately  $7.2 million for adverse  purchase
commitments  related  to  these  SRAM  products,   which  was  included  in  the
approximately $55 million charge recorded in fiscal 1996 (see Note 1).

Letters of Credit

     At March 31, 1998,  approximately  $6.5 million  standby  letters of credit
were  outstanding  and expire through June 30, 1998,  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:


                                                          March 31,
                                               --------------------------------
                                                 1998        1997        1996
                                               --------    --------    --------
                                                       (in thousands)
Current:
     Federal ...............................   $(20,173)   $(17,419)   $ 26,007
     State .................................       --          --         4,549
                                               --------    --------    --------
                                                (20,173)    (17,419)     30,556
Deferred:
     Federal ...............................      8,752       8,529     (21,328)
     State .................................        --         (100)     (2,376)
                                               --------    --------    --------
              Total provision (benefit) ....   $(11,421)   $ (8,990)   $  6,852
                                               ========    ========    ========

                                      -53-

<PAGE>


Deferred tax assets (liabilities) comprise the following:


                                                          March 31,
                                               ---------------------------------
                                                1998         1997         1996
                                               --------    --------     --------
                                                        (in thousands)
Inventory reserves ........................    $  5,127    $ 16,212     $ 19,286
Accrued expenses and reserves .............       2,310         407        4,520
State taxes ...............................        --          --          1,548
  NOL carry forward .......................        --         1,096         --
Inventory capitalization adjustment .......         553         136          182
Depreciation ..............................         407        (702)          42
                                               --------    --------     --------
   Total net deferred tax assets ..........    $  8,397    $ 17,149     $ 25,578
                                               ========    ========     ========


     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:

                                                    Year Ended March 31,
                                            ----------------------------------
                                              1998         1997         1996
                                            --------     --------     --------
                                             (in thousands, except percentages)
Federal  statutory rate .................         35%          35%          35%
Tax at federal statutory rate ...........   $(11,421)    $ (8,981)    $  6,149
State taxes, net of federal benefit .....       --           (291)         500
Research and development tax credits ....       --           --           (197)
Other, net ..............................       --            282          400
                                            --------     --------     --------
Total ...................................   $(11,421)    $ (8,990)    $  6,852
                                            ========     ========     ========


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.

                                      -54-

<PAGE>


<TABLE>
     The following  table  summarizes  grant and stock option activity under the
Plan for fiscal years 1998, 1997 and 1996.

<CAPTION>
                                                                                                         Options Outstanding
                                                                         Options                  ----------------------------------
                                                                      Available for                                      Weighted
                                                                          Grant                    Shares             Average Prices
                                                                        ----------                ----------          --------------
<S>                                                                      <C>                       <C>                  <C>    
Balance at March 31, 1995 .................................              2,080,928                 4,458,495            $  2.95
Additional shares authorized ..............................              1,125,000                      --                --
Options granted ...........................................             (1,477,102)                1,477,102              17.80
Options canceled ..........................................                941,319                  (941,319)             22.65
Options exercised .........................................                   --                    (855,454)              0.89
                                                                        ----------                ----------            --------
Balance at March 31, 1996 .................................              2,670,145                 4,138,824            $  4.06
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 31, 1997 .................................              2,210,796                 4,191,289            $  3.87
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 31, 1998 .................................              1,358,489                 3,675,431            $  5.81
                                                                        ==========                ==========            ========
</TABLE>


     As of March 31, 1998, options to purchase approximately 1,541,721 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 1998, 1997, and 1996 was $4.90, $2.44
and $8.90  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, 1998, and
related  weighted average exercise price and contractual life information are as
follows:

                                      -55-

<PAGE>


<TABLE>
                                       Outstanding and Exercisable by Price Range

<CAPTION>
                                                       Weighted                                Number
                                       Number           Average            Weighted        Vested and          Weighted
                                  Outstanding         Remaining             Average       Exercisable           Average
    Range of Exercise Prices    As of 3/28/98  Contractual Life      Exercise Price     As of 3/28/98    Exercise Price
    ------------------------    -------------  ----------------      --------------     -------------    --------------
<S>                                 <C>                    <C>             <C>              <C>                 <C>
       $ 1.3333 - $ 1.4667            927,583              4.11            $ 1.4484           927,583           $1.4484
       $ 2.2222 - $ 3.3333            223,813              0.57            $ 3.1089           223,813           $3.1089
       $ 4.5625 - $ 6.8750            971,535              3.43            $ 6.3657           327,875           $6.4159
       $ 7.0000 - $ 8.8125          1,337,750              5.15            $ 7.8874            62,450           $7.8461
       $ 9.0000 - $11.0000             82,250              5.41            $ 9.8199                 0           $0.0000
       $12.1300 - $15.0000            132,500              5.38            $13.2326                 0           $0.0000
                                    ---------              ----            --------         ---------           -------
       $ 1.3333 - $15.0000          3,675,431              4.17            $ 5.8051         1,541,721           $3.0050
                                    =========              ====            ========         =========           =======
</TABLE>


     The Company's  calculations were made using the following  weighted average
assumptions:

                                                  March 31,
                                  -------------------------------------------
                                     1998            1997            1996
                                  ----------      ----------       ----------
Expected life ..................  5.00 years      5.25 years       5.25 years
Risk-free interest rate ........     6.0%            6.3%             6.0%
Volatility .....................      65%             58%              58%
Dividend yield .................       0%              0%               0%


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.  As of March 31,  1998,  no options  had been
granted under the Directors' Plan.

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,  subject to a maximum annual  employee  contribution  limited to a

                                      -56-

<PAGE>


$25,000 fair market  value.  Of the 750,000  shares of Common  Stock  authorized
under the ESPP,  96,922 and 35,983  shares  were issued  during  fiscal 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:

                                        1998                           1997
                                      --------                       --------
Expected life..... .............      6 months                       6 months
Risk-free interest rate ........        5.4%                          5.45%
Volatility .....................         65%                            58%
Dividend yield .................          0%                             0%


     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 1998
and 1997 was $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 its 1992 Stock
Option  Plan and its ESPP,  the  Company's  pro forma net income  (loss) and net
income (loss) per share for the years ended March 31, 1998, 1997 and 1996, would
have been as follows (in thousands, except per share data):


                                                          March 31,
                                            ------------------------------------
                                               1998         1997          1996
                                            ---------    ----------    ---------
Pro forma net income (loss):                $  (8,153)   $  (18,795)   $   9,736
Pro forma net income (loss) per share:
     Basic                                  $   (0.21)   $    (0.49)   $    0.26
     Diluted                                $   (0.21)   $    (0.49)   $    0.24


     The pro forma effect on net income  (loss) and net income  (loss) per share
for fiscal 1998, 1997 and 1996 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.  Under the terms of the Savings
Plan,  the  Company may make  contributions  at the  discretion  of the Board of
Directors. No contributions have been made to the Savings Plan by the Company.

Note 10.  Legal Matters

                                      -57-

<PAGE>


     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.  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.  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.

     See also Note 11.

Note 11.  Antidumping Proceeding (Taiwan-manufactured SRAMs)

     In February 1997, Micron  Technology,  Inc. filed an anti-dumping  petition
(the "Petition") with the United States  International  Trade Commission ("ITC")
(Investigation  Nos.  731-TA-761-762)  and United States  Department of Commerce
("DOC")  (Investigations  No.  A-583-827),  alleging  that static  random access
memories  ("SRAMs")  produced  in South  Korea and  Taiwan are being sold in the
United  States at less than fair  value,  and that the  United  States  industry
producing  SRAMs is  materially  injured or threatened  with material  injury by
reason of imports of SRAMs  manufactured in South Korea and Taiwan.  As a result
of the Petition,  the Company,  in order to import into the United States, on or
after  approximately  April 1998, SRAMs manufactured in Taiwan,  must pay a cash
deposit in the amount of 50.15% (the  "Antidumping  Margin") of the cost of such
SRAMs.  (The Company has posted a bond in the amount of 59.06% (the  preliminary
margin) with respect to its importation,  between approximately October 1997 and
March  1998,  of SRAMs  manufactured  in  Taiwan.)  The  Company and others have
appealed the determination by the ITC that imposed the Antidumping  Margin.  The
Company may, in 1999, request a review of its sales of  Taiwan-fabricated  SRAMs
from approximately October 1997 through March 1999 (the "Review Period"). If the
Company makes such a request, the cash deposits made by the Company shall not be
"assessed" or "liquidated" until the conclusion of the review, in early 2000. If
the DOC found,  based upon  analysis of the  Company's  sales  during the Review
Period, that

                                      -58-

<PAGE>


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 made by the Company, and the deposits that would have been made had the
higher  rate  been in  effect.  (In  either  case,  the  Company  also  would be
responsible to pay  antidumping  duties in the amount of the revised margin with
respect to its imports,  between  approximately  October 1997 and March 1998, of
SRAMs  manufactured in Taiwan.) At March 31, 1998, the Company had posted a bond
secured  by a letter of  credit in the  amount  of  approximately  $1.6  million
relating to the Company's importation of Taiwan-manufactured SRAMs.

                                      -59-

<PAGE>


                        Report of Independent Accountants
                          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 22, 1998, appearing in this Annual Report Form 10-K also included an
audit of the Financial  Statement  Schedule  listed in Item  14(a)(2)(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/ PRICE WATERHOUSE LLP

San Jose, California
April 22, 1998

                                      -60-


<PAGE>
<TABLE>
                                          ALLIANCE SEMICONDUCTOR CORPORATION

                                                      Schedule II

                                           Valuation and Qualifying Accounts

<CAPTION>
                                          Balance at         Charged to         Charged to                             Balance at
                                         beginning of        costs and        other accounts                         end of period
             Description                    period            expenses                              Deductions
             -----------                ---------------    ---------------    ---------------     ---------------    ---------------
<S>                                         <C>               <C>                <C>                <C>                 <C>
                                                                              (in thousands)
Year ended March 31, 1998
  Allowance for doubtful accounts and
    sales-related reserves                  $    650          $   7,512          $  --               $ (6,152)          $  2,010
                                            ========          =========          =======             ========           ========
  Inventory related reserves for
    excess and obsolescence; and
    lower of cost or market issues          $ 40,732          $  15,154          $  --               $(40,919)          $ 14,967
                                            ========          =========          =======             ========           ========

Year ended March 31, 1997
  Allowance for doubtful accounts and
    sales-related reserves                  $  3,102          $   5,803          $  --               $ (8,255)          $    650
                                            ========          =========          =======             ========           ========
  Inventory related reserves for
    excess and obsolescence; and
    lower of cost or market issues          $ 53,555          $  16,918          $  --               $(29,741)          $ 40,732
                                            ========          =========          =======             ========           ========

Year ended March 31, 1996
  Allowance for doubtful accounts and
    sales-related reserves                  $  1,450          $  21,874          $  --               $(20,222)          $  3,102
                                            ========          =========          =======             ========           ========
  Inventory related reserves for
    excess and obsolescence; and
    lower of cost or market issues          $    907          $  52,937          $  --               $   (289)          $ 53,555
                                            ========          =========          =======             ========           ========
</TABLE>


                                                                -61-


<PAGE>


UNITED SEMICONDUCTOR CORPORATION

FINANCIAL STATEMENTS

DECEMBER 31, 1997 AND 1996



<PAGE>


January 22, 1998
(98)R.L36P6034

To the Board of Directors of United Semiconductor Corporation

We have  examined  the  accompanying  balance  sheets  of  United  Semiconductor
Corporation  as of December  31, 1997 and 1996,  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 accompanying  financial  statements  examined by us present
fairly the financial position of United Semiconductor Corporation as of December
31, 1997 and 1996,  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/ Price Waterhouse

                                       1

<PAGE>


                        UNITED SEMICONDUCTOR CORPORATION
                                  BALANCE SHEET
                           DECEMBER 31, 1997 AND 1996
                   (EXPRESSED IN NEW TAIWAN THOUSAND DOLLARS)


                                                       1997            1996
                                                   ------------    ------------
ASSETS
Current Assets
 Cash and cash equivalents (Note 4(1))             $  5,469,227    $  4,542,328
 Marketable securities (Note 4(2))                    3,190,746         202,820
 Notes receivable - related parties (Note 5)                781         196,616
 Accounts receivable (Notes 4(3) and 5)
  -third parties                                        937,320         286,639
  -related parties                                      939,664         368,065
 Other receivable                                        88,905          64,888
 Inventories (Note 4(4))                                511,486         485,686
 Prepaid expenses                                        17,669          11,996
 Other current assets                                   230,381          21,952
                                                   ------------    ------------
                                                     11,386,179       6,180,990
                                                   ------------    ------------

Property, Plant and Equipment (Notes 4(5) and 6)
 Cost
  Machinery and equipment                            10,169,495       8,611,439
  Transportation equipment                                3,206           2,563
  Furniture and fixtures                                130,771          87,661
  Leasehold improvements                                 10,966           8,076
  Other equipment                                        14,270           7,995
                                                   ------------    ------------
                                                     10,328,708       8,717,734
 Accumulated depreciation                            (1,944,961)       (354,607)
 Construction in progress and prepayments             2,460,306         662,007
                                                   ------------    ------------
                                                     10,844,053       9,025,134
                                                   ------------    ------------
Intangible Asset
 Other intangible asset                               1,037,500       1,337,500
                                                   ------------    ------------


Other Assets
 Deposit-out                                             30,979          30,064
 Deferred expense                                        54,027          48,216
 Deferred income tax assets (Note 4 (11))               103,102         219,786
                                                   ------------    ------------
                                                        188,108         298,066
                                                   ------------    ------------

TOTAL ASSETS                                       $ 23,455,840    $ 16,841,690
                                                   ============    ============

                                        2

<PAGE>


                                                           1997          1996
                                                       -----------   -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
 Short-term loans (Note 4(6))                          $ 1,911,632   $   161,520
 Notes payable (Note 5)                                    125,209       151,043
 Accounts payable (Note 5)                                 534,856       295,274
 Accrued expenses (Note 5)                                 578,013       294,442
 Other payables                                            352,925     1,551,722
 Current portion of long-term loans (Note 4(7))            656,744          --
 Other current liabilities                                   7,515         1,604
                                                       -----------   -----------
                                                         4,166,894     2,455,605
                                                       -----------   -----------

Long-term Liabilities
 Long-term loans (Note 4(7))                             5,190,525     4,329,498
                                                       -----------   -----------
Other Liabilities
 Accrued pension liabilities (Notes 3 and 4(8))             11,619          --
                                                       -----------   -----------

Total Liabilities                                        9,369,038     6,785,103
                                                       -----------   -----------


Stockholders' Equity
 Common stock (Note 4(9))                               10,000,000    10,000,000
 Capital reserve generated from the gain on
  disposal of fixed assets                                      40          --
 Retained earnings (Note 4(10))                          4,086,762        56,587
                                                       -----------   -----------
Total stockholders' equity                              14,086,802    10,056,587
                                                       -----------   -----------

Commitments and Contingent Liabilities (Note 7)


TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY             $23,455,840   $16,841,690
                                                       ===========   ===========

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

                                       3

<PAGE>


                        UNITED SEMICONDUCTOR CORPORATION
                               STATEMENT OF INCOME
                 FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
                    (EXPRESSED IN NEW TAIWAN THOUSAND DOLLARS
                         EXCEPT EARNINGS PER SHARE DATA)


                                                    1997                1996
                                                 ------------      ------------
Operating Revenues
 Sales revenue (Note 5)                          $ 10,003,022      $  1,663,010
 Sales returns                                        (21,216)             (197)
 Sales allowance                                     (302,184)          (40,653)
                                                 ------------      ------------
 Net sales                                          9,679,622         1,622,160
 Other operating revenues                              81,542            45,277
                                                 ------------      ------------
 Net operating revenues                             9,761,164         1,667,437
                                                 ------------      ------------
Operating Cost
 Cost of goods sold (Note 5)                       (5,278,405)       (1,182,274)
 Other operating cost                                 (38,604)          (32,095)
                                                 ------------      ------------
                                                   (5,317,009)       (1,214,369)
                                                 ------------      ------------
Gross Profit                                        4,444,155           453,068
                                                 ------------      ------------
Operating Expenses
 Selling expenses                                     (88,841)           (8,666)
 Administrative expenses                             (250,482)         (574,100)
 Research and development expenses                   (443,866)         (221,406)
                                                 ------------      ------------
                                                     (783,189)         (804,172)
                                                 ------------      ------------
Operating Income(Loss)                              3,660,966          (351,104)
                                                 ------------      ------------
Non-operating Income
 Interest income                                      264,153           232,942
 Dividends revenue                                     21,420              --
 Gain on disposal of investment                        16,956             4,474
 Foreign exchange gain                                397,616            70,170
 Other income                                           6,853               531
                                                 ------------      ------------
                                                      706,998           308,117
                                                 ------------      ------------
Non-operating Expenses
 Interest expense                                    (354,973)         (118,223)
 Provision for loss on obsolescence of
   inventories                                        (50,561)          (50,000)
 Financial expense                                       (391)          (23,778)
 Other loss                                           (15,881)             (206)
                                                 ------------      ------------
                                                     (421,806)         (192,207)
                                                 ------------      ------------
Income(loss) before income tax                      3,946,158          (235,194)
Income tax benefit (Note 4(11))                        84,057           250,619
                                                 ------------      ------------
Net income                                       $  4,030,215      $     15,425
                                                 ============      ============

Earnings per share
 Net income                                      $       4.03      $       0.02
                                                 ============      ============

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

                                       4

<PAGE>


<TABLE>
                                                  UNITED SEMICONDUCTOR CORPORATION
                                            STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                                           FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
                                             (EXPRESSED IN NEW TAIWAN THOUSAND DOLLARS)

<CAPTION>
                                                                                                                           Total
                                                                                                     Retained          Stockholders'
                                                            Common Stock     Capital Reserve         Earnings              Equity
                                                            -----------         -----------         -----------          -----------
<S>                                                         <C>                 <C>                 <C>                  <C>        
1996:
Balance at January 1,1996                                   $ 5,000,000         $      --           $    41,162          $ 5,041,162
Issued common stock                                           5,000,000                --                  --              5,000,000
Net income for 1996                                                --                  --                15,425               15,425
                                                            -----------         -----------         -----------          -----------
Balance at December 31 ,1996                                 10,000,000                --                56,587           10,056,587

1997:
Net income for 1997                                                --                  --             4,030,215            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          $14,086,802
                                                            ===========         ===========         ===========          ===========

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

                                                                 5

<PAGE>


<TABLE>
                                                  UNITED SEMICONDUCTOR CORPORATION
                                                       STATEMENT OF CASH FLOWS
                                           FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
                                             (EXPRESSED IN NEW TAIWAN THOUSAND DOLLARS)

<CAPTION>
                                                                                           1997                     1996
                                                                                        -----------             -----------
<S>                                                                                     <C>                     <C>        
Operating activities:
 Net income                                                                             $ 4,030,215             $    15,425
 Adjustments to reconcile net income to net cash provided by
  (used in) operating activities
  Provision for loss on obsolescence of inventories                                          38,403                  50,000
  Depreciation                                                                            1,591,371                 354,607
  Amortization                                                                              320,071                 166,740
  Bad debt expense                                                                           24,138                   5,908
  Fixed assets transferred to deferred assets and expenses                                   26,516                    --
  Gain on disposal of fixed assets                                                              (40)                   --
  Changes in asset and liability accounts:
   Decrease (increase) in notes receivable                                                  195,835                (196,616)
   Increase in accounts receivable                                                       (1,246,418)               (660,612)
   Increase in other receivables                                                            (24,017)                (22,324)
   Increase in inventories                                                                  (64,203)               (535,686)
   Decrease (increase) in prepaid expenses                                                   (5,673)                 13,458
   Increase in other current assets                                                        (208,429)                (19,000)
   Decrease (increase) in deferred income tax assets                                        116,684                (219,786)
   (Decrease) increase in notes payable                                                     (25,834)                125,148
   Increase in accounts payable                                                             239,582                 295,274
   Increase in accrued expenses                                                             283,571                 290,804
   Increase in other current liabilities                                                      5,911                   1,604
   Decrease in deferred income tax liabilities                                                 --                   (13,243)
   Increase in accrued pension liabilities                                                   11,619                    --
                                                                                        -----------             -----------
 Net cash provided by (used in) operating activities                                      5,309,302                (348,299)
                                                                                        -----------             -----------

Investing activities:
 Acquisition of fixed assets                                                             (4,644,743)             (7,380,918)
 Proceeds from disposal of fixed assets                                                       9,180                    --
 Increase in marketable securities                                                       (2,987,926)               (202,820)
 Increase in deferred expense                                                               (25,882)                (49,621)
 Increase in deposits-out                                                                      (915)                    (64)
                                                                                        -----------             -----------
 Net cash used in investing activities                                                   (7,650,286)             (7,633,423)
                                                                                        -----------             -----------

Financing activities:
 Issuance of common stock                                                                      --                 4,250,000
 Increase in short-term loans                                                             1,750,112                  84,488
 Proceeds from long-term loans                                                            1,517,771               4,329,498
                                                                                        -----------             -----------
 Net cash provided by financing activities                                                3,267,883               8,663,986
                                                                                        -----------             -----------
Net increase in cash and cash equivalents                                                   926,899                 682,264
Cash and cash equivalents at the beginning of year                                        4,542,328               3,860,064
                                                                                        -----------             -----------
Cash and cash equivalents at the end of year                                            $ 5,469,227             $ 4,542,328
                                                                                        ===========             ===========
</TABLE>

                                                                 6

<PAGE>


<TABLE>
                                                  UNITED SEMICONDUCTOR CORPORATION
                                                 STATEMENT OF CASH FLOWS (CONTINUED)
                                           FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
                                             (EXPRESSED IN NEW TAIWAN THOUSAND DOLLARS)

<CAPTION>
                                                                                            1997                     1996
                                                                                         -----------              -----------
<S>                                                                                      <C>                      <C>        
Supplemental disclosures of cash flow information

 Cash paid for interest (excluding interest capitalized)                                 $   345,781              $   107,333
                                                                                         ===========              ===========

 Cash paid for income tax                                                                $    51,501              $     1,409
                                                                                         ===========              ===========

Investing activities partially paid by cash
 Acquisition of fixed assets                                                             $ 3,445,946              $ 8,891,391
 Add: payable at the beginning of year                                                     1,551,722                   41,249
 Less: payable at the end of year                                                           (352,925)              (1,551,722)
                                                                                         -----------              -----------
 Cash paid                                                                               $ 4,644,743              $ 7,380,918
                                                                                         ===========              ===========

Financing activities partially provided by cash
 Issuance of common stock                                                                $      --                $ 5,000,000
 Less: common stock issued for the technology knowhow                                           --                   (750,000)
                                                                                         -----------              -----------

 Cash received                                                                           $      --                $ 4,250,000
                                                                                         ===========              ===========

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

                                                                 7

<PAGE>


                        UNITED SEMICONDUCTOR CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996
                   (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, 1997, the paid-in capital is $10,000,000.  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.

     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:

     A. Convertible to known amounts of cash at any time; and

     B. So near their maturity that they present  insignificant  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.

                                       8

<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.

     Fixed assets

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

     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 asset

     The intangible asset represents the technology  knowhow provided by a major
     shareholder as a part of paid-in capital.  The asset is amortized over five
     years by straight-line method.

     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

     The Company has a retirement plan covering all its regular employees.  This
     plan is  separately  funded.  Starting  from 1996,  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.  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 year
     income tax liabilities are included in the current year income tax expense.

     Revenue and expenses

     Revenue is  recognized  when the  products  are  delivered  or services are
     completed. Expenses are recognized as incurred.

                                       9

<PAGE>


3.   EFFECT OF CHANGE IN ACCOUNTING PRINCIPLES

     Prior to 1996, the Company contributed an amount equal to 2% of total wages
     on a monthly basis as pension expense.  In 1996, the Company adopted R.O.C.
     FASB  No.18 and began  recognizing  net  pension  cost  based on  actuarial
     valuation.  The effect of the change in accounting principle was immaterial
     because the Company was only set up in 1995.

4.   CONTENTS OF SIGNIFICANT ACCOUNTS

     (1) CASH AND CASH EQUIVALENTS

                                                            December 31
                                                 -------------------------------
                                                    1997                 1996
                                                 ----------           ----------
Cash:
Cash on hand                                     $    1,817           $    1,056
Demand accounts                                      58,655                2,600
Checking accounts                                    16,607               11,871
Time deposits                                     5,342,348            4,526,801
                                                 ----------           ----------
                                                  5,419,427            4,542,328

Cash equivalents:
Bonds with repurchase agreement                      49,800                --
                                                 ----------           ----------
                                                 $5,469,227           $4,542,328
                                                 ==========           ==========


     (2) MARKETABLE SECURITIES

                                                             December 31
                                                     ---------------------------
                                                        1997             1996
                                                     ----------       ----------
Mutual funds                                         $  251,393       $  150,250
Listed equity securities stocks                       2,939,353           52,570
                                                     ----------       ----------
                                                     $3,190,746       $  202,820
                                                     ==========       ==========


     (3) ACCOUNTS RECEIVABLE - NET

                                                              December 31
                                                      -------------------------
                                                         1997           1996
                                                      ---------       ---------
Accounts receivable - third parties                   $ 959,159       $ 292,547
Less: Allowance for doubtful accounts                   (21,839)         (5,908)
                                                      ---------       ---------
                                                      $ 937,320       $ 286,639
                                                      =========       =========

                                       10

<PAGE>


     (4) INVENTORIES

                                                               December 31
                                                      -------------------------
                                                         1997            1996
                                                      ---------       ---------
Raw materials, supplies and spare parts               $ 226,426       $ 257,608
Work in process                                         315,274         247,877
Finished goods                                           58,189          30,201
                                                      ---------       ---------
                                                        599,889         535,686
Less: Allowance for loss on obsolescence                (88,403)        (50,000)
                                                      ---------       ---------
                                                      $ 511,486       $ 485,686
                                                      =========       =========

     (5) PROPERTY, PLANT AND EQUIPMENT

                                                 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
                                    ============    ============    ============


                                                 December 31, 1996
                                     -------------------------------------------
                                                     Accumulated
                                        Cost         Depreciation    Book value
                                     -----------     -----------     -----------
Machinery and equipment              $ 8,611,439     $  (346,433)    $ 8,265,006
Transportation equipment                   2,563            (142)          2,421
Furniture and fixtures                    87,661          (6,482)         81,179
Leasehold improvements                     8,076            (960)          7,116
Other equipment                            7,995            (590)          7,405
Construction in progress and
   prepayments                           662,007            --           662,007
                                     -----------     -----------     -----------
                                     $ 9,379,741     $  (354,607)    $ 9,025,134
                                     ===========     ===========     ===========


     A.  Please refer to note 6 for assets pledged as collateral.

     B.  Interest  expense  amounting to $24,321 and $40,881 were capitalized in
         1997 and 1996, respectively.

                                       11

<PAGE>


     (6) SHORT-TERM LOANS

                                                        December 31
                                               ---------------------------------
                                                    1997               1996
                                               ------------        ------------
       Unsecured loans                         $  1,911,632        $    161,520
                                               ============        ===========
       Annual interest rates                   1.25% - 7.66%       1.34% - 6.81%
                                               ============        ============


     (7) LONG-TERM LOANS

     A.  Long-term loans are summarized as follows:

                                                            December 31
                                                --------------------------------
                                                    1997                1996
                                                -----------          -----------
Long-term loans                                 $ 5,847,269          $ 4,329,498
Less: Current portion                              (656,744)                --
                                                -----------          -----------
                                                $ 5,190,525          $ 4,329,498
                                                ===========          ===========

     B.  Interest rates for long-term  loans were floating  rates.  The range of
         interest  rates  were 1.31% - 7.20% and 1.31% - 6.44% in 1997 and 1996,
         respectively.

     C.  Please refer to note 6 for assets pledged as collateral.


     (8) 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 under 15 years  (including
         15 years) and one point per year for service years over 15 years). Each
         employee is limited up to 45 points.  Retirement benefits are paid from
         the fund previously provided.

         During  1997,  the Company has  recognized  pension  cost  amounting to
         $17,793.  The balance of the Company's  employees'  retirement  fund in
         Central Trust of China was $9,270 at December 31, 1997.

                                       12

<PAGE>


     B.  Based on actuarial  assumptions for the year of 1997, the discount rate
         and expected rate of return on plan asset are both 6.5% and the rate of
         compensation  increase  is 8%.  The funded  status of  pension  plan is
         listed as follows:

                                                              December 31, 1997
                                                              -----------------
Vested benefit obligation                                        $   --
Non-vested benefit obligation                                      (4,947)
                                                                 --------
Accumulated benefit obligation                                     (4,947)
Effect on projected salary increase                               (25,388)
                                                                 --------
Projected benefit obligation                                      (30,335)
Market-related value of plan assets                                 8,638
                                                                 --------
Projected benefit obligation exceeds plan asset
 (funding status)                                                 (21,697)
Unrecognized net obligation at transition                             281
Unrecognized pension gain or loss                                  11,360
                                                                 --------
Accrued pension liability                                        $(10,056)
                                                                 ========


     (9) COMMON STOCK

         The  Company  increased  its capital by issuing  500,000,000  shares of
         common  stock  for cash at the par  value of $10 per  share  which  was
         approved  through  a  resolution  of the  Board of  Directors  in their
         meeting on June 21,  1996.  The Company  has  completed  the  amendment
         procedures  for  registration.  After the  capitalization,  issued  and
         outstanding shares of common stocks is 1,000,000,000 shares.

     (10) 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 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 supervisors' fees;
             (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
             (7)  distributing  the  remaining  amount  in  accordance  with the
                  resolution of directors' meeting and stockholders' meeting.

                                       13

<PAGE>



     (11) INCOME TAX

     A.  Income tax benefits for 1997 and 1996 are computed as follows:

                                                         1997            1996
                                                       ---------      ---------
Current income tax for short-term negotiable
 income                                                $   5,576      $   1,409
Increase in deferred tax assets                         (684,882)      (416,895)
Increase in allowance for valuation on
 deferred tax assets                                     161,923           --
Increase in deferred tax liabilities                     433,326        164,867
                                                       ---------      ---------
Income tax benefit                                     $ (84,057)     $(250,619)
                                                       =========      =========

     B.  Deferred  income tax assets and liabilities as of December 31, 1997 and
         1996 are as follows:

                                                             December 31
                                                    ---------------------------
                                                        1997             1996
                                                    -----------     -----------
Deferred income tax assets - current                $   228,270     $    21,952
                                                    ===========     ===========
Deferred income tax assets - noncurrent             $ 1,262,960     $   784,395
Allowance for valuation on deferred income
 tax assets - noncurrent                               (548,423)       (386,500)
                                                    -----------     -----------
                                                        714,537         397,895
Deferred income tax liabilities-noncurrent             (611,435)       (178,109)
                                                    -----------     -----------
                                                    $   103,102     $   219,786
                                                    ===========     ===========

     C.  Components of deferred income tax assets and liabilities as of December
         31, 1997 are as follows:

                                                      Amount         Tax Effect
                                                    -----------     -----------
Temporary taxable differences                       $(3,057,175)    $  (611,435)
Temporary deductible differences                      2,097,640         419,528
Investment tax credits                                     --         1,071,702
Allowance for valuation on deferred income
 tax assets - noncurrent                                   --          (548,423)
                                                    -----------     -----------
                                                    $  (959,535)    $   331,372
                                                    ===========     ===========


     D.  Pursuant to the "Statute For The  Establishment  and  Administration of
         Science-Based  Industrial  Park",  the Company has been granted several
         periods of tax holidays  with respect to income  derived from  approved
         investments.

     E.  The  Company's  income  tax  return  for 1995  have been  assessed  and
         approved by the Tax Authority.

                                       14

<PAGE>



(12) EARNINGS PER SHARE 
                                                       1997             1996
                                                  -------------     -----------
Net income (A)                                    $   4,030,215     $   15,425
                                                  =============     ==========
Common stock outstanding at the end of year
 (Expressed in thousand shares) (B)                   1,000,000      1,000,000
                                                  =============     ==========
Weighted average outstanding common stock
 (Expressed in thousand shares) (C)                   1,000,000        747,945
                                                  =============     ==========
Earnings per share (Expressed in New Taiwan
 dollars) (A/B)                                   $        4.03     $    0.015
                                                  =============     ==========
Earnings per share based on weighted average
 outstanding common stock (Expressed in New
 Taiwan dollars) (A/C)                            $        4.03     $     0.02
                                                  =============     ==========


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.        The major investor of the Company.
     United Integrated Circuit Co., Ltd.      Common board chairman.
     United Silicon Inc.                                "
     AMIC Technology, Inc.                    The affilliate of UMC
     Novatek Microelectronics Corp.           Common major investor
     Faraday Technology, Inc.                           "
     S3 Inc.                                  The major investor of the Company
     S3 International Ltd.                    100% investee of S3 Inc.


   (2) Significant Related Party Transactions

a.   Sales


                                     1997                        1996
                           ------------------------    ------------------------
                                         Percentage                  Percentage
                             Amount     of net sales     Amount     of net sales
                           ----------   ------------   ----------   ------------
United Microelectronics
   Co., Ltd.               $2,503,897            26%   $  971,397            60%
United Integrated Circuit
   Co., Ltd.                  302,866             3%         --            --
Others                        425,071             4%         --            --
                           ----------    ----------    ----------    ----------
                           $3,231,834            33%   $  971,397            60%
                           ==========    ==========    ==========    ==========

                                       15

<PAGE>




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


b.   Purchases

                                           1997                    1996
                                   --------------------     --------------------
                                              Percentage              Percentage
                                               of net                   of net
                                   Amount     purchases     Amount     purchases
                                   ------     ---------     ------     ---------
United Microelectronics
 Co., Ltd.                         $15,912           2%     $63,089          12%
                                   =======     =======      =======     =======

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


c.   Notes receivable

                                     December 31, 1997        December 31, 1996
                                   --------------------     --------------------
                                             Percentage               Percentage
                                              of notes                 of notes
                                   Amount    receivable     Amount    receivable
                                   ------    ----------     ------    ----------
United Microelectronics
 Co., Ltd.                        $    781         100%    $196,616         100%
                                  ========    ========     ========    ========


d.   Accounts receivable

                                 December 31, 1997           December 31, 1996
                              -----------------------     ----------------------
                                            Percentage                Percentage
                                           of accounts               of accounts
                               Amount       receivable      Amount    receivable
                               ------       ----------      ------    ----------
United Microelectronics
 Co., Ltd.                    $ 218,633          12%      $ 367,625       56%
United Integrated
 Circuit Co., Ltd.              317,533          17%            440       --
S3 International Ltd.           263,252          14%           --         --
Others                          148,453           8%           --         --
                              ---------     ---------     ---------    ---------
                                947,871          51%        368,065       56%
Less:Allowance for doubtful
     accounts                    (8,207)         (1%)          --         --
                              ---------     ---------     ---------    ---------
                              $ 939,664          50%      $ 368,065       56%
                              =========     =========     =========    =========

                                       16

<PAGE>


e.   Notes payable

                                    December 31, 1997        December 31, 1996
                                   -------------------      -------------------
                                              Percentage              Percentage
                                               of notes                 of notes
                                    Amount     payable      Amount      payable
                                   -------     -------      -------     -------
United Microelectronics
  Co., Ltd.                        $25,992          21%     $44,046          29%
                                   =======     =======      =======     =======


f.   Accounts payable

                                   December 31, 1997        December 31, 1996
                                 --------------------     -------------------
                                            Percentage              Percentage
                                            of accounts             of accounts
                                  Amount      payable       Amount    payable
                                  ------      -------       ------    -------
United Microelectronics                                             
  Co., Ltd.                      $ 9,428           2%        $--        --
United Integrated                                                   
  Circuit Co., Ltd.               12,057           2%         --        --
                                 -------      -------      -------  ---------
                                 $21,485           4%        $--        --
                                 =======      =======      =======  =========
                                                                       

g.   Accrued expenses

                                     December 31, 1997      December 31, 1996
                                  -----------------------  ---------------------
                                               Percentage             Percentage
                                               of accrued             of accrued
                                    Amount      expenses    Amount     expenses
                                  ----------   ----------  ---------  ----------
United Microelectronics
  Co., Ltd.                        $77,387          13%     $61,106          21%
                                   =======     =======      =======     =======


h.   Property transaction

     In May 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.

i.   Other transaction

     The other  transaction with United  Microelectronics  Co., Ltd. in 1997 and
     1996 was as follows:

                         Item                    1997                  1996
                         -----                   ----                  ----
           Rental expense                  $  199,329            $  153,128
                                           ==========            ==========

                                       17

<PAGE>


<TABLE>
6. ASSETS PLEDGED AS COLLATERAL

<CAPTION>
                              Book Value as of December 31
                            --------------------------------
                               1997                 1996        Subject of collateral
                            ------------        ------------    ---------------------
<S>                         <C>                 <C>               <C>
Machinery and equipment     $  6,272,029        $  2,418,834      Long-term loan
                            ============        ============
</TABLE>


7. COMMITMENTS AND CONTINGENCY

   a. The  Company's   unused  letters  of  credit  for  import  machinery  were
      approximately  USD58,541 thousand dollars,  JPY4,691,732 thousand dollars,
      and GBP15 thousand dollars at December 31, 1997.

   b. The Company has signed  several  contracts  for the  purchase of equipment
      amounting to USD193,202 thousand dollars,  JPY16,033,030 thousand dollars,
      and DEM103  thousand  dollars.  As of  December  31,  1997,  the amount of
      outstanding   obligations  for  these  contracts  are  USD61,278  thousand
      dollars, JPY8,981,532 thousand dollars, and DEM43 thousand dollars.

   c. The DOC of the United  States of America  (U.S.A.) had made a  preliminary
      investigation  on  September  24, 1997 on the changes  that static  random
      access memory (SRAM)  manufactured  in Taiwan were being sold at less than
      fair market value,  i.e.  dumping  prices,  and the discussion on imposing
      duties on those SRAM is on-going.  The final  determination will depend on
      the result of further  investigation.  Since the Company  does not sell or
      export  any  significant  volume  of  SRAM  products  to the  U.S.A.,  the
      Company's   management   is  of  the  opinion  that  the  outcome  of  the
      investigation  will not have a material  adverse  financial or operational
      effect to the Company.

8. COMPARATIVE FIGURES RECLASSIFICATION

   Certain accounts in the 1996 financial  statements have been  reclassified to
   conform with the presentation adopted for the 1997 financial statements.

                                       18