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 29, 1997

                                       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 20, 1997 was $193,471,512  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:

     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. 


<PAGE>

Yes X   No 
   ---    ---

     As of June 20, 1997,  there were 39,049,197  shares of Registrant's  Common
Stock outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Portions of  Registrant's  definitive  Proxy  Statement for its 1997 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 29,  1997,  are
incorporated by reference into Part III hereof.

<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, including those set forth in Item 1 of Part I and in
Item 7 of Part II hereof  entitled  "Factors That May Affect Future Results" and
elsewhere in this Report,  that 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
subsidiaries.  The Company designs, develops and markets high performance memory
and  memory   intensive   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 this opportunity with its
families of static  random  access  memories  (SRAMs) and dynamic  random access
memories  (DRAMs),  with both  types of memory  products  characterized  by high
storage  capacity  (density),  fast access times and low power  consumption.  To
complement  its high speed  DRAMs,  the  Company  also  offers  multimedia  user
interface (MMUI) accelerator products that combine 2D and 3D graphics and motion
video  acceleration  capabilities.  The Company has also recently  developed and
expects  limited  production  of a 4-megabit  ("Mbit")  flash memory  product by
September  1997, and is in the process of developing a line of 5 volt-only and 3
volt-only flash memory products  ranging from 1-Mbit to 8-Mbit in both 8-bit and
16-bit architectures.

     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 1997, the market for certain SRAM devices
continued to  experience  excess supply  relative to demand which  resulted in a
downward  trend  in  average  selling  prices.  The  prices  for  DRAM  products
experienced  significant volatility throughout fiscal 1997.

<PAGE>

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  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.

     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, 1997, March 31, 1996
and March 31, 1995 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.  SRAMs are roughly
four times as complex as DRAMs (four  transistors  per bit of memory compared to
one  transistor)  but also are  generally  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.

     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. Recently, however, certain technology trends
have  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.  Microprocessors  have
been doubling in throughput performance  approximately every 18 to 24 months. As
microprocessors  run at higher  clock  speeds  and levels of  performance,  they
require  data to be fed more  rapidly  from the main memory in order to function
optimally.  The  speed  of  DRAM-based  main  memories  has not kept  pace  with
microprocessor  clock speeds,  thus causing a substantial speed mismatch between
the data rate required by microprocessors  and that which main memory subsystems
can support.  The disparity between  microprocessor  clock rates and main memory
subsystem  performance  has  been  exacerbated  by the  introduction  of  higher
throughput   microprocessors,   such  as  the  Intel  Pentium  and  Pentium  Pro
microprocessors.  Fast SRAMs,  those with access speeds of 20 nanoseconds ("ns")
or less,  are  utilized to "cache"  the most  frequently  used  portions of main
memory   contents,   increasing  the  speed  with  which  data  can  be  fed  to
microprocessors.

<PAGE>

     The fast SRAM market has experienced rapid growth due to the advent of more
powerful  microprocessors.  Fast  SRAMs,  which  were  used as cache  memory  in
approximately  25% of the systems based on the Intel 386  microprocessor  and in
more than 80% of the systems based on the Intel 486 microprocessor, are now used
in  virtually  all of the  systems  based on the Intel  Pentium  and Pentium Pro
families  of  microprocessor  architectures.  Recent  trends in the PC  industry
toward lower voltage microprocessors, such as the Intel P54C (3.3 volt Pentium),
created a  substantial  need for 3.3 volt  products.  The Company  believes that
opportunities  may develop for synchronous  burst SRAMs that provide even higher
cache  memory  access  speeds  to  keep  pace  with  increasing   microprocessor
performance. In addition,  peripheral networking and telecommunications products
require  fast SRAMs to cache  data to match the speed of the  system  controller
with the speeds of its peripherals.

     The emergence of graphical user  interface  ("GUI")  environments  (such as
Microsoft(R) Windows(TM)) and multimedia applications for personal computers has
placed an additional burden on  microprocessors  to manipulate  windows,  icons,
video and other complex graphical objects.  This burden on  microprocessors  and
the  resulting  decrease  in the speed  with  which  software  applications  are
executed  have created a need for a companion  processor  (a "GUI  accelerator")
that  off-loads  from  the main  processor  the  management  of GUI  tasks.  GUI
acceleration has become a fundamental  requirement for high performance personal
computers.  The  emergence of  multimedia  applications  has driven the need for
higher  performance  multimedia  user  interface  accelerators  that can provide
acceleration of 2D/3D graphics and video.  Both GUI and MMUI  (multi-media  user
interface)  accelerations require fast DRAMs (with access speeds of 50ns or less
for a 4-Mbit  DRAM);  higher  performance,  more  expensive  VRAMs (video random
access memories) or SGRAMS (synchronous graphic random access memories) to store
screen content that is used frequently to refresh the display.

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 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 typically 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

<PAGE>

Company also believes that a simpler  manufacturing process leads to faster time
to market and shorter manufacturing cycle times.

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

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 1997, SRAM products,  including cache memory modules,  contributed
approximately  41% to the Company's net revenues.  The Company  currently offers
SRAM  products in several  different  packages  and speed  grades  ranging  from
64-Kbit  densities  with 8ns access times to 4-Mbit  densities  with 15ns access
times. The Company expects limited  production of 16-Mbit  densities to begin in
1998.  Currently,  substantially  all of the Company's  volume SRAM products are
manufactured  using 0.4 micron  technology,  with a  transition  to 0.35  micron
technology underway.

SRAM Cache Memory Modules

     The Company  currently  sells SRAM cache memory modules to customers in the
personal computer,  networking and telecommunications  industries.  Cache memory
modules are  complete  cache  memory  subsystems  consisting  of SRAMs and logic
components  that allow users to install or increase  the cache memory of systems
by plugging a module  directly  into a single  socket on the system  board.  The
majority  of the demand  for cache  memory  modules is driven by large  computer
companies worldwide.

High Speed CMOS DRAMs

     During early fiscal 1997, the Company commenced volume production, in a 0.5
micron geometry, of 4-Mbit DRAMs in a 1-Mbitx4 configuration with access time as
fast as 60ns.  Subsequently,  the Company  introduced to  production  its 4-Mbit
DRAMs in a  256Kbitx16  configuration  which is  targeted  at the  graphics  and
multimedia  accelerator  market and 16-Mbit DRAMs in a 1-Mbitx16  configuration,
which is targeted at main memory applications.. Sales of the Company's family of
DRAM   products   experienced   significant   growth  during  the  fiscal  year,
contributing approximately 47% of the fiscal year's net revenues.

MMUI Accelerators

     During fiscal 1997, the Company  introduced the  Promotion(R)-AT3D  128-bit
MMUI accelerator to its family of graphics and video accelerators.  This product
features high  performance 2D graphics  acceleration  with enhanced motion video
scaling  quality and  Alliance's  unique  hardware  gamma

<PAGE>

correction  and chroma  correction.  It also adds a Direct  3D(R)-optimized,  3D
rendering engine to accelerate 3D rendered animation.  Sales of MMUI accelerator
products  accounted for  approximately  11% of the Company's net revenues during
fiscal 1997.

High Speed CMOS Flash Memories

     During fiscal 1997, the Company produced commercial  quantities of a 2-Mbit
flash  product and  expects  limited  production  of a 4-Mbit  flash  product by
September  1997.  The  Company's  flash  products  use a single power supply and
require only 5.0 volts for read and programming  functions.  The Company is also
in the  process of  developing  an 8-Mbit  product it  expects to  introduce  by
September  1997. To date, the Company has not derived  significant  revenue from
flash products.


<PAGE>

Product Development

     Timely  development  and  introduction  of new  products  are  essential to
maintaining the Company's competitive  position.  The Company currently develops
all of its  products  in-house and had on staff 74  development  personnel as of
March 29,  1997.  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 1997, fiscal 1996 and fiscal
1995,  the Company spent  approximately  $15.0  million,  $14.7 million and $8.4
million,  respectively,  on product development activities. The Company plans to
continue to invest substantial amounts in development to design additional SRAM,
DRAM, graphics and flash memory 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 and
develop and bring to market such new  products 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.  Such inabilities could materially and adversely affect the
Company's operating results.

     The Company has recently  introduced and continues to develop products with
which the Company has only limited  experience,  such as high performance DRAMs,
MMUI accelerators and flash memory products.  Certain of these new products will
be  targeted  at  market  segments  in  which  the  Company  has not  previously
participated. There can be no assurance that such products will be completed and
introduced  in a timely  and  cost-effective  manner or that such  products,  if
introduced,  will gain market acceptance.  Should the Company experience delays,
difficulty in procuring  adequate  foundry  capacity for the manufacture of such
products or other difficulties in achieving volume production of these products,
the Company's operating results could be materially and adversely affected.  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,  which  could
materially and adversely affect the Company's  operating results.  During fiscal
1997, the Company incurred pre-tax charges of approximately  $17 million related
to reserves for inventory,  primarily as a result of declines in average selling
prices of certain SRAM products.

Customers

     The  Company's  primary  customers  are major  domestic  and  international
suppliers and  manufacturers of personal  computers and personal computer system
boards  including  Acer,   Apricot  (acquired  by  Mitsubishi),   Dell,  Diamond
Multimedia,  Hewlett Packard,  IBM, Jabil, NEC, SCI


<PAGE>

Manufacturing and Solectron.  The market for SRAMs used in personal computers is
characterized by price volatility and has experienced  significant  fluctuations
and downturns in product demand. Moreover, Intel recently introduced the Pentium
II card  containing a  microprocessor  and cache memory (SRAM) on the card.  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 its  successors
prior to sale to  customers,  then failure by the Company to be chosen to supply
SRAM to Intel for the Pentium II card or its successors would likely  materially
adversely affect 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,  such as DRAMs,  MMUI  accelerators  and flash  memory  products,  the
Company may not be successful in executing such strategy. A decline in demand in
the personal  computer  industry or lack of success in developing new markets or
new products  could have a material  adverse  effect on the Company's  operating
results.

     Because a large  percentage of the worldwide  supply of personal  computers
and personal  computer  system boards is  manufactured  by suppliers  located in
Asia, a  substantial  percentage  of the Company's net revenues are derived from
Asian companies. During the fiscal years ended March 31, 1997 and 1996, sales to
customers in Asia accounted for  approximately  28% and 25% of the Company's net
revenues, respectively.

     The Company is also selling  SRAMs to  networking,  telecommunications  and
instrumentation  customers including 3Com, Motorola and Megahertz (a division of
U.S.  Robotics).  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.

     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, 1997, no customer  accounted for
10% or more of the Company's  net revenues.  For the fiscal year ended March 31,
1996, one customer  accounted for 18% of the Company's net revenues.  See Note 1
of Notes to Consolidated Financial Statements.


<PAGE>

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  Asia  and the  rest of the  world.  One of the
Company's manufacturers'  representatives in Taiwan, Asian Specific Technologies
Ltd.  ("ASTL"),  was a  subsidiary  of the  Company for a portion of fiscal year
1997.

     The Company uses  manufacturers'  representatives  and distributors who are
not subject to minimum purchase  requirements and who can discontinue  marketing
the  Company's  products at any time.  Many of the  Company's  distributors  are
permitted to return to the Company a portion of the products  purchased by them.
The loss of one or more  manufacturers'  representatives  or distributors  could
have a material adverse effect on the Company's  operating results.  The Company
believes  that  its  relations  with  its  manufacturers'   representatives  and
distributors 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 36%, 43% and 55% of net revenues in
fiscal  1997,  fiscal 1996 and fiscal  1995,  respectively.  The majority of the
Company's  international revenues in fiscal years 1995 through 1997 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 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.  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.  See Note 1 of
Notes  to  Consolidated  Financial  Statements.  As set  forth in Item 3 - Legal
Proceedings  below,


<PAGE>

anti-dumping   proceedings  have  been  commenced  which  could  result  in  the
imposition of an antidumping duty on the Company's imports of SRAMs manufactured
in Taiwan.  Imposition  of such a duty  could  materially  adversely  affect the
Company's ability to sell such products in the United States.

Manufacturing

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

     The  Company's  major  foundries  are United  Microelectronics  Corporation
("UMC") in Taiwan, United Semiconductor Corporation ("USC") in Taiwan, 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 in the  future.  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 new 8-inch
wafer  fabrication  facility.  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 its new
8-inch wafer  fabrication  facility.  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 believes its
investment in Chartered approximates fair market value. 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


<PAGE>

Logic  Corporation  and  Rockwell  International  Corporation,   in  return  for
guaranteed minimum numbers of wafers from its 8-inch wafer fabrication facility.

     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 now in full  production  utilizing  advanced  submicron
semiconductor manufacturing processes. Alliance's contribution is in the form of
an equity  investment,  representing an equity  ownership of up to approximately
19%. Alliance's investment will be up to approximately US$70 million and will be
paid in cash in up to three installments. The first installment of approximately
50% was made in September 1995, the second  installment of approximately 25% was
made in July 1996 and the Company has the option to pay a third  installment  of
approximately  25% payable in July 1997, plus interest at a rate of 8.5% on such
amount  from and after July 4, 1996.  If this option is  exercised,  the Company
will have an equity  ownership of  approximately  19% and will have the right to
purchase up to approximately 25% of the manufacturing capacity in this facility.
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,  the Company will recognize
its  proportionate  share of such income or losses.  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,  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,  United  Silicon  Inc.,  for the
purpose of building and managing an 8-inch semiconductor  manufacturing facility
in Taiwan. The facility is expected to commence  production in early 1998. It is
presently  contemplated that the manufacturing facility will, over time, require
$1 billion to complete its construction and finance  operations,  although there
can  be  no  assurances  that   production   will  commence  on  schedule.   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. The Alliance investment will be approximately US$30
million  and  will be paid in cash in up to  three  installments.  Alliance  had
originally  committed to an  investment  of  approximately  US$60 million or 10%
ownership  interest but recently  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 has the option to pay a
second  installment of approximately  25% of the revised  investment  payable in
December  1997,  plus  interest  at a rate of 8.5% on such amount from and after
July 7, 1997,  and the final  installment  of  approximately  25% of the revised
investment  is  called  for  on or  before  fab  production  ramp-up.  UMC,  its
affiliates  and members of the  Taiwanese  financial  community  are expected to
provide,  over time, the remainder of the  capitalization  of the new entity, in
the form of debt and equity. A portion of UMC's equity  contribution is expected
to be paid through the grant by UMC to the new entity of  royalty-free  licenses
to UMC's CMOS 0.35 micron and below process technologies under development to be
used in the  manufacturing  facility.  If the Company  exercises  its option and
further pays the third installment, the Company will have an equity ownership of
approximately 5% and have the right to purchase up to approximately 6.25% of the
manufacturing capacity in this facility.


<PAGE>

     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 1998.  Disruption  of  operations at the Company's
foundries for any reason,  including work stoppages,  fire, earthquakes or other
natural  disasters,  would cause delays in shipments of the Company's  products,
and could have a material adverse effect on the Company's results of operations.
In addition, as a result of the rapid growth of the semiconductor industry based
in the 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 also purchases  products:  from UMC under a foundry  production
agreement  that expires  December  1997,  which  agreement  may be terminated by
either party upon six months' notice;  from Chartered under a foundry production
agreement that expires August 1999,  which agreement may be terminated by either
party  upon  six  months'  notice;  and from  Rohm  under a  foundry  production
agreement that expires August 1998. 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 UMC and Rohm,  respectively,  sell in  competition  with the  Company's
products.  Moreover,  the Company is party to an agreement  with UMC pursuant to
which the  Company  has rights to  purchase  certain  capacity  from UMC and its
affiliates  and to receive  certain  payments from UMC,  related to certain DRAM
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.

     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


<PAGE>

packages  and tested in  accordance  with  procedures  developed by the Company.
Following  assembly,  the  packaged  devices  are further  tested and  inspected
pursuant  to  the  Company's   quality  assurance  program  before  shipment  to
customers.  While the timeliness,  yield and quality of product  deliveries from
the Company's  suppliers of assembly and test  services have been  acceptable to
date, there can be no assurance that problems will not occur in the future.  Any
significant  disruption in adequate supplies from these  subcontractors,  or any
other circumstance that would require the Company to qualify alternative sources
of supply, could delay shipment and result in the loss of customers, limitations
or  reductions  in the  Company's  revenue,  and other  adverse  effects  on the
Company's operating results. Most of the Company's wafer foundries, assembly and
testing  facilities  comply with the  requirements of ISO 9000 or U.S.  Military
Specification MIL-M-3851.

     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 Cirrus Logic,  Cypress  Semiconductor,
Integrated Device Technology, Micron Technology,  Motorola, Samsung, S3, Toshiba
and  other  Japanese  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
recent  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.  The Company has recently
entered into the DRAM and flash memory  markets.  These markets are dominated by
very large  companies  and subject to 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 


<PAGE>

economic conditions.  There can be no assurance that the Company will be able to
compete successfully in the future.

Licenses, Patents and Maskwork Protection

     The Company  seeks to protect its  proprietary  technology by filing patent
applications in the United States and  registering its circuit designs  pursuant
to the Semiconductor Chip Protection Act of 1984. The Company holds twenty-seven
United  States  patents  covering  certain  aspects of its product  designs that
expire between 2009 and 2015 and has  thirty-three  pending United States patent
applications,  six 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.

     As  previously   reported,   in  December  1996,   Alliance   Semiconductor
International  Corporation  ("ASIC"), a wholly-owned  subsidiary of the Company,
was served with a complaint  alleging  that ASIC has  infringed two patents (the
"AMD  Patents")  owned by Advanced  Micro  Devices,  Inc.  ("AMD"),  and seeking
injunctive  relief  and  damages.  In March  1997,  the  Company  was added as a
defendant. See Item 3 - Legal Proceedings,  below. 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 other administrative  agency in the event of litigation,  and there can
be no assurance that a court or other 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.

     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 of  indemnification  resulting
from 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


<PAGE>

developed,  manufactured or sold,  including Asia, Europe or Latin America,  may
not protect the Company's products and intellectual  property rights to the same
extent as the laws of the United States.

Backlog

     Sales of the  Company's  products  are made  pursuant to standard  purchase
orders.  Purchase  orders are subject to changes in  quantities  of products and
delivery  schedules in order to reflect  changes in the customers'  requirements
and to price  renegotiations.  In addition,  orders typically may be canceled at
the discretion of the buyer without  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 29, 1997, the Company had 144 full-time  employees,  consisting
of 74 in research and development,  32 in marketing and sales and 38 in finance,
administration and operations.  Of the 74 research and development employees, 24
have advanced degrees. 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 in a three-way  implementation
partnership.  The full  conversion  is  scheduled to be completed in early 1998,
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
and  President  of  the  Company,  and  his  brother  C.N.  Reddy,  Senior  Vice
President-Engineering and Operations 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  1997, 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


<PAGE>

effect on the Company's business. The Company is not insured against the loss of
any of its key employees,  nor can the Company assure the successful recruitment
of new and replacement personnel.

ITEM 2.         FACILITIES

     The  Company's  executive  offices and its principal  marketing,  sales and
product  development  operations  are  located in a 41,400  square  foot  leased
facility  in San Jose,  California  under a lease  which  expires  in 1999.  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.
Additionally,  the Company  leases sales  offices in  Wellesley,  Massachusetts;
Plano, Texas; Tapei, Taiwan; 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. The Company intends to continue to
defend  vigorously  against any claims asserted  against it, and believes it has
meritorious   defenses  against  the  asserted  claims.   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, ASIC was served with a complaint
alleging  that  ASIC  has  infringed  AMD  Patents  owned  by AMD,  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 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 Korea and Taiwan.  The Petition  requests the
United  States  government  to impose  antidumping  margins on imports  into the
United States of SRAMs  manufactured in Korea and Taiwan.  A material portion of
the SRAMs  designed  and sold by the Company  are  manufactured  in Taiwan.  The
Company received preliminary producer and importer  questionnaires from the ITC,
and submitted responses to such questionnaires in March 1997. In April 1997, the
ITC  preliminarily  determined  that there is a reasonable  indication  that the
imports of the products  under  investigation  are  injuring  the United  States
industry.  In April 1997, the Company received a questionnaire  from the DOC. In
accordance  with  the  deadlines  established  by  the  DOC,  responses  to  the

<PAGE>

questionnaire  were filed in May 1997 and June 1997,  respectively.  The Company
anticipates  that in the third  calendar  quarter  of 1997,  the DOC will make a
preliminary  determination  as to the estimated  antidumping  duty, if any, that
should be imposed upon imports of the  Company's  SRAM  products  fabricated  in
Taiwan, and that a final determination as to such duty, if any, would be made by
DOC in the fourth  quarter of  calendar  1997 or the first  quarter of  calendar
1998.  The Company  anticipates  that the ITC, in the fourth quarter of calendar
1997 or the first quarter of calendar 1998, will make a final  determination  as
to whether the United States industry  producing SRAMs is materially  injured or
threatened  with material  injury by reason of imports of SRAMs  manufactured in
Korea and Taiwan.  The Company  vigorously  is seeking,  and intends to continue
vigorously to seek, to ensure that dumping  duties are not imposed on imports of
its SRAM products  manufactured in Taiwan.  There can be no assurance,  however,
that the  government  will not impose  duties on the  Company's  imports of SRAM
products into the United States,  which duties could materially adversely affect
the Company's ability to sell such products in the United States.


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

Not applicable.


<PAGE>
                      EXECUTIVE OFFICERS OF THE REGISTRANT

     Information  concerning  executive  officers  of the  Company  is set forth
below:

Name                           Age            Position
----                           ---            --------
N. Damodar Reddy...........    58    President and Chief Executive Officer

C.N. Reddy.................    41    Senior Vice President-Engineering and 
                                     Operations

Charles Alvarez............    47    Vice President-Finance and Administration
                                     and Chief Financial Officer

Gregory Barton.............    35    Vice President-Corporate and Legal Affairs,
                                     General Counsel

Laurence Jordan............    53    Vice President-Operations

Phil Richards..............    49    Vice President-Sales

     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.  From September 1983 to February 1985, he 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 a 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
Vice  President-Engineering  and Secretary  and director  since its inception in
February 1985. In May 1993, he was appointed  Senior  Vice-President-Engineering
and  Operations  of the  Company.  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 a 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.

     Charles  Alvarez joined the Company in 1997 as Vice  President-Finance  and
Administration,  and Chief Financial  Officer.  Prior to joining  Alliance,  Mr.
Alvarez  served  more than seven  years at LSI Logic  Corp.,  most  recently  as
Director,  Finance and Operations of the LSI Product Group. In this role, he was
responsible for the controllership of all five semiconductor  product divisions,
execution of pricing  strategies,  and  management of the finance  operations of
these divisions. Prior to that, he served as Director, Finance and Operations of
the LSI Logic Microprocessor  Group. Mr. Alvarez has also held various positions
at General Electric, where he served for more than twelve years. He holds a B.A.
and a M.A. degree in Business and Economics from San Francisco State University.

     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.

     Laurence  Jordan  joined  the  Company  in June  1997 as Vice  President  -
Operations.  From 1994 to 1996,  he served as  Director of  Operations  at Tseng
Labs, Inc., a graphics  accelerator company, and from 1992 to 1993, he served as
Engineering Manager at Allegro Microsystems.  Prior to that, Mr. Jordan has held
various positions at Zilog, California Devices, Mitel Semiconducteur,  and Texas
Instruments.  He holds a B.S.  in  Physics  and  B.A.  in  Mathematics  from the
University of Texas.

     Phil Richards joined the Company in June 1995 as Vice President-Sales. From
April  1989  through  May  1995,  Mr.  Richards  was  President  of  Competitive
Technology,  Inc., a manufacturers  representative.  From May 1988 through April
1989, he served as President of Motion Phone Technology,  Inc., a company formed
to distribute a video telephone then under  development.  From July 1983 through
May  1988,  he was  President  of Phase II  Technology,  Inc.,  a  manufacturers
representative.  Prior to 1983, he served in various sales and sales  management
positions with Bager Electronics,  Intel Corporation,  American Microsystems and
Siliconix.  He holds a B.S. degree in Electrical Engineering from San Jose State
University.


<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 January  1995 and the  three-for-two  stock  split  effected 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.

                                                   High                Low
1995                                               ----                ---
----
1st Quarter ............................      $   34.00           $   12.89
2nd Quarter ............................          35.33               25.00
3rd Quarter ............................          48.25               32.33
4th Quarter ............................          39.00               10.50

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

     As of June 20, 1997, there were  approximately 219 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.


ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

     The following table summarizes selected consolidated  financial information
for each of the five  fiscal  years  ended  March 31, 1997 and should be read in
conjunction  with the  consolidated  financial  statements  and  notes  relating
thereto. See Note 1 of Notes to Consolidated Financial Statements.



<PAGE>

<TABLE>
<CAPTION>

                                                                                      Year Ended March 31,
                                                           -------------------------------------------------------------------------
                                                             1997             1996           1995             1994            1993
                                                           --------         --------        --------        --------        --------
<S>                                                        <C>              <C>             <C>             <C>             <C>     
                                                                              (in thousands, except per share data)
Consolidated Statement of Operations
Data:

Net revenues ......................................        $ 82,572         $201,098        $119,327        $ 54,574        $ 22,238
Cost of revenues ..................................          84,630          158,159          65,035          33,414          16,694
                                                           --------         --------        --------        --------        --------
   Gross profit (loss) ............................          (2,058)          42,939          54,292          21,160           5,544
Operating expenses:
   Research and development .......................          15,012           14,664           8,374           3,661           1,670
   Selling, general and administrative ............          10,344           17,202           9,600           3,953           2,152
                                                           --------         --------        --------        --------        --------
Income (loss) from operations .....................         (27,414)          11,073          36,318          13,546           1,722
Other income, net .................................           1,753            6,498           2,035             343           1,331
                                                           --------         --------        --------        --------        --------
Income (loss) before income taxes .................         (25,661)          17,571          38,353          13,889           3,053
Provision for income taxes ........................          (8,990)           6,852          14,462           5,213           1,076
                                                           --------         --------        --------        --------        --------
Net income (loss) .................................        $(16,671)        $ 10,719        $ 23,891        $  8,676        $  1,977
                                                           ========         ========        ========        ========        ========
Net income (loss) per share .......................        $  (0.43)        $   0.26        $   0.69        $   0.32        $   0.08
                                                           ========         ========        ========        ========        ========
Weighted average number of common shares and 
    equivalents....................................          38,653           40,633          34,559          26,906          24,459
                                                           ========         ========        ========        ========        ========
</TABLE>
<TABLE>
<CAPTION>


                                                                                            March 31,
                                                           -------------------------------------------------------------------------
                                                             1997             1996            1995            1994            1993
                                                           --------         --------        --------        --------        --------
<S>                                                        <C>              <C>              <C>            <C>            <C>      
                                                                                        (in thousands)
Consolidated Balance Sheet Data:
Working capital (deficit) .........................        $ 78,000         $106,171         $ 86,845       $ 26,550       $ (2,193)
Total assets ......................................         232,569          263,238          126,866         40,192          8,538
Stockholders' equity (deficit) ....................         204,677          219,381          107,803         28,998         (1,572)

</TABLE>



<PAGE>

<TABLE>
<CAPTION>

                                                                                  Fiscal Year
                                          ------------------------------------------------------------------------------------------
                                                               1997                                          1996
                                          ------------------------------------------------------------------------------------------
                                            4th         3rd         2nd         1st         4th         3rd        2nd        1st
                                          --------    --------    --------    --------    --------    --------   --------   --------
<S>                                       <C>         <C>         <C>         <C>         <C>         <C>        <C>        <C>     
Operating Summary:                                           (in thousands, except per share data)

Net revenues ..........................   $ 30,105    $ 25,224    $ 13,135    $ 14,108    $ 20,684    $ 46,372   $ 77,007   $ 57,035
Cost of revenues ......................     27,437      21,833      11,029      24,331      59,498      35,944     35,894     26,823
                                          --------    --------    --------    --------    --------    --------   --------   --------

   Gross profit (loss) ................      2,668       3,391       2,106     (10,223)    (38,814)     10,428     41,113     30,212
Operating expenses:
   Research and development ...........      4,261       3,673       3,639       3,439       2,891       3,513      4,553      3,707
   Selling, general and
       administrative .................      3,003       2,146       2,703       2,492       2,650       4,973      5,605      3,974
                                          --------    --------    --------    --------    --------    --------   --------   --------

Income (loss) from operations .........     (4,596)     (2,428)     (4,236)    (16,154)    (44,355)      1,942     30,955     22,531
Other income, net .....................        209         369         459         716       1,070       1,600      1,905      1,923
                                          --------    --------    --------    --------    --------    --------   --------   --------
Income (loss) before income
   taxes ..............................     (4,387)     (2,059)     (3,777)    (15,438)    (43,285)      3,542     32,860     24,454
Provision (benefit) for income
   taxes ..............................     (1,544)       (721)     (1,322)     (5,403)    (16,881)      1,381     12,815      9,537
                                          --------    --------    --------    --------    --------    --------   --------   --------

Net income (loss) .....................   $ (2,843)   $ (1,338)   $ (2,455)   $(10,035)   $(26,404)   $  2,161   $ 20,045   $ 14,917
                                          ========    ========    ========    ========    ========    ========   ========   ========
Net income (loss) per share ...........   $  (0.07)   $  (0.03)   $  (0.06)   $  (0.26)   $  (0.69)   $   0.05   $   0.48   $   0.36
                                          ========    ========    ========    ========    ========    ========   ========   ========
Weighted average number of
common shares and equivalents..........     38,896      38,513      38,483      38,416      38,274      41,246     41,526     41,485
                                          ========    ========    ========    ========    ========    ========   ========   ========
</TABLE>

     During the third and fourth  quarters of fiscal  1996 and  through  most of
fiscal 1997, the Company  experienced  significant  deterioration in the average
selling  prices  for  its  SRAM   products.   Primarily  as  a  result  of  this
deterioration  and  certain  manufacturing  issues in fiscal  1996,  the Company
recorded  pre-tax  charges in the third and fourth  quarters  of fiscal  1996 of
approximately  $10 million  and $45  million,  respectively,  and charges in the
first and fourth  quarters  of fiscal 1997 of  approximately  $16 million and $1
million,  respectively. The Company is unable to predict when or if such decline
in prices will stabilize.  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

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, have been satisfied, and,
in August 1994, the Company received a final decree from the Bankruptcy Court.


<PAGE>

     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 1997 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 and fiscal
1997 of approximately $55 million and $17 million,  respectively, to reserve for
certain manufacturing issues and to reflect declines in market value for certain
of the Company's products.

     From April 1, 1992 through the early part of fiscal 1997, substantially all
of the  Company's  net  revenues  were derived  primarily  from the sale of SRAM
products.  During fiscal 1997, the Company  commenced  volume  production in 0.5
micron geometry,  4-Mbit DRAMs in a 1-Mbitx4  configuration  with access time as
fast as 60ns.  The Company also  introduced to production  its 4-Mbit DRAMs in a
256-Kbitx16  configuration and 16-Mbit DRAMs in a 1-Mbitx16 configuration.  This
family of DRAMs  contributed  a steadily  increasing  stream of  revenue  during
fiscal  1997,  accounting  for  approximately  47% of the  Company's  total  net
revenues.  The  Company  also  enhanced  its MMUI  accelerator  family  with the
introduction  of  the   Promotion(R)-AT3D   128-bit  2D/3D  graphics  and  video
accelerator.  This product family contributed approximately 11% of the Company's
total  net  revenues  in fiscal  1997.  Finally,  the  Company  put into  volume
production a 2Mbit flash  product and  introduced a 4-Mbit flash  design.  Flash
products did not  contribute  significant  revenue in fiscal 1997. A substantial
portion of the Company's net revenues is derived from a relatively  small number
of  customers  in the  personal  computer  industry,  although  the  Company did
diversify  its  customer   base  during  fiscal  1997,   with  no  one  customer
representing more than 10% of the Company's net revenues in fiscal 1997.

     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.  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 of
new  products  complementary  to its  existing  products,  such as  DRAMs,  MMUI
accelerators  and flash memory  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.



<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,
                                            ---------------------------- 
                                             1997       1996       1995
                                            -----       -----      ----- 
                                                                   
Net revenues                                100.0%      100.0%     100.0%
Cost of revenues                            102.5        78.7       54.5
                                            -----       -----      ----- 
   Gross profit (loss)                       (2.5)       21.3       45.5
Operating expenses:                                                
   Research and development                  18.2         7.3        7.0
   Selling, general and administrative       12.5         8.5        8.1
                                            -----       -----      ----- 
Income (loss) from operations               (33.2)        5.5       30.4
Other income, net                             2.1         3.2        1.7
                                            -----       -----      ----- 
Income (loss) before income taxes           (31.1)        8.7       32.1
Provision (benefit) for income taxes        (10.9)        3.4       12.1
                                            -----       -----      ----- 
Net income (loss)                           (20.2)%       5.3%      20.0%
                                            -----       =====      ===== 
                                                                 
     Net Revenues.  The Company's net revenues decreased to approximately  $82.6
million in fiscal 1997,  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 the first half of fiscal 1996, the Company  benefited
from  supply and demand  relationships  that  caused the unit demand and average
selling prices for the Company's SRAM products to increase. Since that time, the
Company has experienced significant  deterioration in the average selling prices
and lower demand for its SRAM products.  The Company  believes that the decrease
in selling prices was due to a number of factors,  including increased supply of
SRAMs from foreign and domestic  competitors  and weakening unit demand for SRAM
products.  Such factors  created an oversupply  situation in the SRAM markets in
which the  Company  participates,  with  such  oversupply  condition  continuing
throughout  fiscal 1997.  The Company is unable to predict when or if such price
declines will stabilize.  A continued decline in average selling prices of SRAMs
could have a material adverse effect on the Company's operating results.

     During  fiscal  1997,  the Company  introduced  the 4-Mbit and 16-Mbit DRAM
products  and  commenced  volume   production  of  4-Mbit  DRAM  in  a  1-MbitX4
configuration.  Revenues  from the Company's  DRAM product  family grew steadily
throughout  the year and  contributed  approximately  47% of the  Company's  net
revenues in fiscal 1997. The DRAM market is characterized by volatile supply and
demand  conditions,  fluctuating  pricing and rapid technology changes to higher
density  products.  During  fiscal  1997,  the  average  selling  prices for the
Company's DRAMs declined. 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.

     The Company  introduced  the latest  enhancement to its MMUI product family
during fiscal 1997,  the  Promotion(R)-AT3D,  128-bit  2D/3D  graphics and video
accelerator.  Sales of the Company's MMUI product line contributed approximately
11% to the  Company's  net revenues  during  fiscal 1997.  The


<PAGE>

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.

     A  significant  decline  in  average  selling  prices  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's flash
memory  products did not contribute  significant  revenue during fiscal 1997 and
prior years.

     The Company's net revenues  increased to  approximately  $201.1  million in
fiscal 1996, or approximately 69% increase over approximately  $119.3 million of
net revenues in fiscal 1995. During fiscal 1996, one customer  accounted for 18%
of net revenues. The increase in net revenues in fiscal 1996 was due to a number
of factors,  including  increased unit  shipments of SRAM  products,  changes in
product  mix and higher  average  selling  prices as compared to the prior year.
During the first half of fiscal  1996,  the  Company  benefited  from supply and
demand  relationships  that caused average selling prices for the Company's SRAM
products to increase.  Since that time, the Company has experienced  significant
deterioration  in the average selling prices for its SRAM products.  The Company
believes  that the  decrease  in selling  prices was due to a number of factors,
including  increased  supply of SRAMs from foreign and domestic  competitors and
weakening unit demand for SRAM 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  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;
and 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  loss  for  fiscal  1997  was
approximately $2.1 million or approximately (2.5)% of net revenues compared to a
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  profits
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.

     The Company's gross profit for fiscal 1996 was approximately  $42.9 million
or approximately  21.3% of net revenues compared to approximately  $54.3 million
or  approximately  45.5% of net revenues for the same period in fiscal 1995. The
decrease in gross profit resulted  primarily from pre-tax inventory and purchase
commitment  related charges of approximately  $55 million to reflect declines in
market value for certain of the Company's  products offset by a favorable supply
and  demand  relationships  during  the first  half of fiscal  1996 that  caused
average selling prices for the Company's SRAM products to generally  increase on
a quarterly basis through that period.

     As a result of the significant deterioration in unit demand and the average
selling  prices for its SRAM  products,  the  Company's  gross  margin  declined
significantly  during the last half of fiscal 1996


<PAGE>

and  throughout  fiscal  1997.  The Company is unable to predict when or if such
decline in prices will stabilize.  A continued decline in average selling prices
of any of the  Company's  products  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.

     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 an  adverse  effect  on the
Company's gross profits in future periods.

     Research  and   Development.   Research  and   development   expenses  were
approximately  $15.0 million or  approximately  18.2% of net revenues for fiscal
1997,  approximately  $14.7  million or  approximately  7.3% of net revenues for
fiscal 1996 and approximately $8.4 million or approximately 7.0% of net revenues
for fiscal 1995.  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  1997,  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.

     Selling,  General and Administrative.  Selling,  general and administrative
expenses in fiscal 1997 were approximately  $10.3 million or approximately 12.5%
of net revenues compared to approximately $17.2 million or approximately 8.5% of
net revenues for fiscal 1996, and  approximately  $9.6 million or  approximately
8.1% of net  revenues  for fiscal  1995.  The  decrease in selling,  general and
administrative expenses in fiscal 1997 was principally the result of lower sales
commissions  associated  with the  decline in  revenue  and  decreased  bad debt
reserve requirements.  Selling, general and administrative expenses are expected
to increase in absolute  dollars,  although  such  expenses  may  fluctuate as a
percentage of net revenues.

     Other  Income,  Net.  Net other income was  approximately  $1.8 million for
fiscal 1997,  approximately  $6.5 million for fiscal 1996 and approximately $2.0
million for fiscal 1995.  Net other  income  primarily  represents  interest and
dividend income from investments.

     Provision  for Income Taxes.  The Company's  effective tax rate was 35% for
fiscal 1997,  39.0% for fiscal 1996 and 37.7% for fiscal 1995. The effective tax
rate for fiscal 1997  represented tax benefits  accrued at applicable  statutory
rates. The effective tax rate for fiscal 1996 and 1995 represented taxes accrued
at applicable  statutory  rates  partially  offset by the effect of research and
development tax credits.

Factors That May Affect Future Results


<PAGE>

     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 price. 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.  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 reduce its cost per unit 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 reduce its cost per unit.

     The cyclical nature of the semiconductor  industry  periodically results in
shortages of advanced  process  wafer  fabrication  capacity such as the Company
experiences 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,  because  the  Company  must order  products  and build  inventory
substantially in advance of products shipments, there is a risk that the Company
will forecast  incorrectly  and produce  excess or  insufficient  inventories of
particular  products  because demand for the Company's  products is volatile and
subject to rapid technology and price change.  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.  To the  extent  the  Company
produces  excess  or  insufficient   inventories  of  particular  products,  the
Company's operating results could be adversely affected,  as they were in fiscal
1996 and fiscal  1997,  when the  Company  recorded  pre-tax  charges  totalling
approximately $55 million and $17 million,


<PAGE>

respectively,  primarily  to  reflect  a  decline  in  market  value of  certain
inventory and certain manufacturing issues.

     The Company currently relies on outside 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,  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.  During the third quarter of fiscal
1996,  manufacturing  yields of one of the Company's  products  were  materially
adversely  affected by  manufacturing  problems at one of the Company's  foundry
suppliers. There can be no assurance that other problems affecting manufacturing
yields of the Company's products will not occur in the future.

     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.  Although the Company to date has
not  experienced  any material  adverse  effect on its operations as a result of
such  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 practice.

     The  Company's  corporate  headquarters  are located near major  earthquake
faults.  As a result,  in the event of a major  earthquake,  the  Company  could
suffer damages which could materially and adversely affect the operating results
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 or operating results.  However,  should the outcome
of any of these  actions be  unfavorable,  the  Company  may be  required to pay
damages and other  expenses,  which could have a material  adverse effect on the
Company's  financial  position or operating results.  Moreover,  there can be no
assurance that  anti-dumping  duties will not be imposed on Alliance's import of
SRAM products  manufactured in Taiwan,  which duties could materially  adversely
affect Alliance's ability to sell such products in the United States.

     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  technological  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.

Liquidity and Capital Resources


<PAGE>

     The Company's operating activities used cash of approximately $44.6 million
in fiscal 1997, versus providing  approximately  $1.8 million in fiscal 1996 and
$21.9 million in fiscal 1995. Cash utilized by operations in fiscal 1997 was the
result of a net loss plus  increases in working  capital,  while cash  generated
from  operations  in fiscal years 1996 and 1995 was  primarily the result of net
income  generated  during the periods,  partially offset by increases in working
capital. The decrease in inventory in fiscal 1997 is due to a reduction of older
SRAM  products  partially  offset by  increased  inventory  of new  products  as
compared to the same period of the previous  year.  The increase in  receivables
during the same  period is the result of higher  sales in the fourth  quarter of
fiscal 1997 as compared to the same period of the previous fiscal year.

     Net cash used in investing  activities was  approximately  $19.3 million in
fiscal 1997 and  approximately  $104.1  million in fiscal 1996. Net cash used in
significant  investing  activities in fiscal 1997 reflect equipment purchases of
approximately  $3.1  million and an  investment  in USC of  approximately  $16.4
million while investing activities in fiscal 1996 reflect 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 $5.8 million in
fiscal 1997 resulted from proceeds of a approximately  $3.8 million secured loan
and  approximately  $2.0  million  through  issuance  of stock upon  exercise of
options and purchases under the Company's Employee Stock Purchase Plan. Net cash
provided by financing activities was approximately $107.3 million in fiscal 1996
and  approximately  $49.2 million in fiscal 1995. 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 and  exercises of stock options and a receipt of UMC loan
payment of approximately $10 million.  Net cash provided by financing activities
in fiscal 1995 reflects  primarily net proceeds of  approximately  $53.7 million
from sales of Common Stock in connection  with the Company's  public offering in
October 1994 and exercises of stock options and a decrease in restricted cash of
approximately $5.1 million,  partially offset by an installment loan made to UMC
of approximately $10 million.

     At March 29, 1997, the Company had  approximately  $22.5 million in cash, a
decrease of approximately $58.1 million from March 31, 1996, and working capital
of approximately  $78.0 million, a decrease of approximately  $28.2 million from
March 31, 1996. The Company believes that its existing levels of cash,  together
with an expected  income tax refund  will be  sufficient  to meet its  projected
working capital and other cash requirements through the end of fiscal 1998.

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


<PAGE>

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 $10 million and entered into a manufacturing agreement under which
Chartered will provide a minimum number of wafers from its new wafer fabrication
facility currently under construction. In April 1995, the Company entered into a
supplemental  subscription  agreement  whereby  the  Company  agreed to purchase
additional  shares  in  Chartered,  bringing  the  total  agreed  investment  in
Chartered  to  approximately  $51.6  million.  Chartered  agreed to increase the
minimum  number of  wafers  to be  provided  to the  Company  from its new wafer
fabrication  facility.  The  Company had paid all  installments  as of March 31,
1996.  The  Company  is  accounting  for this  investment  on the cost  basis of
accounting  and believes its  investment in Chartered  approximates  fair market
value at March 29, 1997.  The Company does not own a material  percentage of the
equity in Chartered.

     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 now in full  production  utilizing  advanced  submicron
semiconductor manufacturing processes. Alliance's contribution is in the form of
an equity  investment,  representing an equity  ownership of up to approximately
19%. Alliance's investment will be up to approximately US$70 million and will be
paid in cash in up to three installments. The first installment of approximately
50% was made in September 1995, the second  installment of approximately 25% was
made in July 1996 and the Company has the option to pay a third  installment  of
approximately  25% payable in July 1997, plus interest at a rate of 8.5% on such
amount  from and after July 4, 1996.  If this option is  exercised,  the Company
will have an equity  ownership of  approximately  19% and will have the right to
purchase up to approximately 25% of the manufacturing capacity in this facility.
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,  the Company will recognize
its  proportionate  share of such income or losses.  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,  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,  United  Silicon  Inc.,  for the
purpose of building and managing an 8-inch semiconductor  manufacturing facility
in Taiwan. The facility is expected to commence  production in early 1998. It is
presently  contemplated that the manufacturing facility will, over time, require
$1 billion to complete its construction and finance  operations,  although there
can  be  no  assurances  that   production   will  commence  on  schedule.   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. The Alliance investment will be approximately US$30
million  and  will be paid in cash in up to  three  installments.  Alliance  had
originally  committed to an  investment  of  approximately  US$60 million or 10%
ownership  interest but recently  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



<PAGE>

Company has the option to pay a second  installment of approximately  25% of the
revised  investment payable in December 1997, plus interest at a rate of 8.5% on
such  amount  from  and  after  July 7,  1997,  and  the  final  installment  of
approximately  25% of the  revised  investment  is called  for on or before  fab
production  ramp-up.  UMC, its affiliates and members of the Taiwanese financial
community   are  expected  to  provide,   over  time,   the   remainder  of  the
capitalization  of the new entity,  in the form of debt and equity. A portion of
UMC's equity contribution is expected to be paid through the grant by UMC to the
new entity of royalty-free  licenses to UMC's CMOS 0.35 micron and below process
technologies under development to be used in the manufacturing  facility. If the
Company exercises its option and further pays the third installment, the Company
will have an equity ownership of approximately 5% and have the right to purchase
up to approximately 6.25% of the manufacturing capacity in this facility.

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.


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

         Not applicable.


<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-B contained in the Proxy  Statement is  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  "Proposal  No. 1 - Election of  Directors"  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  "Proposal No. 1. - Election of  Directors"  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 "Proposal No. 1 Election of Directors - Certain  Transactions"
contained in the Proxy Statement.

<PAGE>


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, 1997 and 1996
Consolidated  Statements of Operations for the years ended March 31, 1997,  1996
          and 1995
Consolidated  Statements of  Stockholders'  Equity for the years ended March 31,
         1997, 1996 and 1995
Consolidated  Statements of Cash Flows for the years ended March 31, 1997,  1996
         and 1995
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:

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

<PAGE>

<TABLE>

                      (a) (3) Exhibits
                                                      INDEX TO EXHIBITS
                                                      -----------------
<CAPTION>
Exhibit
Number                       Documentation 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*       Foundry Production Agreement dated December 11, 1992, between United
             Microelectronics Corporation and Asian Specific Technology Ltd., as amended                    (A)

10.06        Sales Representative, Distributor and Intermediary Agreement dated December 11,
             1992, between Registrant and Asian Specific Technology Ltd.                                    (A)

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

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

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

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


<PAGE>

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

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

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

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

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

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

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

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

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

10.20**      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

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

10.22+       1996 Employee Stock Purchase Plan                                                              (I)

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



<PAGE>

10.24        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)

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

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

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

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

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

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

10.31        Letter Agreement dated June 23, 1997 between Registrant and United Microelectronics
             Corporation                                                                                    (K)

11.01        Statement re: Computation of Earnings Per Share                                                (K)

21.01        Subsidiaries of Registrant                                                                     (K)

23.01        Consent of Price Waterhouse LLP                                                                (K)

27.01        Financial Data Schedule                                                                        (K)
<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.



<PAGE>

(D)      The  document  referred to is hereby  incorporated  by  reference  from
         Registrant's  Annual Report on Form 10-KSB filed with the Commission on
         June 30, 1995.
(E)      The  document  referred to is hereby  incorporated  by  reference  from
         Registrant's Quarterly Report on Form 10-Q filed with the Commission on
         August 14, 1995.
(F)      The  document  referred to is hereby  incorporated  by  reference  from
         Registrant's  Quarterly  Report on Form 10-Q (File No.  0-22594)  filed
         with the Commission on November 14, 1995.
(G)      The  document  referred to is hereby  incorporated  by  reference  from
         Registrant's  Quarterly  Report on Form 10-Q (File No.  0-22594)  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 (File No.  0-22594)  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 (File No.  0-22594)  filed
         with the Commission on February 11, 1997.
(K)      The document referred to is filed herewith.
</FN>
</TABLE>

         (b)  Reports on Form 8-K

     No reports on Form 8-K were filed by Registrant  during the last quarter of
the period covered by this report.


<PAGE>

                                   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 27, 1997
                -------------------------------
                  N. Damodar Reddy, Chairman
                  of the Board, Chief Executive
                  Officer and President



<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 27, 1997
--------------------                                     Executive Officer and President
N. Damodar Reddy                                         



Principal Financial Officer and
Principal Accounting Officer:



/s/ CHARLES ALVAREZ                                      Vice President-Finance and                               June 27, 1997
----------------------                                   Administration and Chief Financial Officer
Charles Alvarez    

Directors:


/s/ SANFORD L. KANE                                      Director                                                 June 27, 1997
----------------------
Sanford L. Kane


/s/ JON B. MINNIS                                        Director                                                 June 27, 1997
----------------------
Jon B. Minnis


/s/ C.N. REDDY                                           Director                                                 June 27, 1997
----------------------
C. N. Reddy


/s/ N.DAMODAR REDDY                                      Director                                                 June 27, 1997
----------------------
N. Damodar Reddy
</TABLE>


<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, 1997 and
1996,  and the results of their  operations and their cash flows for each of the
three years in the period ended March 31, 1997,  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 23, 1997


<PAGE>

<TABLE>
                                                 ALLIANCE SEMICONDUCTOR CORPORATION

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

<CAPTION>


                                                                                                                March 31,
                                                                                                  ----------------------------------
                                                                                                    1997                      1996
                                                                                                  --------                  --------
<S>                                                                                               <C>                       <C>    
                                                               ASSETS
Current assets:
   Cash and cash equivalents ...................................................                  $ 22,489                  $ 80,566
   Accounts receivable, net ....................................................                    16,827                     4,724
   Inventory ...................................................................                    29,535                    30,152
   Deferred taxes ..............................................................                    17,851                    25,578
   Income tax receivable .......................................................                    14,633                     6,404
   Other current assets ........................................................                     1,636                     2,604
                                                                                                  --------                  --------
       Total current assets ....................................................                   102,971                   150,028
Property and equipment, net ....................................................                    11,352                    11,231
Investment in Chartered Semiconductor ..........................................                    51,596                    51,596
Investment in United Semiconductor Corp. .......................................                    52,829                    36,438
Investment in United Silicon, Inc. .............................................                    13,701                    13,888
Other assets ...................................................................                       120                        57
                                                                                                  --------                  --------
                                                                                                  $232,569                  $263,238
                                                                                                  ========                  ========


                                                LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Accounts payable ..............................................................                 $18,766                   $32,358
   Accrued liabilities ...........................................................                   4,584                    11,499
                                                                                                                             -------
   Current portion of long term obligations ......................................                   1,621                      --
                                                                                                   -------                   -------
       Total current liabilities .................................................                  24,971                    43,857
Long term obligations (Note 6) ...................................................                   2,219                      --
Deferred tax liability ...........................................................                     702                      --
                                                                                                   -------                   -------
       Total liabilities .........................................................                  27,892                    43,857
                                                                                                   -------                   -------

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

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;
    38,985 and 38,390 shares issued and outstanding ....................................               390                       383
Paid-in capital ........................................................................           180,012                   178,052
Retained earnings ......................................................................            24,275                    40,946
                                                                                                  --------                  --------
  Total stockholders' equity ...........................................................           204,677                   219,381
                                                                                                  --------                  --------
                                                                                                  $232,569                  $263,238
                                                                                                  ========                  ========
                                                                                                                    
<FN>
                                        The accompanying notes are an integral part of these
                                                 consolidated financial statements.
</FN>
</TABLE>



<PAGE>


                       ALLIANCE SEMICONDUCTOR CORPORATION

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

                                                     Year Ended March 31,
                                               ---------------------------------
                                                 1997         1996        1995
                                               --------     --------    --------

Net revenues ..............................    $ 82,572     $201,098    $119,327
Cost of revenues ..........................      84,630      158,159      65,035
                                               --------     --------    --------
   Gross profit (loss) ....................      (2,058)      42,939      54,292
                                               --------     --------    --------

Operating expenses:
   Research and development ...............      15,012       14,664       8,374
   Selling, general and administrative ....      10,344       17,202       9,600
                                               --------     --------    --------

Income (loss) from operations .............     (27,414)      11,073      36,318
Other income, net .........................       1,753        6,498       2,035
                                               --------     --------    --------

Income (loss) before income taxes .........     (25,661)      17,571      38,353
Provision (benefit) for income taxes ......      (8,990)       6,852      14,462
                                               --------     --------    --------

Net income (loss) .........................    $(16,671)    $ 10,719    $ 23,891
                                               ========     ========    ========
Net income (loss) per share ...............    $  (0.43)    $   0.26    $   0.69
                                               ========     ========    ========

Weighted average common shares
   and equivalents (Note 1) ...............      38,653       40,633      34,559
                                               ========     ========    ========


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


<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
                                                   ==========       ==========       ==========        ==========        ==========


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


<PAGE>

<TABLE>
                                                 ALLIANCE SEMICONDUCTOR CORPORATION

                                                CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                           (in thousands)
<CAPTION>

                                                                                                 Year Ended March 31,
                                                                                   -----------------------------------------------
                                                                                      1997              1996                1995
                                                                                   ---------          ---------          ---------
<S>                                                                                 <C>                <C>                <C>      
Cash flows from operating activities:
   Net income (loss) ......................................................         $ (16,671)         $  10,719          $  23,891
   Adjustments to reconcile net income (loss) to net cash
     provided by (used in) operating activities:
     Depreciation and amortization ........................................             2,929              1,792                778
     Other ................................................................              --                   72               --
     Changes in assets and liabilities:
       Accounts receivable ................................................           (12,103)            14,721            (10,038)
       Inventory ..........................................................               617            (23,082)                26
       Other assets .......................................................               905               (664)              (421)
       Accounts payable ...................................................           (13,592)            21,851              3,367
       Accrued liabilities ................................................            (6,915)             7,385              3,125
       Income taxes (including deferred income taxes
                 and tax receivable) ......................................               200            (30,997)             1,169
                                                                                    ---------          ---------          ---------
         Net cash provided by (used in) operating
           activities .....................................................           (44,630)             1,797             21,897
                                                                                    ---------          ---------          ---------

Cash used in investing activities:
   Acquisition of equipment ...............................................            (3,050)            (9,459)            (3,066)
   Investment in Chartered Semiconductor Pte Ltd. .........................              --              (44,584)            (7,012)
   Investment in United Semiconductor Corporation .........................           (16,391)           (36,438)              --
   Investment in United Silicon Inc. ......................................               187            (13,888)              --
   Proceeds from sales of equipment .......................................              --                  275               --
                                                                                    ---------          ---------          ---------

         Net cash used in investing activities ............................           (19,254)          (104,094)           (10,078)
                                                                                    ---------          ---------          ---------

Cash flows from financing activities:
   Net proceeds from the issuance of common stock .........................             1,967             97,306             53,748
   Borrowings on long term obligation .....................................             3,840               --                 --
   Issuance of notes to UMC ...............................................              --               10,000            (10,000)
   Cash -- restricted .....................................................              --                 --                5,133
   Payment of reorganization settlement and other .........................              --                 --                  367
                                                                                    ---------          ---------          ---------

         Net cash provided by financing activities ........................             5,807            107,306             49,248
                                                                                    ---------          ---------          ---------

Net increase (decrease) in cash and cash equivalents ......................           (58,077)             5,009             61,067
Cash and cash equivalents at beginning of the period ......................            80,566             75,557             14,490
                                                                                    ---------          ---------          ---------

Cash and cash equivalents at end of the period ............................         $  22,489          $  80,566          $  75,557
                                                                                    =========          =========          =========

Supplemental disclosures:
   Cash paid (refunded)  during the period for income
   taxes ..................................................................         $  (9,648)         $  37,873          $  13,311
                                                                                    =========          =========          =========

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


<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. In addition,  the average  selling price for the
Company's  DRAM products has  experienced  volatility  during  fiscal 1997.  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  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  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, 1997, March 31, 1996
and March 31, 1995 each contained 52 weeks.

    Revenue recognition

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


<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" ("SFAS 115").

     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 1996 and  continuing  throughout
much of fiscal 1997, the Company  experienced  significant  deterioration in the
average  selling  prices for its SRAM  products.  Primarily  as a result of this
deterioration  and  certain  manufacturing  issues in fiscal  1996,  the Company
recorded  pre-tax  charges in fiscal 1997 and fiscal 1996 of  approximately  $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  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 (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.

     Alliance 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.  No customer accounted for more than 10% of net revenues for the year
ended March 31, 1997.  The Company had sales of  approximately  $37 million,  or
approximately 18% of net revenues,  to one customer for the year ended March 31,
1996, and sales of approximately  $14.7 million, or approximately 12% of product
sales,  to one customer for the year ended March 31, 1995. At March 31, 1997, no
customer accounted for more than 10% of accounts receivable.  At March 31, 1996,
one customer's account receivable represented 19% 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


<PAGE>

$29.7  million,  $85.7  million and $66.1  million of net revenues for the years
ended March 31, 1997, March 31, 1996 and March 31, 1995, 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", and related Interpretations. The Company's policy is
to grant options with an exercise  price equal to the quoted market price 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
Standard No. 123 ("SFAS 123"), "Accounting for Stock-Based  Compensation."   See
Note 8.

    Stock splits

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

    Net income (loss) per share

     Net income (loss) per share is computed  using the weighted  average number
of common and common equivalent  shares  outstanding  during the period.  Common
equivalent  shares consist  primarily of stock options (using the treasury stock
method).  Common  equivalent  shares are excluded from the  computation if their
effect is antidilutive.

     Statement of Financial  Accounting  Standards No. 128 (SFAS 128), "Earnings
Per Share (EPS)",  was issued in February 1997. Under SFAS 128, the Company will
be required to disclose  basic EPS and diluted EPS, for all periods for which an
income statement is presented, which will replace the disclosure currently being
made for primary EPS and  fully-diluted  EPS.  SFAS 128  requires  adoption  for
fiscal periods ending after December 31, 1997. Pro forma disclosure of basic EPS
and diluted EPS for the current  reporting  and  comparable  period in the prior
year is as follows:

                                               Year ended
                                                March 31,
                                  ----------------------------------
Earnings (loss) per share:        1997             1996         1995
                                  ----             ----         ----
Basic                            $(0.43)           $0.28       $0.78
Diluted                           (0.43)            0.26       $0.69



<PAGE>

Note 2.  Balance sheet components

                                                                 March 31,
                                                          ---------------------
                                                            1997         1996
                                                          --------     --------
                                                              (in thousands)

Accounts receivable:
   Trade receivables .................................    $ 17,477     $  7,826
   Less allowance for doubtful accounts ..............        (650)      (3,102)
                                                          --------     --------
                                                          $ 16,827     $  4,724
                                                          ========     ========


Inventory:
   Work in process ...................................    $ 18,319     $ 10,823
   Finished goods ....................................      11,216       19,329
                                                          --------     --------
                                                          $ 29,535     $ 30,152
                                                          ========     ========


Property and equipment:
   Engineering and test equipment ....................    $ 11,526     $  9,961
   Computers and software ............................       4,496        3,110
   Furniture and office equipment ....................         935          836
                                                          --------     --------
                                                            16,957       13,907
Less:  accumulated depreciation and amortization .....      (5,605)      (2,676)
                                                          --------     --------
                                                          $ 11,352     $ 11,231
                                                          ========     ========


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 new 8-inch  wafer  fabrication
facility.  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 its new 8-inch  wafer  fabrication  facility.  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 and believes its investment in Chartered  approximates fair market
value.  The  Company  does  not  own a  material  percentage  of the  equity  of
Chartered.


<PAGE>

Note 4.  Investment in United Semiconductor Corporation

     In  July  1995,   the  Company   entered  into  an  agreement  with  United
Microelectronics  Corporation  ("UMC")  and S3  Incorporated  ("S3")  to  form a
separate Taiwanese company,  United  Semiconductor  Corporation ("USC"), for the
purpose of building and managing an 8-inch semiconductor  manufacturing facility
in Taiwan.  The facility is now in full production  utilizing advanced submicron
semiconductor manufacturing processes. Alliance's contribution is in the form of
an equity  investment,  representing an equity  ownership of up to approximately
19%. Alliance's investment will be up to approximately US$70 million and will be
paid in cash in up to three installments. The first installment of approximately
50% was made in September 1995, the second  installment of approximately 25% was
made in July 1996 and the Company has the option to pay a third  installment  of
approximately  25% payable in July 1997, plus interest at a rate of 8.5% on such
amount  from and after July 4, 1996.  If this option is  exercised,  the Company
will have an equity  ownership of  approximately  19% and will have the right to
purchase up to approximately 25% of the manufacturing capacity in this facility.
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.

     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 has 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, 1996
and 1995, is as follows (in thousands):

                                                              December 31
                                                              -----------
               Financial position                       1996               1995
               ------------------                       ----               ----
Current assets ...........................         US$224,845         US$144,031
Noncurrent assets ........................            387,866             46,564
Current liabilities ......................             89,327              5,414
Noncurrent liabilities ...................            157,557                485
Stockholders' equity .....................            365,827            187,696

Results of operations
Sales ....................................          US$60,878
Gross Profit .............................              1,654
Net income ...............................                563

Note 5.  Investment in United Silicon, Inc.

     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


<PAGE>

semiconductor  manufacturing  facility  in Taiwan.  The  facility is expected to
commence  production  in  early  1998.  It is  presently  contemplated  that the
manufacturing  facility  will,  over time,  require $1 billion to  complete  its
construction  and finance  operations,  although there can be no assurances that
production will commence on schedule.  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.  The
Alliance investment will be approximately US$30 million and will be paid in cash
in up to three installments.  Alliance had originally committed to an investment
of approximately  US$60 million or 10% ownership interest but recently 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 has the option to pay a second  installment of approximately  25% of the
revised  investment payable in December 1997, plus interest at a rate of 8.5% on
such  amount  from  and  after  July 7,  1997,  and  the  final  installment  of
approximately  25% of the  revised  investment  is called  for on or before  fab
production  ramp-up.  UMC, its affiliates and members of the Taiwanese financial
community   are  expected  to  provide,   over  time,   the   remainder  of  the
capitalization  of the new entity,  in the form of debt and equity. A portion of
UMC's equity contribution is expected to be paid through the grant by UMC to the
new entity of royalty-free  licenses to UMC's CMOS 0.35 micron and below process
technologies under development to be used in the manufacturing  facility. If the
Company exercises its option and further pays the third installment, the Company
will have an equity ownership of approximately 5% and have the right to purchase
up to approximately 6.25% of the manufacturing capacity in this facility.

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
upon  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 two sales offices and one  administration  office under operating  leases
which expire in early 1998 and two sales offices on month-to-month leases.

         Future minimum rental payments under this lease are as follows:

               Fiscal Year                                     (in thousands)
               -----------                                     --------------
                  1998...................................           $ 416
                  1999...................................             372
                  2000...................................             186
               Total payments............................           $ 974
                                                                    =====

     Rent  expense for fiscal  1997,  fiscal 1996 and fiscal 1995 was  $437,000,
$360,000 and $323,000, 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 a fixed rate of 11.26%. No financial
covenants  are required to be met under the security  agreement  related to such
financing.


<PAGE>

Principal   and  interest  are  payable  in   thirty-six   consecutive   monthly
installments commencing April 1, 1997.

Purchase Commitments

     At  March  31,  1997,  the  Company  had  approximately  $18.0  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 $45
million charge recorded in the fourth quarter of fiscal 1996 (see Note 1).

Letters of Credit

     At March 31, 1997, $5.1 million of unsecured standby letters of credit were
outstanding and expire through June 30, 1997.

Note 7.  Provision (benefit) for income taxes

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

                                                           March 31,
                                               --------------------------------
                                                 1997        1996        1995
                                               --------    --------    --------
                                                       (in thousands)
Current:
     Federal ...............................   ($17,419)   $ 26,007    $ 13,757
     State .................................      --          4,549       2,104
                                               --------    --------    --------
                                               ($17,419)     30,556      15,861
Deferred:
     Federal ...............................      8,529     (21,328)     (1,307)
     State .................................       (100)     (2,376)        (92)
                                               --------    --------    --------
              Total provision (benefit) ....   ($ 8,990)   $  6,852    $ 14,462
                                               ========    ========    ========

Deferred tax assets (liabilities) comprise the following:


                                                            March 31,
                                               ---------------------------------
                                                 1997         1996        1995
                                               --------     --------    --------
                                                         (in thousands)

Inventory reserves ........................    $ 16,212     $ 19,286    $    352
Accrued expenses and reserves .............         407        4,520         763
State taxes ...............................        --          1,548         696
NOL carry forward .........................       1,096         --          --
Inventory capitalization adjustment .......         136          182          62
                                               --------     --------    --------
                                                 17,851       25,536       1,873
Depreciation expense ......................        (702)          42           1
                                               --------     --------    --------
 Total net deferred tax assets ............    $ 17,149     $ 25,578    $  1,874
                                               ========     ========    ========

     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:


<PAGE>

                                                   Year Ended March 31,
                                            ----------------------------------
                                              1997         1996          1995
                                            --------     --------     --------
                                            (in thousands, except percentages)

Federal  statutory rate .................         35%          35%          35%
Tax at federal statutory rate ...........   $ (8,981)    $  6,149     $ 13,423
State taxes, net of federal benefit .....       (291)         500        1,316
Research and development tax credits ....       --           (197)        (455)
Other, net ..............................        282          400          178
                                            --------     --------     --------
Total ...................................   $ (8,990)    $  6,852     $ 14,462
                                            ========     ========     ========

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 10 percent or more 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.

<TABLE>
     The following  table  summarizes  grant and stock option activity under the
Plan for fiscal year 1997, 1996 and 1995.

<CAPTION>

                                                                                                        Options Outstanding
                                                                      Options                  ------------------------------------
                                                                    Available for                                      Weighted
                                                                        Grant                    Shares              Average Prices
                                                                     ----------                ----------           ---------------
<S>                                                                   <C>                       <C>                  <C>      
Balance at March 31, 1994 .................................           2,200,178                 5,275,033            $    1.37
Options granted ...........................................            (639,675)                  639,675                14.70
Options canceled ..........................................             520,425                  (520,425)                3.18
Options exercised .........................................                --                    (935,788)                0.81
                                                                     ----------                ----------
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


<PAGE>

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
                                                                     ==========                ==========
</TABLE>


     In November 1996, all  outstanding  options with a share price ranging from
$7.00 per share to $11.00 per share were  canceled and repriced with new options
having an exercise  price of $6.88 per share,  the fair  market  value as of the
date of the repricing. A total of 952,738 shares were repriced.

     As of March 31, 1997, options to purchase approximately 1,729,482 shares of
Common  stock were  exercisable.  Options  granted vest over a period of four to
five years.

<TABLE>
     The weighted average  estimated fair value at the date of grant, as defined
by SFAS 123, for options granted in fiscal 1997 and 1996 was $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, 1997, and related  weighted
average  exercise price and contractual  life  information are as follows (share
information in thousands):

                                                       Outstanding and Exercisable by Price Range
<CAPTION>

                                                            Weighted                  
                                                             Average          Weighted                             Weighted
                                        Number             Remaining           Average      Number Vested           Average
Range of Exercise Prices           Outstanding      Contractual Life    Exercise Price    and Exercisable    Exercise Price
------------------------           -----------      ----------------    --------------    ---------------    --------------
<S>                                 <C>                    <C>             <C>              <C>                 <C>
$0.0445- $1.3333                      288,433              1.11            $1.3009            138,807           $ 1.2660
$1.4667- $2.2222                    1,911,500              1.12            $1.4917          1,377,750           $ 1.4819
$2.8889- $4.6667                      296,585              1.73            $3.5299            178,737           $ 3.4637
$5.1111- $6.7500                      248,250              4.84            $6.0178             23,400           $ 5.1693
$6.8750- $7.1250                    1,024,146              3.79            $6.8808              1,163           $ 6.8750
$7.2500- $8.0000                      240,750              5.66            $7.6625                  0           $ 0.0000
$8.4060-$10.6250                      181,625              5.80            $8.6043              9,625           $10.5828
                                    ---------                                               ---------                   
$0.0445-$10.6250                    4,191,289              2.50            $3.8685          1,729,482           $ 1.7736
                                    =========                                               =========
</TABLE>

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

                                                March 31,
                                                ---------
                                         1997              1996
                                         ----              ----
Expected life                         5.25 years        5.25 years
Risk-free interest rate                 6.3%              6%
Volatility                             58%               58%
Dividend yield                          0%                0%


Employee Stock Purchase Plan


<PAGE>

     In September 1996, the Company and shareholders  approved an Employee Stock
Purchase Plan ("ESPP"),  which allows eligible  employees of the Company and its
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 each 6-month  purchase  period.  Purchases
are limited to 10% of an eligible employee's compensation,  subject to a maximum
annual  employee  contribution  limited to a $25,000 fair market  value.  Of the
750,000  shares  authorized  under the ESPP,  35,983  shares were issued  during
fiscal 1997.

     Compensation  costs  (included  in pro forma net  income and net income 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:

                                                              March 31, 1997
                                                              --------------

Expected life                                                     6 months
Risk-free interest rate                                            5.45%
Volatility                                                           58%
Dividend yield                                                        0%

     The weighted  average  estimated  grant date fair value, as defined by SFAS
123, or rights to purchase stock under the ESPP granted in fiscal 1997 was $7.99
per share.

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 Employee  Stock  Purchase  Plan, the Company's pro forma net
income (loss) and net income (loss) per share for the years ended March 31, 1997
and 1996, would have been as follows (in thousands, except per share data):

                                                             March 31,
                                                         -----------------
                                                        1997            1996
                                                        ----            ----
Pro forma net income (loss):                         $(18,795)         $9,736
Pro forma net income (loss) per share:                  (0.49)           0.24

     The pro forma effect on net income  (loss) and net income  (loss) per share
for fiscal 1997 and 1996 is not  representative  of the pro forma  effect on net
income in the  future  years  because it does not take in to  consideration  pro
forma compensation expense related to grants prior to fiscal 1995.

    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 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


<PAGE>

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,  1997,  no options had been  granted under the
Directors' Plan.

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

     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. The Company intends to continue to
defend  vigorously  against any claims asserted  against it, and believes it has
meritorious   defenses  against  the  asserted  claims.   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
("ASIC"), a wholly-owned  subsidiary of the Company, was served with a complaint
alleging  that ASIC has  infringed  two  patents  (the "AMD  Patents")  owned by
Advanced Micro Devices, Inc. ("AMD"), 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")
and United States  Department of Commerce  ("DOC"),  alleging that static random
access memories ("SRAMs") produced in the Korea and in Taiwan are being, and are
likely to be, sold in the United  States at less than fair  value,  and that the
United States industry  producing SRAMs is materially  injured and is threatened
with  material  injury by reason of imports of SRAMs  manufactured  in Korea and
Taiwan.  The Petition  requests the United States  government to impose  dumping
margins on the importation into the United States of SRAMs manufactured in Korea
and Taiwan. A material portion of the SRAMs designed and sold by the Company are
manufactured in Taiwan. The Company received  preliminary  producer and importer
questionnaires from the ITC, and submitted responses to such


<PAGE>

questionnaires  in March 1997. In April 1997, the ITC  preliminarily  determined
that there is a reasonable  indication  that the imports of the  products  under
investigation  are  injuring  the United  States  industry.  In April 1997,  the
Company received a questionnaire  from the DOC. In accordance with the deadlines
established by the DOC, responses to portions of the questionnaire were filed in
May 1997 and June 1997, respectively.  The Company anticipates that in the third
or  fourth   calendar   quarter  of  1997,  the  DOC  will  make  a  preliminary
determination  as to the  margin,  if any,  that  should  be  imposed  upon  the
importation  of the  Company's  SRAM products  fabricated in Taiwan,  and that a
final  determination  as to such  margin,  if any,  would  be made by DOC in the
fourth  quarter of  calendar  1997 or the first  quarter of calendar  1998.  The
Company  anticipates that the ITC, in the fourth quarter of calendar 1997 or the
first quarter of calendar 1998,  will make a final  determination  as to whether
the  United  States  industry  producing  SRAMs  is  materially  injured  and is
threatened  with material  injury by reason of imports of SRAMs  manufactured in
Korea and Taiwan.  The Company intends to vigorously seek to ensure that dumping
margins are not imposed on the importation of its SRAM products  manufactured in
Taiwan. There can be no assurance,  however, that the government will not impose
margins on Alliance's importation of SRAM products into the United States, which
margins  could  materially  adversely  affect  Alliance's  ability  to sell such
products in the United States.

     The  semiconductor   industry  is  characterized  by  frequent   litigation
regarding patent and other  intellectual  property rights.  The Company has from
time to time received and believes that it is likely that it will receive in the
future,  notices from parties  alleging that certain of the  Company's  products
infringe their patents.  Although the ultimate  outcome of these matters and the
matters discussed above is not presently determinable,  management believes that
the  resolution of these matters will not have a material  adverse impact on the
Company's financial position.

<PAGE>

                        Report of Independent Accountants

                          Financial Statement Schedule


To the Board of Directors and
Stockholders of Alliance Semiconductor Corporation:

Our audits of the consolidated  financial  statements  referred to in our report
dated April 23, 1997, appearing in this Annual Report on 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 conjuction
with the related consolidated financial statements.



/s/ PRICE WATERHOUSE LLP

San Jose, California
April 23, 1997



<PAGE>

<TABLE>
                                                 ALLIANCE SEMICONDUCTOR CORPORATION

                                                             Schedule II

                                                  Valuation and Qualifying Accounts

<CAPTION>

             Description                  Balance at         Charged to         Charged to
                                         beginning of        costs and            other                               Balance at
                                            period            expenses           accounts           Deductions       end of period
                                        ---------------    ---------------    ---------------     ---------------    ---------------
                                                                              (in thousands)
<S>                                        <C>                <C>                 <C>               <C>                  <C>  
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
                                           ========           ========            ========          ========             ========

Year ended March 31, 1995
  Allowance for doubtful accounts and
    sales-related reserves............     $    190           $ 2,208             $   --            $   (948)            $ 1,450
                                           ========           ========            ========          ========             ========
  Inventory related reserves for
    excess and obsolescence; and
    lower of cost or market issues....     $    157           $   870             $   --            $   (120)            $   907
                                           ========           ========            ========          ========             ========
</TABLE>

<PAGE>


UNITED SEMICONDUCTOR CORPORATION

FINANCIAL STATEMENTS

DECEMBER 31, 1996 AND 1995




<PAGE>

[Price Waterhouse Letterhead]


January 24, 1997
(97) R. L36P1006





To the Board of Directors, Supervisors and
 Shareholders of United Semiconductor Corporation


We  have  examined  the  accompanying  balance  sheet  of  United  Semiconductor
Corporation  as of December  31, 1996 and 1995,  and the related  statements  of
income, of changes in stockholders'  equity and of cash flows for the year ended
December 31, 1996 and the period from October 6, 1995 (date of incorporation) to
December 31, 1995.  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 at December
31, 1996 and 1995,  and the results of its operations and its cash flows for the
year  ended  December  31,  1996 and the  period  from  October 6, 1995 (date of
incorporation)  to  December  31, 1995 in  conformity  with  generally  accepted
accounting principles consistently applied.


/s/ Price Waterhouse

<PAGE>


<TABLE>
                                                  UNITED SEMICONDUCTOR CORPORATION

                                                            BALANCE SHEET

                                                             DECEMBER 31

                                                  (EXPRESSED IN NEW TAIWAN DOLLARS)


<CAPTION>

                                                                                            1996                           1995
                                                                                       ---------------               ---------------
<S>                                                                                    <C>                           <C>            
 ASSET                                                                                                                           
-------
Current Assets                                                                                                                   
--------------
 Cash and cash equivalents (Notes 2 and 3(1))                                          $ 4,542,328,113               $ 3,860,063,715
 Marketable securities (Notes 2 and 3(2))                                                  202,819,527                         --   
 Notes receivable (Note 4)                                                                                          
  -related parties                                                                         196,616,300                         --   
 Accounts receivable (Notes 3(3) and 4)                                                                             
  -third parties                                                                           286,639,035                         --   
  -related parties                                                                         368,064,677                         --   
 Other receivable                                                                           64,888,273                    42,564,139
 Inventories (Notes 2 and 3(4))                                                            485,685,707                         --
 Prepaid expenses                                                                           13,996,178                    25,453,434
 Other current assets                                                                       21,952,269                     2,952,269
                                                                                       ---------------                 -------------
                                                                                         6,180,990,079                 3,931,033,557
                                                                                                                    
Property, Plant and Equipment                                                                                       
-----------------------------                                                                                       
(Notes 2 and 3(5))                                                                                                  
 Cost                                                                                                               
  Machinery and equipment                                                                8,611,439,301                         --   
  Transportation equipment                                                                   2,563,248                         --   
  Furniture and fixtures                                                                    87,660,551                         --   
  Leasehold improvements                                                                     8,076,092                         --
  Other equipment                                                                            7,995,047                     3,476,190
                                                                                       ---------------                 -------------
                                                                                         8,717,734,239                     3,476,190
 Accumulated depreciation                                                                 (354,607,442)                        --
 Construction in progress and prepayments                                                  662,006,881                   484,873,525
                                                                                       ---------------                 -------------
                                                                                         9,025,133,678                   488,349,715
                                                                                       ---------------                 -------------
Intangible Assets                                                                                                   
-----------------                                                                                                   
 Deferred pension cost (Note 3(8))                                                           1,755,914                         --   
 Other intangible asset                                                                  1,337,500,000                   750,000,000
                                                                                       ---------------                 -------------
                                                                                         1,339,255,914                   750,000,000
                                                                                       ---------------                 -------------
Other Assets                                                                                                        
------------                                                                                                        
 Deposit out                                                                                30,063,850                    30,000,000
 Deferred expense (Note 2)                                                                  48,216,648                     2,835,311
 Deferred income tax assets (Note 2 and 3(11))                                             219,785,909                         --   
                                                                                       ---------------                 -------------
                                                                                           298,066,407                    32,835,311
                                                                                       ---------------                 -------------
                                                                                                                    
TOTAL ASSETS                                                                           $16,843,446,078               $ 5,202,218,583
                                                                                       ===============                 =============
                                                                                                                    


                                                                                            1996                           1995
                                                                                       ---------------               ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
 Short-term loans (Note 3(6))                                                          $   161,520,003               $    77,031,640
 Notes payable (Note 4)
  -third parties                                                                           106,997,012                    25,895,159
  -related parties                                                                          44,046,462                          --  
 Account payable                                                                           295,274,202
 Accrued expenses                                                                          240,238,934                     3,637,821
 Accrued payable for equipment                                                           1,551,722,242                    41,249,401
 Other payable-related parties (Note 4)                                                     55,806,843                          --
                                                                                       ---------------               ---------------
                                                                                         2,455,605,698                   147,814,021
                                                                                       ---------------               ---------------

Long-term Liabilities
---------------------
 Long-term loans (Note 3(7))                                                             4,329,497,879                          --
                                                                                       ---------------               ---------------

Other Liabilities
-----------------
 Accrued pension liabilities
  (Notes 2 and 3(8))                                                                         1,755,914                          --  
 Deferred income tax liabilities (Notes
  2 and 3(11))                                                                                    --                      13,242,727
                                                                                       ---------------               ---------------
                                                                                             1,755,914                    13,242,727
                                                                                       ---------------               ---------------
Total Liabilities                                                                        6,786,859,491                   161,056,748
                                                                                       ---------------               ---------------


Stockholders' Equity
--------------------
 Common stock (Note 3(9))                                                               10,000,000,000                 5,000,000,000
 Retained earnings (Note 3(10))                                                             56,586,587                    41,161,835
                                                                                       ---------------               ---------------
Total stockholders' equity                                                              10,056,586,587                 5,041,161,835
                                                                                       ---------------               ---------------


Commitments and Contingent Liabilities
--------------------------------------
 (Note 6)

TOTAL LIABILITIES AND STOCKHOLDERS'
 EQUITY                                                                                $16,843,446,078               $ 5,202,218,583
                                                                                       ---------------               ---------------

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


                                                                -2-
<PAGE>

                        UNITED SEMICONDUCTOR CORPORATION
                               STATEMENT OF INCOME
                      FOR THE YEAR ENDED DECEMBER 31, 1996
                       AND THE PERIOD FROM OCTOBER 6, 1995
                  (DATE OF INCORPORATION) TO DECEMBER 31, 1995
                        (EXPRESSED IN NEW TAIWAN DOLLARS)



                                                 1996                1995
                                           ---------------     ---------------
Operating Revenues
 Sales revenue (Note 4)                     $ 1,663,009,609     $          --
 Sales returns                                   (7,292,072)               --
 Sales allowance                                (40,652,876)               --
                                            ---------------     ---------------
 Net sales                                    1,615,064,661                --
 Other operating revenues                        52,372,916                --
                                            ---------------     ---------------
 Net operating revenues                       1,667,437,577                --
                                            ---------------     ---------------
Operating Cost
 Cost of goods sold                          (1,182,274,246)               --
 Other operating cost                           (32,094,971)               --
                                            ---------------     ---------------
                                             (1,214,369,217)               --
                                            ---------------     ---------------
Gross Profit                                    453,068,360                --
                                            ---------------     ---------------
Operating Expenses
 Selling expenses                                (8,665,745)               --
 Administrative expenses                       (574,100,548)        (10,137,282)
 Research and development expenses             (221,406,219)            (16,649)
                                            ---------------     ---------------
                                               (804,172,512)        (10,153,931)
                                            ---------------     ---------------
Non-operating Income
 Interest income                                232,942,091          74,342,373
 Exchange gain                                   70,169,615                --
 Other income                                     5,005,518                --
                                            ---------------     ---------------
                                                308,117,224          74,342,373
                                            ---------------     ---------------
Non-operating Expenses
 Interest expense                              (118,223,706)               --
 Exchange loss                                         --           (12,730,557)
 Provision for loss on obsolescence
   of inventories                               (50,000,000)               --
 Other loss                                     (23,983,884)             (5,592)
                                            ---------------     ---------------
                                               (192,207,590)        (12,736,149)
                                            ---------------     ---------------
(Loss) income before income tax                (235,194,518)         51,452,293
Income tax benefit (expense)
 (Notes 2 and 3(11))                            250,619,270         (10,290,458)
                                            ---------------     ---------------
Net income                                  $    15,424,752     $    41,161,835
                                            ===============     ===============


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

                                      -3-

<PAGE>


<TABLE>
                        UNITED SEMICONDUCTOR CORPORATION
                  STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                      FOR THE YEAR ENDED DECEMBER 31, 1996
                       AND THE PERIOD FROM OCTOBER 6, 1995
                  (DATE OF INCORPORATION) TO DECEMBER 31, 1995
                        (EXPRESSED IN NEW TAIWAN DOLLARS)
<CAPTION>


                                                               Retained             Total Stockholders'
            1995                  Common Stock                 Earnings                   Equity
            ----                  ------------                 --------                   ------
<S>                              <C>                        <C>                    <C>            
Issued common stock              $ 5,000,000,000            $       -              $ 5,000,000,000

Net income for 1995                    -                      41,161,835                41,161,835
                                  ---------------            ------------         -------------------

Balance at December 31,
 1995                            $ 5,000,000,000            $ 41,161,835           $ 5,041,161,835
                                  ===============            ============         ===================
           1996
--------------------------- 
Balance at January 1, 1996       $ 5,000,000,000            $ 41,161,835           $ 5,041,161,835

Issued common stock                5,000,000,000                    -                5,000,000,000

Net income for 1996                    -                      15,424,752                15,424,752
                                  ---------------            ------------         -------------------

Balance at December 31,
 1996                            $10,000,000,000            $ 56,586,587           $10,056,586,587
                                  ===============            ============         ===================


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

                                      -4-

<PAGE>


                        UNITED SEMICONDUCTOR CORPORATION
                             STATEMENT OF CASH FLOWS
                      FOR THE YEAR ENDED DECEMBER 31, 1996
                       AND THE PERIOD FROM OCTOBER 6, 1995
                  (DATE OF INCORPORATION) TO DECEMBER 31, 1995
                        (EXPRESSED IN NEW TAIWAN DOLLARS)

                                                  1996               1995
                                             ---------------    ---------------
Operating activities:
 Net income                                  $    15,424,752    $    41,161,835
 Adjustments to reconcile net
  income to net cash
  provided by (used in)
  operating activities
 Provision for loss on obsolescence
  of inventories                                  50,000,000               --
 Depreciation                                    354,607,442               --
 Amortization Changes in assets and
  liabilities account:                           166,740,344               --
  Increase in notes receivable                  (196,616,300)              --
  Increase in accounts receivable               (654,703,712)              --
  Increase in inventories                       (535,685,707)              --
  Decrease (Increase) in prepaid expenses         13,457,256        (25,453,434)
  Increase in other receivables                  (22,324,134)       (42,564,139)
  Increase in other current assets               (19,000,000)        (2,952,269)
  Increase in deferred income tax assets        (219,785,909)              --
  Increase in accounts payable                   295,274,202               --
  Increase in notes payable                      125,148,315         25,895,159
  Increase in accrued expenses                   292,407,956          3,637,821
  (Decrease) increase in deferred income
    tax liabilities                              (13,242,727)        13,242,727
                                             ---------------    ---------------
 Net cash provided by (used in) operating
    activities                                  (348,298,222)        12,967,700
                                             ---------------    ---------------
Investing activities:
 Acquisition of fixed assets                  (7,380,918,564)      (447,100,314)
 Increase in marketable securities              (202,819,527)              --
 Increase in deferred expense                    (49,621,681)        (2,835,311)
 Increase in deposits-out                            (63,850)       (30,000,000)
                                             ---------------    ---------------
 Net cash used in investing activities        (7,633,423,622)      (479,935,625)
                                             ---------------    ---------------
Financing activities:
 Increase in short-term loans                     84,488,363         77,031,640
 Proceeds from long-term loans                 4,329,497,879               --
 Issued common stock                           4,250,000,000      4,250,000,000
                                             ---------------    ---------------
 Net cash provided by financing activities     8,663,986,242      4,327,031,640
                                             ---------------    ---------------
Net increase in cash and cash equivalents        682,264,398      3,860,063,715

Cash and cash equivalents at the beginning
   of period                                   3,860,063,715               --
                                             ---------------    ---------------

Cash and cash equivalents at the end of      $ 4,542,328,113    $ 3,860,063,715
 period                                      ================   ================

                                      -5-

<PAGE>


                        UNITED SEMICONDUCTOR CORPORATION
                       STATEMENT OF CASH FLOWS (CONTINUED)
                    FOR THE YEAR ENDED DECEMBER 31, 1996 AND
             THE PERIOD FROM OCTOBER 6, 1995 (DATE OF INCORPORATION)
                              TO DECEMBER 31, 1995
                        (EXPRESSED IN NEW TAIWAN DOLLARS)


                                                   1996               1995
                                             ---------------    ---------------
Supplemental disclosures of cash flow
information

 Cash paid for interest (excluding
  interest capitalized)                      $   107,332,898    $          --
                                             ===============    ===============

 Cash paid for income tax                    $     1,409,366    $          --
                                             ===============    ===============
Investing activities partially paid by
  cash

 Acquisition of fixed assets                 $ 8,891,391,405    $   488,349,715
 Add:payable at the beginning of period           41,249,401               --
 Less:payable at the end of period            (1,551,722,242)       (41,249,401)
                                             ---------------    ---------------
 Cash paid                                   $ 7,380,918,564    $   447,100,314
                                             ===============    ===============


Financing activities partially provided
  by cash

 Issued common stock                         $ 5,000,000,000    $ 5,000,000,000
 Less:Common stock issued for the
       technology knowhow                       (750,000,000)      (750,000,000)
                                             ---------------    ---------------
 Cash received                               $ 4,250,000,000    $ 4,250,000,000
                                             ===============    ===============


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

                                      -6-

<PAGE>


                        UNITED SEMICONDUCTOR CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1996 AND 1995
                        (EXPRESSED IN NEW TAIWAN 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, 1996, the paid-in  capital is  $10,000,000,000.  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.

     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.

     Allowance for doubtful accounts

     The allowance for doubtful accounts is provided based on the collectibility
     and aging analysis of notes and accounts receivable.

                                      -7-


<PAGE>

     Inventories

     Inventories,  except raw  materials,  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 years.

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

     Intangible assets

     The intangible asset represents the technology  knowhow provided by a major
     shareholder as a part of paid-in  capital.  Those assets are 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 expense-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 by actuaries based on FASB No. 18 of the R.O.C., which requires to
     consider the cost components such as service cost,  interest cost, expected
     return on plan assets and amortization of net obligation at transition. The
     unrecognized  net asset or obligation  at  transition is amortized  equally
     over 15 years. Because the Company is newly set-up, the effect on above new
     accounting  treatment applied is immaterial compared with those used in the
     original method in 1996.

     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.  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.

                                      -8-

<PAGE>




3. CONTENTS OF SIGNIFICANT ACCOUNTS

  (1) CASH AND CASH EQUIVALENTS

                                                          December    31
                                              ----------------------------------
                                                   1996                1995
                                              --------------      --------------

Cash:
Cash on hand                                  $    1,056,246      $      507,860
Demand accounts                                    2,599,717          47,077,353
Checking accounts                                 11,870,751           2,908,665
Time deposits                                  4,526,801,399       3,799,569,837
                                              --------------      --------------
                                               4,542,328,113       3,850,063,715
Cash equivalents:
Bonds with repurchase agreement                         --            10,000,000
                                              --------------      --------------
                                              $4,542,328,113      $3,860,063,715
                                              ==============      ==============


  (2) MARKETABLE SECURITIES

                                                          December    31
                                              ----------------------------------
                                                   1996                1995
                                              --------------      --------------

Mutual funds                                  $  150,248,974      $      -
Listed equity securities stocks                   52,570,553             -
                                              --------------      --------------
                                              $  202,819,527      $      -
                                              ==============      ==============


  (3) ACCOUNTS RECEIVABLE

                                                          December    31
                                              ----------------------------------
                                                   1996                1995
                                              --------------      --------------
Accounts receivable                           $  292,546,536      $      -
Less:Allowance for doubtful accounts              (5,907,501)            -
                                              --------------      --------------
                                              $  286,639,035      $      -
                                              ==============      ==============

                                       -9-

<PAGE>





  (4) INVENTORIES

                                                             December 31
                                                   -----------------------------
                                                       1996              1995
                                                   -------------     -----------
  Raw materials                                    $ 132,883,532     $      --
  Supplies                                            46,495,089            --
  Spare parts                                         30,734,412            --
  Work in process                                    247,877,444            --
  Finished goods                                      30,200,567            --
  Inventory in-transit                                47,494,663            --
                                                   -------------     -----------
                                                     535,685,707            --
  Less:Allowance for loss on obsolescence            (50,000,000)           --
                                                   -------------     -----------
                                                   $ 485,685,707     $      --
                                                   =============     ===========
(5) PROPERTY, PLANT AND EQUIPMENT


                                                December 31, 1996
                           -----------------------------------------------------
                                               Accumulated
                                Cost           Depreciation        Book Value
                           ---------------    ---------------    ---------------
Machinery and equipment    $ 8,611,439,301    $  (346,433,518)   $ 8,265,005,783
Transportation equipment         2,563,248           (142,404)         2,420,844
Furniture and fixtures          87,660,551         (6,481,739)        81,178,812
Leasehold improvements           8,076,092           (959,643)         7,116,449
Other equipment                  7,995,047           (590,138)         7,404,909
Construction in progress
 and prepayments               662,006,881               --          662,006,881
                           ---------------    ---------------    ---------------

                           $ 9,379,741,120    $  (354,607,442)   $ 9,025,133,678
                           ===============    ===============    ===============



                                                December  31, 1995
                                    --------------------------------------------
                                                    Accumulated
                                        Cost        Depreciation     Book Value
                                    ------------    ------------    ------------
Leasehold improvements              $  3,476,190    $       --      $  3,476,190
Construction in progress
 and prepayments                     484,873,525            --       484,873,525
                                    ------------    ------------    ------------

                                    $488,349,715    $       --      $488,349,715
                                    ============    ============    ============

     A. Interest expense amounting to $40,880,916 was capitalized in 1996.

     B. Please refer to note 5 for assets pledged as collateral.

                                      -10-

<PAGE>

  (6) SHORT-TERM LOANS


                                                         December   31
                                             -----------------------------------
                                                   1996                  1995
                                             ----------------        -----------

Unsecured loans                              $    161,520,003        $77,031,640
                                             ================        ===========
Annual interest rates                        1.34%-6.81%             1.28%-7.03%
                                             ================        ===========



  (7) LONG-TERM LOANS


        A. Long-term loans are summarized as follows:


                                                     December   31
                                         ---------------------------------------
                                              1996                    1995
                                         --------------         ----------------

Long-term loans                          $4,329,497,879         $           --
Current portion                                    --                       --
                                         --------------         ----------------
                                         $4,329,497,879         $           --
                                         ==============         ================


     B.  Interest  rates for long-term  loans were floating  rates.  The average
         interest rate were 1.31% - 6.44% in 1996.

     C.  Please refer to note 5 for assets pledged as collateral.


  (8) RETIREMENT FUND


        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  with the Central  Trust of China.  Pension  benefits  are
            generally  based on service  years (two  points per year for service
            years under 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 fund previously provided.

            During 1996,  the Company has  recognized the pension cost amounting
            $2,934,402 and contribution to the Company's  employees'  retirement
            fund was $2,494,858.

                                      -11-

<PAGE>


        B.  Based on actuarial  assumptions  for the year of 1996,  the discount
            rate and  expected  rate of return on plan asset are both 7% and the
            rate of  compensation  increase is 8%. As of  December  31, 1996 the
            funded status of pension plan is listed as follows:

Vested Benefit Obligation                                          $       --
Non-vested Benefit Obligation                                        (2,346,481)
                                                                   ------------
Accumulated Benefit Obligation                                       (2,346,481)
Effect on projected salary increase                                 (12,681,151)
                                                                   ------------
Projected Benefit Obligation                                        (15,027,632)
Market-related Value of Plan Assets                                   2,494,858
Projected Benefit Obligation exceeds Plan Asset                     (12,532,774)
Unrecognized Net Obligation at Transition                               302,934
Unrecognized Pension Benefit                                         13,985,754
The Supplemental Accrued Pension Liability                           (1,755,914)
                                                                   ------------

Accrued Pension Liability                                          $       --
                                                                   ============

           Based  on the  actuarial  report,  the net  pension  cost  should  be
           $738,944  for 1996,  however,  the  Company  has  contributed  to the
           retirement fund amounting to $2,494,858,  thus, the  overprovision of
           $1,755,914 was reclassified as deferred pension cost.

  (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 directors'  meeting held 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;

         (7)  distributing   the  remaining   amount  in  accordance   with  the
              resolution of director's meeting and stockholder's meeting.

                                      -12-

<PAGE>



(11) DEFERRED TAXATION


    A.  As of December 31, 1996,  the balance of deferred  tax  liabilities  and
        assets are as follows:

        1. Deferred tax assets                                     $806,347,640
                                                                   ============
        2. Deferred tax liabilities                                $178,109,462
                                                                   ============
        3. Allowance for valuation on deferred tax assets          $386,500,000
                                                                   ============
        4. The amount of temporary timing differences generated
           tax effect                                              $179,176,450
                                                                   ============
        5. The amount of investment tax credit generated tax
           effect                                                  $592,402,888
                                                                   ============

    B.  The caption in the balance sheet is as follows:

        Deferred income tax assets - current                      $  21,952,269

        Allowance for valuation on deferred income tax
        assets- current                                                   --
                                                                  -------------
                                                                  $  21,952,269
        Deferred income tax assets - noncurrent                   $ 784,395,371

        Allowance for valuation on deferred income tax asset
        -noncurrent                                                (386,500,000)
                                                                  -------------

                                                                    397,895,371
        Deferred income tax liabilities - noncurrent               (178,109,462)
                                                                  -------------
                                                                  $ 219,785,909
                                                                  =============

    C.  Income tax for 1996 is computed as follows:

        Current income tax for short-term negotiable income       $   1,409,366

        Increase in deferred tax assets                            (416,895,371)
        
        Increase in deferred tax liabilities                        164,866,735

        Income tax benefit                                        $(250,619,270)

                                      -13-

<PAGE>



     (12)THE INCOME AND  EXPENSE  FOR THE PERIOD OF  DEVELOPMENT  STAGE (FOR THE
         PERIOD FROM OCTOBER 6, 1995 TO JUNE 10, 1996)


                                     From January 1, 1996   From October 6, 1995
                                       to June 10, 1996       to June 10, 1996
                                     --------------------   --------------------
Operating expenses
 Administrative expenses               $(430,756,912)         $(440,894,194)
 Research and development expenses        (3,896,276)            (3,912,925)
                                       -------------          -------------
 Operating loss                         (434,653,188)          (444,807,119)
Non-operating income                                         
 Interest income                          79,816,472            154,158,845
 Other income                                421,164                421,164
                                       -------------          -------------
                                          80,237,636            154,580,009
Non-operating expenses                                       
 Exchange loss                           (17,460,052)           (30,190,609)
 Other loss                              (16,986,279)           (16,991,871)
                                       -------------          -------------
                                         (34,446,331)           (47,182,480)
                                       -------------          -------------
Net loss for the period of                                   
   development  stage                  $(388,861,883)         $(337,409,590)
                                       =============          =============
                                                         

4. 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.


<TABLE>
     (2) Significant Related Party Transactions

           a. Sales
<CAPTION>

                                                  1996                                   1995
                                        ----------------------------          --------------------------
                                                         Percentage  of                     Percentage
                                        Amount             net sales          Amount        of net sales
                                        ------             ---------          ------        ------------
<S>                                 <C>                        <C>              <C>               <C>  
United Microelectronics
  Co., Ltd.                         $1,073,178,318             64 %             $--               --
                                                                                            
United Integrated                                                                           
 Circuit Co., Ltd.                       1,889,646             --                --               --
                                    --------------           -------           ------            ----
                                                                                            
                                    $1,075,067,964             64 %             $--               --
                                    ==============           =======           ======            ====
                                                                                     
</TABLE>

                                      -14-

<PAGE>

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

<TABLE>
  b.Purchase
<CAPTION>

                                                           1996                                   1995
                                             --------------------------------------    ----------------------------
                                                                 Percentage of  net                   Percentage of
                                                Amount           Purchase               Amount        net Purchase
                                             -----------         ------------------    -------       --------------
  <S>                                        <C>                      <C>              <C>                 <C>
  United Microelectronics
   Co., Ltd.                                 $63,089,241              12 %             $   -               -
                                             ===========         =============         =======          ========


</TABLE>
   The above purchase are dealt with in the ordinary course of business  similar
   to those from other  companies,  and are paid by checks which will become due
   after two months from purchase date.


<TABLE>
  c. Notes receivable
<CAPTION>

                                                           1996                                   1995
                                         --------------------------------------    ----------------------------
                                                               Percentage of                    Percentage of
                                            Amount            notes receivable     Amount      notes receivable
                                         -----------         ------------------    -------     ----------------
<S>                                      <C>                       <C>             <C>                <C>
United Microelectronics
 Co., Ltd.                               $196,616,300              100 %           $  -                -
                                         ============          ===============      ======        =========
</TABLE>


  d. Accounts Receivale

                                                     December   31
                                ------------------------------------------------
                                          1996                     1995
                                --------------------------    ------------------
                                              Percentage of        Percentage of
                                                accounts               accounts
                                   Amount      receivable    Amount   receivable
                                ------------   ------------  ------  -----------
United Microelectronics
 Co., Ltd.                      $367,624,317        56 %             $     --

United Integrated
 Circuit Co., Ltd.                   440,360         --        --          --
                                ------------   ------------   ----   -----------

                                $368,064,677        56 %      $--          --
                                ============   ============   ====   ===========

                                      -15-

<PAGE>

<TABLE>
  e. Notes payable
<CAPTION>

                                                                           December  31
                                          ---------------------------------------------------------------------------
                                                        1996                                     1995
                                          ---------------------------------          --------------------------------
                                                              Percentage of                            Percentage of
                                             Amount           notes payable            Amount          notes payable
                                          -----------         -------------          ----------        --------------
 <S>                                      <C>                       <C>              <C>                   <C>
 United Microelectronics
  Co., Ltd.                               $44,046,462               29 %             $    -                -
                                          ===========         =============          ==========        ==============
</TABLE>


<TABLE>
  f. Other payable
<CAPTION>

                                                                          December 31
                                          --------------------------------------------------------------------
                                                        1996                                 1995
                                          ----------------------------------        --------------------------
                                                              Percentage of                      Percentage of
                                             Amount           other payable          Amount      other payable
                                          -----------        ---------------       ---------    --------------
 <S>                                      <C>                      <C>              <C>                <C>
 United Microelectronics
  Co., Ltd.                               $55,806,843              59 %             $  -               -
                                          ===========         =============         =======        ========
                                                                                             
</TABLE>
  g. Other transaction

     The other transactions with United Microelectronics Co., Ltd. in 1996:

            Items                                                    Amount
----------------------------------                              ----------------
Rental expense                                                      $153,128,033
                                                                    ============
Factory administration expense                                      $ 24,553,535
                                                                    ============
Electric and water expense                                          $ 75,601,599
                                                                    ============

<TABLE>
5. ASSETS PLEDGED AS COLLATERAL

<CAPTION>
                                                        December  31
                                         ------------------------------------
        Assets                                  1996                   1995           Subject of collateral
-----------------------                  ---------------             --------         ---------------------
<S>                                      <C>                         <C>                 <C>
Machinery and equipment                  $ 2,418,834,243             $   -               Long-term loan
                                         ===============             ========
</TABLE>

6. COMMITMENTS AND CONTINGENT

     a. The  Company's  unused  letters  of  credit  for  import  machinery  was
        approximately $1,425,746 at December 31, 1996.

     b.  The Company has signed several  contracts for purchase of the equipment
         amounting to  $5,739,246,000.  As of December  31, 1996,  the amount of
         outstanding obligations for these contracts is $ 1,548,596,000.

     c.  Certain  rightor  of  patent  will want to claim  the  Company  for the
         compensation  resulting  from  using  its  patent  in  the  production.
         However,  up to December 31, 1996, the above issue is still  uncertain.
         Thus the amount of compensation can not be estimated.

7. COMPARATIVE FIGURES RECLASSIFICATION

     Certain accounts in the 1995 financial statements have been reclassified to
     conform with the presentation adopted for the 1996 financial statements.

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